Business Banking Inquiry

Tuesday 12 December 2017

Banks would never have recovered €74bn in debts without NAMA - Brendan McDonagh

Clodagh Sheehy

Banks would never have recovered the €74bn debts they accumulated during the crisis without the intervention NAMA, the chief executive of that body told the Banking Inquiry today.

Much of that money “was never going to be seen again” if banks were “left to their own devices”, Mr Brendan McDonagh told the hearing.

“In the absence of NAMA, you would probably have seen a phased unveiling of losses over a period of three, four, five or perhaps more years with a consequent drip-drip effect in terms of the need for capital replenishment and a corrosive impact on the creditworthiness of the sovereign,’ he said.

The NAMA process had “enabled the Irish banking system to recognise and address upfront the loan loss difficulties that it had created for itself long before NAMA was ever conceived”, he added.

Mr McDonagh rejected suggestions that NAMA was “acting more like a debt collection agency than as a property value maximising entity.

“I think this reflects a poorly informed view of NAMA,” he added.

He explained that NAMA had acquired and managed a portfolio of loans with a face value of €74bn between 2010 and 2011 for €31.8bn.

The value of the properties had been gauged by the current market value, provided by a professional property valuer commissioned by the institution, the NAMA valuation team and an independent valuer where there was disagreement.

Typically NAMA applied and “uplift adjustment” ranging from 0-25pc on top of this value to reflect the long term economic value.

For this reason he also rejected comments to the effect that NAMA had acquired loans at “rock  bottom prices”.

“This suggestion, frankly does not bear much scrutiny,” he added

Mr McDonagh said NAMA’s role was much broader than debt collection. It had acted to stimulate the market by disposing close to €6bn in Irish property since its inception involving over 20,000 individual property transactions and had worked had to bring in foreign investors.

It had injected €1bn in capital support to the development of via ble Irish projects which would enhance the value of underlying assets and set up a price protection scheme to address concern about falling prices.

A further €3bn was available in development funding, some of which helped to fund the initiatives in the Dublin residential development market and in the Dublin Docklands SDZ.

“We have also worked assiduously to enhance planning permissions and to remove other obstacles to the development of assets so as to enhance their value and to ensure that they are ‘shovel ready’ as soon as is practicable”,the NAMA chairman said.

“By end 2015 we expect that we will have made 2,000 residential units available for social housing”  he added saying that they had supported businesses whose debt they acquired and who employed some 15,000 people.

Commenting on the banks, NAMA chairman Frank Daly said: "Very little, if any, consideration was given to the inherent cyclical nature of the property markets.

"The attitude appears to have been that the only way was up – that somehow the forces of gravity were suspended as far as the Irish market was concerned and that the long-established pattern of property market cycles was no longer relevant.

"In this model the banks were taking the type of risk normally the preserve of private equity/hedge fund providers without demanding the same level of rigorous analysis that those providers would have made a condition of funding."

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