Nama tells PAC why it did not set rate of return

The National Asset Management Agency has defended a decision not to set a rate of return for its business and insisted it has plenty of performance benchmarks to judge itself against.

Nama chief executive Brendan McDonagh and chairman Frank Daly appeared before the Public Accounts Committee yesterday to discuss a review of its progress carried out by Seamus McCarthy, the Comptroller and Auditor General.

Mr McCarthy said Nama’s objective to redeem at least its senior debt and cover its costs was relevant to its performance but such cash-management targets were “not an adequate measure of financial return”.

He said a rate of return was “a core standard measure” but had not been set by the agency, which paid €31.8 billion to take €74.4 billion worth of loans from financial institutions.

While he and the Nama board had “agreed to differ” on the matter, Mr McCarthy said he stood over his recommendation. He was not suggesting what the rate should be but said a target, even to break even, could be a “useful reference benchmark to ensure consistency” in the timing or value of disposals.

Mr McDonagh said Nama, having been established in exceptional circumstances, was not a long-term investment fund in a position to set rates of return for its assets and then wait indefinitely for those to be achieved.

“The board has reviewed these recommendations and has taken the view that such target rates of return would not be an appropriate metric for its business, on the basis that they would act as an unnecessary constraint on its flexibility,” he said.

Cherrypicking

Minister for Finance

Michael Noonan

, he said, had reiterated this week that Nama’s main focus should be on reducing the State’s contingent liabilities as quickly as is feasible.

Mr McDonagh said: “Given, therefore, that Nama has no control over how long it stays in business, it is prudent for us to assume that we are operating to a short-to-medium timeframe and to adopt the appropriate deleveraging strategy to extinguish the contingent liability and the appropriate performance metrics to match that timeframe.”

Sinn Féin TD Mary Lou McDonald said she was unhappy the comptroller’s recommendation had been set aside and it did not “augur well” for the agency if it was cherrypicking from advice received.

She said she thought Nama had picked up on a political signal from Mr Noonan to wind things up quickly and given that priority over the comptroller’s view.

Mr Daly said it was not the case that Nama was operating without benchmarks and that it set targets for all aspects of its business such as fees it should seek for assets sold and assessments of what could be made from investments.

“There are plenty of benchmarks, I can assure you,” he said.

He added that Nama needed to be “totally opportunist” by responding to what was happening in the market as it was operating with a limited lifespan.

‘Notable achievement’

Mr Daly said Nama was well poised to finish its business before the target of 2020 but he did not yet know if it could be wrapped up as early as 2018.

Mr McDonagh said Nama’s analysis indicated it would repay all senior and subordinated debt incurred which was “a notable achievement” given the value of Irish based collateral fell by 25 per cent after being acquired.

“Meeting this objective is very important for us given that the senior debt that we issued was guaranteed by the Minister and is, therefore, a contingent liability on Irish taxpayers,” he said.

On social housing, Nama said it had offered 4,653 units out of its portfolio of some 16,000. Demand had been confirmed for some 1,800 and 1,100 would be delivered by year end.

Ms McDonald said that Nama’s contribution to solving a crisis in social housing was “kind of pathetic” given the numbers on waiting lists and it was “lamentable” that only 684 units been delivered so far.

Mr McDonagh said Nama had done its best to clear bottlenecks slowing progress such as standardising leases but said the occupation of the properties was out of the agency’s control.