Bad bank can work for Spain, says Nama

Posted on May 28, 2012

Ireland’s property crash rivals Spain’s for its catastrophic effect on the nation’s economy and society, but the head of the bad bank tasked with cleaning up the mess is confident the Irish model can be applied elsewhere.

Ireland’s National Asset Management Agency paid €32bn of Irish taxpayers’ money to remove €74bn in toxic loans from the main Irish banks’ balance sheets, and has subsequently become one of the biggest property companies in the world. Frank Daly, chairman of Nama, insists the agency has helped to restore confidence in Ireland and that a bad bank could work for Spain too.

    “We are here, we are a working model. Anyone who wants to come and talk to us, we are open to that,” Mr Daly told the Financial Times.

    “I always believe you should face up to your problems and identify them as early as you can and kicking the can down the road is not a productive way to go. It is up to other countries, and it is up to Spain in particular, to decide what they want to do,” said Mr Daly.

    The Spanish government has looked into creating a bad bank on various occasions but eventually discarded the idea. Mr Daly said whichever way Madrid chose to deal with its banking problems it should deal with them in a comprehensive manner rather than adopt a piecemeal approach.

    “If they think a problem with a bank is just land and development – then make sure it is the only the problem. Deal with the whole lot, don’t have a drip, drip approach that just undermines confidence of the markets. If the markets don’t believe you then you are pretty much on a loser,” said Mr Daly.

    Nama was set up two and a half years ago in the wake of Ireland’s property and banking crisis, which eventually forced the country to accept a €67.5bn bailout from the EU and International Monetary Fund. It has had a difficult start with loan losses much higher than initially anticipated and property prices down 60 per cent and still falling.

    A report by Ireland’s budget watchdog warned this week that the 57 per cent haircut applied to loans by Nama represented a subsidy to the banks worth €6bn. It also forecast the agency would struggle to recover the €32bn paid to the banks and its costs.

    Mr Daly disagrees with this gloomy assessment. He said the agency is on course to meet its long-term goal of repaying €32bn in debt by 2020 and has generated €8bn in cash from property and loan sales over the past two and half years. But he warned that the resurgence of eurozone crisis was making it more difficult to attract foreign investors to the Irish property market.

    “External investors are a bit wary of engaging in the eurozone because there are uncertainties about what will happen. It is definitely affecting the confidence of external investors in Ireland looking to invest in property,” said Mr Daly.

    He said Nama had helped to restore confidence in Ireland.

    “The perception of Ireland externally is very positive. We have taken the right decisions and are moving in the right direction. We would not be in the position we are in right now if we had not gone down the Nama road,” he said.

    He said an important lesson learned in the formation of Nama was that Irish banks did not know how much each of their debtors owed to other banks across the financial system. Bankers also sat on problem loans and tried to preserve capital rather than admit losses with the effect of stagnating the wider economy, said Mr Daly.

    “The beauty of Nama is you weren’t leaving the tidying up to the people who caused the problems,” he said.

    Mr Day says Ireland would be in an even better position if the banks had taken a similarly realistic view of their mortgage problems. High rates of mortgage arrears are cited by analysts as a reason that Irish banks have failed to return to normal lending practices.

    He describes the process of getting EU approval for the transfer and valuation of loans as “painstaking” but says the model is now proven and would be less time consuming for any future Nama-style agency.

    The agency has been criticised by some in Ireland as a bailout for developers, whose reckless borrowing precipitated the property bubble. Nama has acquired the loans of almost 900 developers and believes about two-thirds are economically viable. It is paying salaries – in two cases of €200,000 a year – to developers engaging with the agency.

    “I don’t think any of these debtors set out on a premeditated attempt to bring the country to its knees. I do think a lot of them were irresponsible and foolish in their actions,” says Mr Daly.

    “It is not a honeymoon working with Nama, commercially viable does not mean they will get back to the extraordinary lifestyle they had in the past.”

    Mr Daly said working with viable developers is a good commercial decision for Nama as the alternative of appointing receivers would generate less cash for taxpayers.

    Mr Daly said the agency had recovered €380m of assets that developers had transferred ownership to other family members or simply not disclosed to the agency.

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