THE BANKS deserve no sympathy but it must be remembered that it was the Government and not the institutions themselves that told the public that the National Asset Management Agency (Nama) would end up making a profit of €4.8 billion. The Government gave this hostage to fortune in order to silence those who claimed that Nama exposed the taxpayer to potentially unquantifiable losses. The decision to make such forecasts on the limited information available at the time was politically expedient but not very prudent.
Some three months later these forecasts have come back to bite the Government and this time expediency dictates that the banks get another kick. Such is politics. But the truth is that as long as the Government persists in trying to present Nama as some sort of profitable enterprise for the taxpayer it will face days like last Tuesday.
The basic rationale for the establishment of Nama was that the banks had failed in almost every conceivable way when it came to land and property development lending. They were also in deep denial about the extent of the problem and institutionally incapable of taking the steps needed to fix it, never mind finding the money.Nama was the chosen solution to this problem. But basing its initial business plan – and predicting a €4.8 billion profit – on the self-same bank’s own assessments of the extent of their problems was hardly sensible. And the subsequent revisions are hardly surprising.
The truth is that we will not really know what Nama is likely to cost for several years at least. Over and above that is the reality that any assessment of Nama must be viewed in the context of the bank recapitalisations that accompany it and any possible profit will be dwarfed by the €20 billion plus that must be pumped into Anglo Irish Bank – with no prospect of a return – to allow it meet the losses on the loans it is transferring to Nama.
The Government would be better served trying to highlight the real positive that emerged this week. Namely that their choice of an asset management agency approach has been vindicated. The more we learn about the way the banks operated during the boom, the more sense it makes to dispassionately value all their land and development loans, purchase and then manage them.
Various alternative solutions were postulated that would have given the banks a greater say in which loans were transferred and the subsequent management of their developer clients. If the criticisms levelled against the banks by Nama chairman Frank Daly are any guide, this would have been a recipe for disaster.
History is written by the victor and of course it suits Mr Daly and Nama to paint the banks as incompetent and even mendacious for the above reason. But the bank’s acquiescence to his criticism can be put down to more than mere diplomacy on their part.
No one can deny that something very fundamental went wrong in Irish banking. Nama is part of the very expensive solution to that problem. It is not a moneyspinner.