Frank Daly: Why We’re Paying Millions To Failed Developers

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Frank Daly spoke with Matt Cooper of Today FM on the Last Word yesterday. The Nama chairman robustly defended the performance of the secretive ‘bad bank’ and those six figure payments to bust property developers. It’s a long transcript but worth a read.

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Matt Cooper: “How much has NAMA changed from what it was originally set out to do?”

Frank Daly: “It hasn’t changed at all in relation to the fundamentals. The fundamental objectives of the agency, you mentioned yourself, it was designed to take all those bad loans, the land and development loans off the banks and we have done that. That’s been our first major task. Something like 16,000 loans, totalling, on the book value about €74 billion, which is a massive amount of money. We took those off the banks’ books. We cleansed the banks’ balance sheets of that dross. And that was our first and main job of work, which I think we’ve done quite successfully. Our task now and our task for some time has been to actually manage those assets, manage the loans, manage the collateral behind them. To get the best possible outcome for the Irish taxpayer and that’s what we’re focussed on, right now. And that’s a mixture of, you know, selling assets and of managing those assets and in some cases actually, investing in those assets – so we do get a better return over the remaining nine or so years that are left for NAMA to do that.”

Cooper: “OK, there’s so many things arising from that. But let’s just start with the banks. It hasn’t sorted the banks out though? Would you concede  that? That it actually hasn’t done what it was intended to do, allowing the banks back to lending again?”

Daly: “Well, what I’d say is that NAMA has done with the banks what NAMA was intended to do – which was to take the loans off their books. In return for those loans, don’t forget, we gave them, in effect, liquidity of about €31 billion. Now it’s another question as to what the banks actually did with that. And certainly the ideal would be if they were back in the market and lending to business, if they were back as ordinary, functioning banks, which is what we need in this country. But you know sometimes it’s said ‘well NAMA didn’t sort out the banks’, but remember NAMA was set up to take the bad property and development loans off the banks. But, after NAMA did that or in the process of doing that, it was only then that the other problems of the banks really emerged and came to the forefront. Not least in the mortgage area and that really is not something that NAMA can do anything about. We’d all love to see the banks lending again, there’s no doubt about it.”

Cooper: “But does that not emphasise just how fundamentally flawed the whole process was at the time. Because there were plenty of people warning the politicians who set up NAMA that this was a solvency crisis with the banks, not a liquidity crisis. And there were plenty of people back in 2009 pointing out that, the logical extension, that you had a crisis with mortgages aswell and yet the emphasis went on one particular part of the problem rather than the overall problem.”

Daly: “Well I think you have to go back to the varying forecast and the varying commentaries that were around at the time and that’s essentially the Government took the decision to create NAMA on the basis of taking the loans, the property loans off the banks. I think it would be fair to say that that was where the focus was and that’s where the…let’s say there was a certainty around that. There was probably a lot of uncertainty about, around all the other issues, about whether it was a liquidity crisis, or a solvency crisis. But that’s kind of back into Government policy at the time, which really for me, at this stage, it’s kind of water under the bridge because the whole issue of mortgages, the whole issue of the other problems of the banks have been and are being addressed in different ways. [at] NAMA, our task was to deal with the land and property development loans and, to my mind, that is what we have done. And I suppose you could look back now and you could say to yourself ‘well what would the balance sheets and the banks looks like if that €74billion was still there?’. If that rubbish, and in some cases you can only call it rubbish, was still there, how near would the banks be to getting back into normal business if that were still there.”

Cooper: “But couldn’t it have been done as was done in other countries, particularly in Britain, where each of the banks set up their own bad loans divisions and tried to work them out themselves – almost in competition with each other so that it would have worked faster. Whereas NAMA took two years to transfer all the loans, which may have delayed the recovery in the Irish economy because it took you so long and then you’re left in a position where you’re so big, you’re enormous and then that creates further difficulties in how you go about selling these loans or the properties associated with them.”

Daly: “We’re extremely big and I don’t deny that.  But we took the loans off the banks in the quickest possible way we could, consistent with actually looking at those loans to make sure that we weren’t buying a pig in a poke. And, OK, it didn’t quite take us two years, or anything like that, because remember NAMA only started this process in March of 2010, so we had to go through due diligence on each of those 16,000-odd loans. And, you know, I know there are people who say well ‘why didn’t you just sort of write a cheque, take it over and worry about what the loans were really like and what the collateral was like and what the security was like afterwards’. If we had done that, I’d be in here today, I can tell you, answering a far more fundamental question as to why NAMA was so careless in the way we dealt with the banks. We didn’t actually do that. We are big. And you mention actually  you know were there other solutions, were there other ways to try that. And again I don’t want to sort of go back and regurgitate Government policy at the time. It does seem to me thought that almost any form of solution that was being talked about at the time involved the banks themselves, those same banks that created the problem, leaving the solution and the working out to those banks. And, whereas, right now, two years on, the banks I hope have changed, but would many people have had confidence two or three years ago that the banks who created the problems could work them out so successfully, I’m not so sure.

