Business Irish

Tuesday 24 October 2017

Investors have no confidence in NAMA solution

Now that the Government is on the verge of nationalising the rest of our banks by pouring billions from the IMF/EU bailout fund into them it is clear that the National Asset Management Agency (NAMA) has been a failure so far.

It was part of what the Central Bank governor described this week as the Government's 'Plan A' to rescue the banks. That plan, loosely based on the model used in Sweden to take the bad loans from the bank while recapitalising them to function efficiently, hasn't convinced investors and remains a controversial solution.

While admitting that Nama hasn't worked yet, Patrick Honohan says it is too soon to make a judgment on Ireland's so called "bad bank". It would have been better had it begun its work earlier, he suggested, but it remains a central plank of this Government's remedy for fixing the banks.

Former National Treasury Management Agency boss Michael Somers has emerged as one of Nama's harshest critics. The agency, which is headed by Brendan McDonagh, has been "too draconian" in the prices it has paid to the banks for their loans, he claims, suggesting that the large haircuts or discounts it has demanded on the loans it has taken from the banks has exacerbated their problems.

Somers, who is a public interest representative appointed by the Government to the board of AIB, said he didn't think the losses imposed on the banks by NAMA were justified and that he had been sceptical "from day one".

His gripe is not just with the scale of the discounts, which have depleted the capital held by the banks transferring loans to NAMA: AIB, Bank of Ireland, Anglo Irish Bank, the EBS and Irish Nationwide. But also with the way the agency is being run.

It would operate on a different basis, he suggested, if it were headed by a figure from the business world, rather than from the public service, which is a harsh criticism of McDonagh, former Revenue chief Frank Daly and the rest of the NAMA team.

His comments have been echoed, mostly in private, for many months now. It is a secretive agency with extensive powers, which has caused suspicion and concerns about a lack of accountability of an organisation that is charged with clearing up one of the biggest messes to ever affect this country.

Somers is critical of the fact that the banks are powerless to resist the discounts that have been applied to their bad loans although they can appeal those decisions once the process is complete, as expected, by the end of February next year. He has also questioned the wisdom of NAMA's decision to put Bernard McNamara's building company, Michael McNamara, into receivership. Speaking on RTE he noted the company's ongoing pipeline of work and drew attention to the fact that assets that are delivering a return over time are more valuable than those which are broken up and sold in a fire sale.

Many developers who are dealing with NAMA will criticise the agency's style of business and question its ability to devise the right strategy for them to work out their loans. Unlike Somers, though, they won't say this publicly for fear of a backlash.

When NAMA was established the Government certainly didn't think that two years on the banks would still be in a worse situation and that their reckless lending would still be threatening the solvency of the State or the future of the euro. Honohan says it is too soon to make a judgment on NAMA but it is clear that international investors have no confidence in it as the solution for Ireland's banks.

Irish Independent

Also in Business