The chief executive of the National Asset Management Agency, Brendan McDonagh, has stated that the organisation would be adopting a ‘hard nosed” approach in dealing with major borrowers. Apparently, work has already been completed on the top ten borrowers in the country who had the most complex loans with multiple institutions and, in Mr. McDonagh’s words, NAMA has held ‘open and frank’ discussions with members of the construction industry. But what do we know of NAMA’s approach to dealing with the banks  availing of the scheme?

As NAMA plans on valuing all the toxic loans it takes over on a case-by-case basis, surely it will be in very close contact with the banks over its lifetime. Does the composition of NAMA’s board, announced on Dec 22rd , give any indications as to NAMA’s position towards the banks? Former chairman of the Revenue Commission Frank Daly is to head a nine-member board which will oversee the running of NAMA.  Mr. McDonagh will be joined on the board by his NTMA colleague John Corrigan. The other members of the board are Steven Steelig of the IMF; financial consultant Eilish Finan; former senior manager with Bank of Ireland Michael Connolly; chartered accountants Peter Stewart and Brian McEnery; and the chairman of Dublin Transportation Office Willie Soffe.  For now, one can only speculate as to whether or not the board is sufficiently removed from the banking and regulatory ethos that brought about our financial downfall. However, keeping the banks at arm’s length could prove much more challenging for Mr. McDonagh and NAMA than playing hardball with the property developers.

After the financial fiasco of the last 12 months, it is crucial that NAMA operates dispassionately with the banks. For example, NAMA should be prepared to write down impaired loans by more than the 30% discount rate  where appropriate even if this strains its working relationship with the banks. Maybe then an accurate assessment of the equity injection still required by the Irish banks can be made (see previous IAN post). A cozy relationship between NAMA and the banking industry will only prolong our “zombie bank” malaise.

Declan Curran

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