Cooper: “Could there not have been a clear-out of all the management, all the people responsible, people hired in to each of the individual banks to do the job?”

Daly: “Well there has been quite a clearing out from the banks, it probably took longer than was anticipated, it’s not an easy thing to do. But to a certain extent the way NAMA has been set up is simply to do that anyway. And there is one other crucial point to make in relation to this. One of the problems that emerged, during NAMA’s due diligence and examination of the loans, was that none of the banks, the banks did not know what the exposure of particular debtors. Let’s say Matt Cooper. They knew what their exposure to Matt Cooper was in Bank A. But they didn’t know what their exposure to Matt Cooper was in Bank B or in Bank C. One great advantage of NAMA, of pulling it all together is when we see Matt Cooper, we see all of Matt Cooper’s debts, or whatever, right across the banking system or the NAMA banking system. And that’s been pretty critical I think in pulling this together…”

Cooper: “One of the things that you’ve seen, I believe, as you started pulling all those loans together has been a degree of recklessness on the part of the banks and not getting proper security over assets, over their loans, not checking out whether other loans were held over particular security they were getting. Has enough been done to punish those responsible for such reckless behaviour, given the consequences for all of us who have ended up having to pay for it?”

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Daly: “Well, there’s punishment and punishment. If, as I suspect, you’re talking about punishment in the sense of punishment in terms of the legal system or maybe court action or something like that. That’s a matter for other agencies. The banks…”

Cooper: “But it may be a matter for other agencies but you’re a former head of the Revenue Commissioners, you’re very experienced at seeing how other agencies operate themselves. How shocking has it been for you to see the negligence that was there on the part of exceptionally well-paid people in all of these banks?”

Daly: “It’s been pretty appalling for me to see some of the practices that went on in the banks. It would be a leap to say that those were pre-meditated or planned, it’d certainly be a leap for me to say, at this stage. But certainly some of the practices were appalling. Some of the actions, or inaction in relation to security as you mentioned was appalling. In fact to go back to your point about why it took NAMA a little, long enough to take the loans across was partly because the examination of the security behind some of these loans, threw up so many problems.  And in many cases, we said to the banks sorry we’re not paying you anything for this loan because the security is totally deficient. And they came back and said ‘listen, will you give us a month or so to actually fix it’ and we said ‘OK, try that and then come back to us and we might pay you something for the loan’. So yes, there were appalling practices, there was just a, I think, a real push to get money out. ‘Let’s get the lending done and let’s worry about the paperwork and let’s worry about the security after’.”

Cooper: “What about your relationship with developers? Because there’s been a lot of focus on the six-figure salaries that are being paid to certain developers to work out the assets in which they had taken out their crazy loans in the first place. How appropriate is that, that these people are still drawing down such large salaries and continue in employment?”

Daly: “OK, well, you know, wouldn’t we all love not to be there in the first place, right? But, I mean, let’s face reality, we have all of these assets on our books. We have €31billion, which we paid for these loans. Our key objective is to get back all of that and as much more as we possibly can. Now, how do you do it? We can’t sell everything that’s there in the morning. It would be an absolute disaster for this country. You’ve got to work those out in a planned way. In some cases, you’ve got to maybe get revised planning permission, in some cases you’ve got to redevelop them out a little bit more. If we have a developer who is playing ball with us, in terms of being prepared to work with us, in terms of being co-operative, in terms of maybe not having transferred any assets to family or friends or whatever in the first place. Or in the case, where that might have happened, prepared to bring them back and maybe brought them back, then the question for us is, is it better for us to work with that individual, who knows the business, knows the assets, has an interest himself in actually working out his problems, or is it better for us to just say ‘no, away you go, we’ll put a receiver in, we’ll pay the receiver €180 or €200 an hour’, does that mean that things will work out better? You will not get a better result that way. It’s not an easy decision and it’s one of ones that causes me and Brendan McDonagh [Nama chief executive], and my colleagues, and the board the greatest difficulty. But if, for example, you have a €2 billion portfolio, if you have a developer, who is really prepared to co-operate with NAMA, get the best result of that for the Irish people, is it worth paying a salary? I think it is.”

