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Dusk, not sunset, in Namaland

Sunset for Ireland’s bad bank has quietly been delayed because of existing and future litigation, and the risk of pre-election scandal

THE DECISION by the Government to extend the remit of the National Asset Management Agency (NAMA) has clearly delighted its chairman and chief executive but it makes little or no sense to those who have followed its fortunes closely since its inception ten years ago.

It may also have come as some surprise to the senior politicians and public servants who were looking forward to its imminent wind-up and the return of what is misleadingly described as a 14bn ‘surplus’ to the State. The extension of its mandate is possibly due to concerns at what new scandals may emerge from behind the secretive walls of the Treasury Building in Dublin 2 where NAMA is located.

Among those who publicly suggested that NAMA would close its operations as planned by 2020 was Finance Minister, Pascal Donohoe who indicated last year that he did not envisage the agency extending its life in order to manage the largely residential property assets left on its books.

In late July, Donohoe changed his tune with his announcement, barely noticed by the media, that NAMA would continue, until 2025, to manage its “residual loan portfolio, secured by residential development sites in Ireland which have significant medium-term value uplift potential”.

NAMA believes that this portfolio will be worth in the region of 1300m by 2021 or less than 1% of the 131.8bn of distressed loans it had taken over, following the financial and property collapse, in 2009. Given the modest scale of this asset mountain, it seems unlikely that this is the only, or indeed the primary, reason why the agency has been given a new lease of life.

One explanation may be contained in another quote from the review of NAMA’s operation for the years 2014-2018 published by the Department of Finance in the dying days of July as the politicians and media headed for the hills or sea-sides.

“The review also notes that NAMA will continue to manage ongoing litigation appropriately”, said NAMA, in response to the Minister’s announcement on 25 July, in what may amount to the shortest understatement of the decade.

Section 227 of the review states on page 47 that: “loans with a carrying value of 1250 million could still be the subject of ongoing litigation by end-2021.

The litigation will likely involve both Irish and foreign court jurisdictions and its resolution will be largely outside the control of NAMA”.

The review also warns of the potential risks arising from an appeal by a number of developers in Ireland of a decision by the EU Commission last year that NAMA was not in breach of EU State aid rules in relation to its residential housing programme.

The prospect of not only ongoing but future litigation involving NAMA has been of major concern for much of the lifetime of the two Fine Gael-led governments in place since 2011.

The controversy arising from the sale of Project Eagle when NAMA sold its entire portfolio in the North for just 11.2bn to US fund, Cerberus, in 2014 caused huge difficulties for former Minister, Michael Noonan, and Enda Kenny before they left office together in May 2017.

Having resisted for over two years any independent inquiry into the circumstances surrounding the disposal of assets on a grand scale at a massive discount, and despite deeply critical reports from the C&AG and the Public Accounts Committee, Noonan reluctantly announced a Commission of Investigation into the sale as he walked out the political door.

While NAMA has been less than enthusiastic about its investigation, the Commission under Judge John Cooke is due to report soon, although there was no mention of this in the recent review of the agency. The police inquiry led by the UK National Crime Agency into alleged illicit payments and off-shore accounts associated with the Project Eagle sale has not reached its conclusion four years after details of finders’ fees amounting to £15m were dramatically revealed in Leinster House by Mick Wallace TD, in July 2015.

The sale which was overseen by NAMA chairman Frank Daly and chief executive, Brendan McDonagh as well as by Noonan and the former Secretary-General of the Department of Finance, John Moran, is just one of many huge disposals, amounting to some 127bn by the agency over the four years examined by this review.

The purchasers were mainly global vulture funds and real-estate investment trusts and a small number of local agents who have reaped a harvest from the development and re-sale of these property assets, with negligible tax returned to the exchequer. There is every likelihood that further, and expensive, litigation will arise from these asset transfers details of which have been almost impossible to glean due to the veil of secrecy surrounding the financial dealings of NAMA and the liquidators and receivers it has engaged in its operations. With a general election approaching, it is likely that Leo Varadkar and Donohoe, who just a year ago were throwing cold water on the prospect of NAMA getting a later ‘sunset’ date may have been persuaded to keep the lid on its operations for the foreseeable future.