BUSINESS OPINION:What you can't do is avoid the losses incurred by the banks through reckless lending prior to 2008 and the debts they ran up, writes JOHN McMANUS

The National Asset Management Agency is under pressure as never before. Treasury Holdings has launched a massive damages claim saying it moved too hastily to appoint receivers to its assets. Paddy McKillen is asking the High Court in London to reverse Nama’s sale of some €800 million of debt on his swish London hotels, and the cherry on the cake is the Comptroller and Auditor General’s conclusion that they have overpaid for assets and will have trouble getting their money back.

Nama’s response can be characterised as a version of the bumblebee defence. The humble bumblebee is incapable of flight according to the law of aerodynamics, it is claimed by some. They argue its wings are not big enough and it cannot move them fast enough to propel itself through the air. But rather than stop flying, the bumblebee keeps on flapping its wings and proves everyone wrong.

What the bumblebee knows – without actually knowing it – is that a more sophisticated analysis of its attempts at flying finds that the vacuum caused by its wing beats gives it the lift it needs as does the relatively greater thickness of the air for a creature of its size. Thus it flies.

The problem with the analogy is that we don’t know if there is some equivalent to the bumblebee’s vacuum for Nama. There is one possibility and it is something that is very hard to reflect in straightforward financial analysis of Nama. It is the sheer scale of Nama and its ability to influence the market and the wider economy.

To date this has manifested its self in a sort of vicious cycle, which has meant confidence and money vanish from the Irish market. Perhaps, with a change of tack, Nama can create a virtuous circle that will turn out to be its bumblebee vacuum and confound the critics. Interesting to note in that context Nama’s chairman announcing last week that it is to invest €2 billion in the market and also the revelation that it is in talks to move the National Maternity Hospital to one of its sites.

Maybe Nama can pull it off. Maybe they can’t. But maybe we should stop worrying about whether Nama is going to make money. Its profitability was really only an issue when the Government didn’t own the banks, as was the case in 2009 when it was set up.

When others owned the banks it was vital to get the price of the loans transferring across correct. If Nama overpaid then the owners of the bank would make a gain at the expense of the taxpayer, but now the taxpayer owns almost the entire banking system the issue is moot.

We have arrived – by a very difficult and expensive route – at the solution that many said from the outset was the only viable course; nationalisation of the banking system and establish a bad bank or banks to run down the bad assets.

The only fly in the ointment – sticking with the insect theme – is that the State does not own Bank of Ireland. However, it is a significant shareholder and its main funder via the Central Bank and this is not without its advantages. The Government has been able to avail of Bank of Ireland’s “independent” status to set up the Anglo Irish promissory note rinky–dink.

Once you start looking at Nama through the lens of the State’s ownership of the banking system, the whole issue of profitability simply becomes a book-keeping exercise. The final losses or profits can fall where you like. If necessary they can be pushed back onto the banks by making them take back dud properties in exchange for their outstanding Nama bonds. Likewise, the rump of Nama debt can be rolled into “son of Nama” at par. The permutations are endless.

What you can’t do is avoid the losses incurred by the banks through reckless lending prior to 2008 and the debts they ran up to foreign banks. We have decided the national interest requires them to be paid. For this reason Nama – and indeed the banks – will have to be run exceptionally well to reduce the cost to a minimum.

But everything Nama does – including splitting the cost of the property collapse between itself and the banks – has to be in the context of overriding objectives such as returning to the debt markets, having a functioning banking system and generating growth in the economy.

Paper profits at Nama would be a pyrrhic victory if they came at the price of any of the above.