Cooper: “How confident are you though that  you have managed to get all the money that is due to you from these various developers because there have been many examples of people heading off to Switzerland, or heading off to the United States, living in absolutely luxury accommodation, continuing to live a lifestyle, not far removed from what they were doing during the boom years. There was even a case recently involving Paddy McKillen and the Barclay brothers, over the Claridges Hotel and other hotels in that group, in which it was revealed that Derek Quinlan, the man responsible for the glass bottle site and many other things, had received a half a million pounds payment from Barclays, to help him with his living expenses. Now, how well are you doing in making sure that that money is used to repay his debts.”

Daly: “OK. I mean I’d love to talk about particular cases from time to time and I can’t.

Cooper: “Why can’t you?”

Daly: “Unfortunately  I can’t because first of all the case you mentioned is in the courts at the moment. And you know yourself…

Cooper: “But you’re not a party to it though are you?”

Daly: “Well, we are an interested party.”

Cooper: “You’re interested in watching it but it’s also…”

Daly: “No sorry, it’s a bit more involved than that. Because remember the challenge that Paddy McKillen is taking is essentially aimed at getting the sale of the loans to the Barclay brothers via NAMA, rescinded so…”

Cooper: “Well I’m not asking about that. I’m asking about Quinlan getting a cash payment of half a million sterling…”

Daly: “Well anywhere I go on that Matt is going to drag me in to that case. Let me answer the substantive point. Are we happy that we are going after all of the assets and tackling the lifestyles of the debtors? And I am satisfied that generally speaking, we are. We have already managed to get either charges or actual reversal of asset transfers to the tune of about €350million from some of our debtors. We certainly expect that that will total about half a billion when we’re finished.”

Cooper: “That’s how much was transferred, that they tried to get away from your grasp, is it?”

Daly: “That is what we have managed to reverse so far, but…”

Cooper: “What does that tell you though, about their attitude that they would try to siphon that much money away so they wouldn’t have to repay their debts.”

Daly: “Well look we’re not naive, Matt. I mean I don’t have to spell out to you what it tells me about their attitude. Eh, I think it is indicative of certain mindsets and, in some cases, it’s probably a certain panic at a point in time. The most important point is that we have got back already €360million of that. And that we are confident it will reach at last half a billion. But the other point to make is that we’re not finished on that, right? I have, I suppose, my history, my background would say to me that ‘You trust people but you verify’, and that’s what we’re doing. And we have appointed a panel of what you might call asset searchers who will be and are working on trying to trace assets and it’s not so much…”

Cooper: “Are those forensic accountants, private investigators, people like that..?”

Daly: “They’re everything they’ve all the skill set that you would need for this job. These are well-known international…”

Cooper: “But how important is that, given that, it would appear that you’ve no chance of recovering the €78 billion in loans that you mentioned earlier? That these various borrowers simply have no means of repaying all that money which effectively means that some of these property developers are getting debt write-offs. They won’t be able to. And yet the ordinary person who bought a mortgage, bought a house from these people has to repay every single scent they owe. Where’s the justice in that?”

Daly: “OK, first of all our objective would be try and get back as much of that €78billion as we can. But I have to be realistic,That if there is any possible challenge to that by NAMA we will actually do and you will have seen in a couple of cases lately, where we’re actually doing that and by the way being declared bankrupt in the UK does not mean NAMA loses interest in you. Far from it.”

Cooper: “And a final point. In NAMA itself there are various people employed, who worked with developers, who worked with banks such as Anglo and Irish Nationwide. How, why did you employ people from those backgrounds, as part of NAMA?”

Daly: “Because it’s essential that NAMA has the best team available, in terms of skill set, because we’re out there, remember?”

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Cooper: “But if you were working in Irish Nationwide, would that not suggest that you don’t have the right skill set?”

Daly: “No, no. When we go out there to sell the assets on behalf of the Irish people, we’re going to be up against the best in the business. And there’s no point really in NAMA putting out a second team. I mean, I, you know, where will we get people with property expertise, with financial expertise, with banking expertise? You have to get them from the sectors where they develop their skills.”

Cooper: “Even if they got their skills from Anglo and from Irish Nationwide? And even if it was with the developers who’ve gone bust effectively?”

Daly: “We can’t be, eh, absolutely as selective in that as we would want to be. My point in relation to that is we get people in on the basis of skill set. If  they have come from an area where there might be any possibility of a conflict, we have the most robust conflict arrangements in place to make sure that there isn’t any crossover, believe me.”

Listen here

Related: Nama Denies Conflict-Of-Interest Claims Over Valuation Fees (Paul Cullen, Irish Times

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