EU-IMF spotlight may be hindering Nama's ability to shine

BUSINESS OPINION:NAMA IS under siege. Criticised by the politicians who created it, sniped at by the banks it saved and mocked by the property developers it is bankrolling. It is little wonder that Frank Daly struck such a defiant tone when addressing the Dublin Chamber of Commerce two weeks ago.

It appears to be Nama’s fate to be judged for what it has not done – regardless of whether it is part of its job – rather than what it has achieved.

Some observers appear to have lost sight of the fact that Nama was set up to take toxic property loans off the banks. You can criticise the amount of time it took and the price it paid, but you also have to bear in mind the extent to which the European Commission set the pace of the loan acquisitions and the pricing mechanism.

What you can’t do is criticise Nama for not being the solution to the wider banking and economic mess. That was not its purpose and any failure on its part in this regard is the responsibility of the politicians and the advisers who designed it.

That said, Nama’s chief executive Brendan McDonagh is firmly of the view that Nama or something like it was the only viable solution to the problem of toxic property loans. This is because the multi-banked nature of big property developers meant that the banks did not have any real handle on what was going on and the developers would have run rings around them. This combined with the natural tendency of bankers to long-tail losses would have led to stalemate and stagnation.

McDonagh has been vindicated by the unfolding mortgage and personal debt situation. It is clear the banks don’t want to face up to their losses in these areas and are also finding it difficult to deal with them because they don’t have a clear picture of many customers’ true financial predicament because so many people are multi-banked. Hence mortgage arrears are still increasing five years into the downturn.

Unfortunately for Nama, just because it is misunderstood and unfairly criticised does not mean that it does not need to change and change quickly.

The question that must now be asked is whether it is the right structure to fulfil the second part of its mandate: to realise the best return for the State from the assets it bought off the banks.

The recent Geoghegan review identified the need to reorientate Nama from debt collection to asset management. The agency has responded, most recently with the reorganisation of its senior management. Nama watchers – and their numbers are legion – appear to have missed the significance of one of the changes, which was shifting John Mulcahy from head of portfolio management to head of asset management.

Mulcahy – a somewhat controversial figure given his previous association with Jones Lang LaSalle – will now focus on developing and selling the good assets. Debt collection and hopeless causes will be left to Ronnie Hanna, the head of asset recovery.

The changes fall short of the good Nama-bad Nama split that some advocate but it is a step in the right direction. But the issue remains as to whether something far more radical needs to be done to address the problems inherent in the size of Nama and its conflicting objectives.

These are well illustrated by the recent situation in Battersea where one part of Nama was objecting to a planning permission supported by another part of Nama.

Such conflicts will be repeated a hundred-fold when the agency starts realising its Irish assets in earnest.

Plenty of alternatives have been floated, many of which see Nama being broken up into smaller, more focused entities that can compete with each other or not as the case may be.

The trouble with playing “fantasy Nama” is that it is all too easy to lose sight of the fact that Ireland is in an EU-IMF programme and that the short-term implications for the national finances are the paramount concern.

What the troika wants to see from Nama is cash flow to cover the interest on its bonds and not big bold plans to reinvent itself. There is a danger that this overriding consideration and the defensive attitude engendered by constant attacks may be holding Nama back from being as self-critical or as open to radical ideas as it should be.

It is unfortunate as this state of mind condemns Nama to always being on the backfoot.