NAMA – THE STATES DRAGONS DEN

When Frank Daly the NAMA CEO and his team were pitching his business plan to the Irish people in 2008 to bail out the banks, like every investment, you cannot really analyse it until you get a better understanding of the actual return on your money. 

If my memory serves me well, the return on this investment after the 10 year period 2010 – 2020 was earmarked to be in the region of €6bn.  Considering the investment in the project by the Irish people was upwards on €32bn that would equate to just over a 18% return on their money. Not terrific considering the huge sums and the risk involved, but not bad all the same, considering the times we were in globally.  The other important point to consider was the benefits of the business plan namely that by bailing out the banks, the country would return to growth as the balance sheets of the banks would be repaired enabling them to start lending again.  Note there was no referendum on this one, as it was deemed for example not as important as the gay marriage debate, however the government pushed ahead and the Irish people bailed out the banks and in the process created the biggest property company in the world - NAMA.   

Worryingly in 2010 NAMA came out to say that they have had to revisit their figures and they felt that after its lifespan, the investment would return the reduced figure of £1bn to the Irish state.   This is a significant drop of over 15%.  Even more worrying is the fact that Brendan McDonagh, the head of the national agency, told an Oireachtas committee in October 2013, that it was now aiming to only break even by 2020 rather than make the €1bn profit that had been included in its earlier business plan.

Now if you were Duncan Bannatyne or Debra Meaden at this point in the Den, you wouldn’t be very impressed at all as the prospects of getting no return on your money appeared quite high, what a downer.   The other aspect of the deal you would be asking yourself is has the country returned to growth and are banks’ lending again.  Answer to the first question we would hope is yes……. and on the whole the answer to the second part is a resounding NO. 

In fact in Ireland right now, the foreign banks are packing up their files, clearing their desks and running for the hills.  In the last few months we have seen announcements by ACC and Danske to join a host of others who have decided that Ireland is a now a no go zone for banks.  This is extremely damaging for the country as we need a stable banking structure to have any chance of turning the corner anytime soon.

 Back to Nama – The level of return from Nama assets will depend on the performance of loans and the property market in Britain and Ireland over the next seven years. It would be interesting to know what forecasts or assumptions Mr McDonagh has built into the current business plan that he is so pessimistic about the outcome., a very sobering thought altogether. While Nama continues to make operating profits, namely taking in more money than it pays out; further impairment charges keep hampering its financial progress. By the end of last year, it had made total impairment provisions on its loans of  €3.26bn, less than two years after buying them. In effect, this means the agency has overpaid for the assets by €3.2bn (modest figure if you ask me).

You often hear NAMA representatives come out declaring how well they are getting on, the new finance they are injecting into the economy and very proud of the fact that they are not in the business of fire selling properties.  Again you really have to question each of these points.  In fact NAMA is now doing what it said it would never do – sell Loans.  If you were watching this situation play out, you might come to the conclusion that they are making it up as they go along.  Who could argue with that point?  For me as an employer and an investor – it’s all about the return on your money, and my feeling is that NAMA will fail miserably in this department and the Irish taxpayer will lose billions of euros in this opportunity – I genuinely do hope I am wrong.

To date NAMA has brought in around €9.2bn by selling off assets, 80% of which were based in the UK, and described by some as the low hanging fruit. 63% of the sales have occurred in London, in fact which is a rising market as it is still seen as one of the safest places in the world to place your money.  A dragon might question this model as the London commercial property market is now very much on the up and if Nama could have hung on, it probably would have got a much better price today, and in the years ahead.
Imagine Brendan McDonagh is correct for one moment, and NAMA does end up breaking even. In 2020, we will look back at how Irish citizens took on the risk of setting up the biggest property agency in the world, with over €70bn in loans, finances by  €32bn in bonds, paid back the  €32bn and the interest and then shut up shop.

 The tax payer would have absolutely nothing to show for it – 0% return on its money. With the benefit of hindsight, maybe if this was a real dragons den scenario, they would have been better putting the €32bn on a horse at Cheltenham – as time goes by, I am struggling to see the difference.

 

Conor Devine MRICS

DONT BANK ON YOUR BANK.....

The Office of Fair Trading (OFT) has asked Banks to disclose historic errors involving loan agreements after it become alarmed that the problem is endemic amongst a large number of Banks. Northern Rock, the Co-operative Bank and Barclays have all recently paid out several hundred million pounds in compensation claims.

The OFT have put up to 50 banks and building societies on notice after the three banks admitted to having to refund some of their personal loan customers because their paperwork did not comply with the Consumer Credit Act.

Northern Rock paid £270m to 150,000 people in December 2012, and in September it emerged Barclays faced a bill estimated at £100m to repay as many as 300,000 customers. Last month, Co-operative Bank revealed it had increased its provisions for customer redress, in part to cover "an identified breach of the Consumer Credit Act".

The errors occurred because the Borrowers were sent incorrect documentation in a breach of the Act. The OFT has now stepped in following recent failures by some banks to fully discharge their obligations.

These revelations further confirm what everybody has come to learn over the last 5 years, that the Banks do not always do everything correctly and are also not very likely to own up to their mistakes.

The question then arises; how do you hold the Bank to account if you have a suspicion that you have been treated unfairly in relation to your borrowings?

Firstly you should seek professional advice from professionals who are familiar with the consumer credit act and how this act applies to your borrowings. The next set is for your professional to mediate a return of funds or compensation.

GDP Partnership specialises in this form of mediation with the Banks and has recently secured refunds for several clients in relation to errors in lending practises and miss management of accounts.

Author : Louis Waters ACA