Wednesday, July 25, 2012

The Culture of NAMA Stinks

Today, Brendan McDonagh announced with great glee that the National Asset Management Agency had made a profit of €247m for 2011.  In his interview on RTE Radio at One O'Clock, the smug McDonagh, who commands an austerity adjusted salary of €370,000 (having taken a voluntary 15% pay cut earlier this year) propounded that the organisation had breezed passed the cynicism of two years ago, and circumnavigated low expectation to deliver what were astonishingly good results, notwithstanding a write-down of €1.27bn in the value of its assets.  It was as if NAMA was just another Irish success story, and the Celtic Tiger was back again, and McDonagh was the new breed of entrepreneur, leading the charge out of depression!

But whoa there.  NAMA is not merely another company, and McDonagh is no entrepreneur.  An overpaid, glorified civil servant, McDonagh has presided over an organisation that has artificially manipulated markets such as the hotel and leisure industry, compromising the prospects for indigenous industry.  NAMA has acted with messianic fervour in monstering both the domestic and London property markets.  NAMA, despite extraordinary levels of write down on loan book ingestion (in 2011, that was €32bn, at a haircut of 57%), and enormous investment in consultants, has failed to project accurately the trajectory of the portfolio (by €1.27bn in 2011, a cumulative €2.75bn).  I guess that last point is maintaining the trajectory of the Department of Finance, who couldn't predict Christmas.  And yet NAMA is a State Instrument, 100% owned by the State, and therefore acting (at arms length) in the interests of the taxpayer.

Despite all of this, McDonagh has the gall to come on national radio (and no doubt he'll appear on TV this evening as well) and use "profitability" as his key metric.  The "profit" itself was in large part due to a tax break, and is based on limited "low hanging fruit" property disposals that should probably have never made it into NAMA (certainly at that level of "haircut") in the first place.  Let's remember, that while today they are trumpeting a "profit", only three weeks ago they said they would definitely not make a profit in their lifetime.

Here's the facts.  NAMA bought a bunch of loans (properties) for 57% less than their loan book value.  This was in their expert view the "real value" of the property.  That was wrong, and the value is now €2.5bn less than it was.  The 57% is the debt that was bank debt, but that was then loaded onto the taxpayer as a result of the bank guarantee.  So they screwed up their valuation.  They declare on July 5th that they will not make a profit, and that best case is break even by 2020.  Today, they issue a press release saying "they've made a profit for the taxpayer".

The properties they are disposing of now are the most lucrative (mostly in London) and valuable properties, which should never have been in NAMA, and only ended up there as part of a wider portfolio under duress.

NAMA's sole function is to minimise losses for the taxpayer.  Everything it does is about minimising losses.  We've already lost 57% of the value, and NAMA has increased that loss by €2.75bn.  Mr McDonagh is failing to have any significant impact on the portfolio - I don't see why he should be paid any more than a regular civil servant administering a small team.  And for the man to come out and with great pomp declare a profit?  It stinks to high heaven.  

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