Business Irish

Saturday 24 February 2018

NAMA chief: we’ll have to send in the bulldozers

Joe Brennan

THE shocking state of the risky property loans was revealed yesterday as NAMA’s chief executive said publicly for the first time that he would send in bulldozers to level some unfinished estates.

Brendan McDonagh also revealed that developers were not making any repayments whatsoever on two-thirds of the loans that are going into NAMA.

He disclosed that a trawl of the first €16bn of loans going to NAMA revealed a litany of lax practices by the banks.

In a swingeing attack, Mr McDonagh said banks had been “chasing the dragon” as they fell over each other to advance loans to developers during the decade-long property boom.

He said that the entire mess was “all born of a mindless scramble to funnel lending into one sector at considerable pace and of a reckless abandonment of basic principles of credit risk and prudent lending”.

Mr McDonagh also revealed to a key Oireachtas committee that:

- He is clamping down on developers and will make them pay the interest on their loans.

- NAMA expects to start liquidating troubled developers from September, but that some “may not survive” until then.

- The agency has paid €900m less than the market value of the first set of loans that it has taken over.

- It will focus on UK assets first to cash in on the recent resurgence of the property market there, as the Irish market remains depressed.

NAMA is buying €81bn of risky property loans in an effort to clean up the banks’ books so they can resume lending.

He also issued a thinly-veiled warning to builders: “If borrowers are displaying obvious wealth – almost defying us – it will (prompt) us to go after them tooth and nail.”

Meanwhile the Irish Independent has learned that the discount faced by Anglo will be higher than the haircut announced by Finance Minister Brian Lenihan two weeks ago.

This is likely to mean that the average discount of the first €16bn of loans will be about 50pc – up from the 47pc that was outlined by Mr Lenihan to the Dail at the time.

The extent to which borrowers are not making repayments on their loans is worse than was first feared when NAMA unveiled its original business plan last October.

As a result of the weak documentation and security of loans, NAMA paid €900m below the market value and €2bn below the so-called long-term economic value of the first lot of loans that it is taking over.

Tough-minded Fine Gael’s finance spokesman Richard Bruton said he was “encouraged by the toughminded approach” the agency had taken to the initial valuations.

The Oireachtas committee heard yesterday that NAMA rejected bank valuations on a quarter of the initial loans as being too high.

NAMA officials have already held meetings with a number of the top 10 developers whose loans it has taken over.

“Each borrower will have to submit a comprehensive business plan,” said Mr McDonagh, adding that these plans would be probed to see which developers could survive the downturn.

“We will not waste time with borrowers who do not wish to co-operate or have not yet accommodated themselves to the current realities of the property market,” he warned.

Mr McDonagh admitted that the spectre of half-completed housing estates presented a “huge problem” for NAMA.

“We can all see half-built developments, which should never have been contemplated,” he said, “and it is hard for anyone to see how they made sense even at the top of an overheated property market – never mind when it has collapsed.”

He said that NAMA had now been left with the “very difficult decision of perhaps knocking down certain developments and this will incur costs – but unfortunately there is no avoiding this”.

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