Thursday, 6 October 2011
National Asset Management Agency
I thank the Cathaoirleach for permitting me to raise this matter. I thank him also for allowing me to raise the issue I raised yesterday. I understand he had to apply some pressure to get the appropriate Minister here. We do not have any problem with Deputy Noonan, as he has always made himself available to the Seanad.
I am sure the Minister will not take what I say as an attack on the Government, but I have a serious concern with regard to NAMA. On the record of the Oireachtas committee on finance and on television programmes involving certain developers, the impression has been put abroad - and I think confirmed - that the principle of developers paying back all they owe is not being adhered to by NAMA. What the former Minister, Brian Lenihan, envisaged for NAMA and what he spoke about in legislation was that developers would pay back all of what they owe or that we would do as much as we could to get them to pay back all they owed. That is the basis on which I would have supported NAMA at the time.
At least one developer has publically stated that all he has to pay back is what NAMA paid for his loans. That is concerning on a number of levels because the principle should be that the developer owes what he or she borrowed at the start and that NAMA should be able to make a profit. There is some evidence that NAMA bought loans at a very low value and it has made profits. It is of serious concern if NAMA is only enforcing the lower values of developers' loans. It is not the basis upon which I supported NAMA. The public rightly are annoyed about this because they do not see their mortgages reduced yet developers are on chat shows saying that they only have to pay back what NAMA paid for the loan. They have received a major write-off.
I can see the point of NAMA working with developers but they should do this to achieve the best possible financial return to the State. This is one of the purposes of NAMA in section 10 and section 11 of the Act, which I have mislaid and do not have in front of me. The overriding purpose of NAMA was to achieve the highest possible return to the taxpayer. It is within the power of the Minister to an issue guidelines and directions to NAMA and I wonder whether it is appropriate to assuage the public mood and show sympathy to those with mortgages who are not receiving a reduction. It will also be the right thing to ask NAMA to go after these guys. That is what the Legislature intended when it passed the NAMA legislation. It is certainly what the Minister would have asked for although he opposed the legislation at the time. It is absolutely what the Fianna Fáil Party asked for, namely, that these developers be pursued "to the ends of the earth" in the words of the then Minister, Brian Lenihan. We now see developers on television in a relaxed frame of mind, owing a fortune and saying that they will not have to pay back the full amount. In some cases they receive a bonus if they pay back more than what NAMA paid. It is of serious concern. Under the NAMA legislation, the Minister has it in his power to do something about this. If an amendment to the legislation is required, the Minister should consider it and he will receive the full support of the Fianna Fáil Party because this is causing considerable disquiet among my colleagues. It is not what we envisaged.
I thank Senator Byrne for raising this issue. Section 10(2) of the National Asset Management Agency Act provides that NAMA shall obtain the best achievable financial return for the State with regard to its operations. NAMA assures me that it is fully focused on doing just that. The chairman of NAMA recently informed the Joint Committee on Finance, Public Expenditure and Reform that it remains the policy of NAMA to pursue developers for the full amount they owe. A misconception seems to have arisen because the agency's minimum target is to recover what it has paid for the loans, as well as any other moneys advanced as working capital or for development, plus interest on these moneys. This does not mean, however, that NAMA will stop at that threshold. NAMA remains as focused as ever on pursuing each developer for the full amount owed.
Nevertheless, this goal must be rooted in reality and the reality is that a large proportion of the nominal value of the loans purchased will not be recovered. If one looks back at the NAMA business plan published on 30 June 2010, it is clear that full recovery of the nominal value of the total loan book was not envisaged. That is why the loans were purchased at a discount.
Within that reality, NAMA assures me that it is determined to recover everything that can be recovered, in order to generate the best achievable financial return for the State. Where a debtor cannot demonstrate viability or is not co-operating with NAMA, the agency takes enforcement action against the debtor concerned. By end-August 2011, NAMA had approved the appointment of receivers in 84 cases.
The alternative to enforcement is to work with the developer, which may seem unpalatable in many cases. Indeed, the chairman of NAMA recently said that he would love to be able to tell us that the agency could throw out all 850 developers and get someone else to run the businesses. However, he had to point out that while that could be a very popular decision, it would not make commercial sense because, regardless of what they have done, they are the people who know the business. Unfortunately, when NAMA decides to work with developers, developers have to be given some incentive to work with NAMA. Otherwise, they could decide to let NAMA foreclose, with the result of a diminished return for the taxpayer.
The following is an example of how NAMA incentivises a debtor to repay more than the minimum target. Where NAMA has paid €50 million for a debtor's loans which aggregate to €100 million nominal value, NAMA might set a minimum repayment target of €55 million for the debtor. If, by year seven, the debtor reaches that minimum repayment target, an incentive arrangement will apply whereby thereafter, the debtor will be allowed to retain 10% of any excess sum realised. If a total of €60 million is realised, therefore, this is an excess of €5 million over the minimum target and the debtor retains €500,000. In such a case NAMA's profit will be €9.5 million over the amount paid for the debtor's loans. This is an example and different repayment targets will apply to different borrowers depending on the particular circumstances of each case. The key factor in determining what NAMA pays for any debtor's aggregate debt is the current market value of the underlying property securing that debt. Therefore, if NAMA pays €50 million for the loans, as in the example, it is likely that the value of the underlying property is of the same order.
Some may see the incentive scheme as being a cash reward for paying back loans. Unfortunately, if a debtor is not incentivised to exceed a minimum target set by NAMA, the agency believes it will get very little over and above that target. The objective of the incentive is to get the debtor working not so much for himself or herself but for the taxpayer and NAMA. NAMA's overarching objective is to maximise the return to the Irish taxpayer. It assures me that it is determined to achieve that objective as provided for in the NAMA legislation. Introducing amending legislation to deal with this issue would not generate any additional benefit because legislation cannot force payment from a debtor who cannot pay. I conclude by reminding the Senator that if all NAMA debtors were capable of repaying the full amount of their loans, there would be no need for NAMA in the first place.
An international banker is examining NAMA and I urge the Minister to get him or her to consider this issue. Not only are these builders and developers in negative equity, they will be in positive equity if they exceed a certain point. The negative and positive is a mathematical impossibility but the Irish taxpayer will pay for it. The Minister is proposing that a developer will get a bonus of €500,000 after providing a very small amount more than what NAMA sets as the minimum target. I urge the Minister to look at this and change it if possible. I hope that NAMA has set out the rationale and evidence for this. NAMA has said that it is the best way to get money back for the taxpayer but it seems reprehensible to me and it is unsatisfactory to the ordinary taxpayer. Where is the evidence and analysis that shows this? I hope the Minister has such evidence because, otherwise, this has happened on the Minister's watch.
NAMA is independent under the legislation that established it. Senator Byrne tabled a question on the Adjournment and NAMA provided me with the information on the point raised by Senator Byrne. It is not correct to say that NAMA does not try to realise the full amount owed by any debtor. The intention is to get 100% but we know that that is unrealistic in many cases.
NAMA must do its best. It is using market forces to recover as much as it can. The alternative is to appoint receivers, which costs €180 an hour, and there is no incentive other than to run down the business, sell the assets and give whatever is left to the creditors.