I was told a story at the weekend of a group of developers getting together to toast the creation of NAMA with champagne when it was announced by Brian Lenihan. How true it was, I’m not sure, but I can easily imagine it happening. Here was an institution that was going to keep them from bankruptcy and losing everything in very short order. Sure, they would still have to pay back the state, but the state had been very good to them over the past few years and would continue to help them out on favourable and flexible terms whilst they dealt with the crisis facing them. They’d be able to carry-on living their champange lifestyle whilst the state helped get them back on their feet in time for the next property bubble. And a lot of the public felt the same thing – NAMA was a bail for developers and failed banks, not simply a mechanism to save the Irish economy.
Frank Daly, the Chairman of NAMA, made a speech yesterday to the Leinster Society of Chartered Accountants (reported in the Indo, IT, RTE), that noted that many developers are clinging to their old ways and lifestyles stating, “Certainly not all of them have yet abandoned the extravagant mindset of the 2003-2007 era”. A few weeks ago Brendan McDonagh, NAMA Chief Executive, told a Dail committee that indebted developers were “displaying obvious wealth almost in defiance of us”. Both Daly and McDonagh have made it clear that those developers who think that NAMA is a vehicle for them to continue to live champagne lifestyles are in for a rude awakening. Yesterday, Daly detailed that NAMA is going to undertake the due diligence on loans and business plans that were quite clearly absent during the Celtic Tiger years, arguing that, “Our approach has been fully vindicated by what has emerged to date in terms of sub-standard loan documentation and of assets not properly secured,” and that developers are “fully aware” of what is expected in terms of the “thoroughness and stringency of their business plans”. He went on to state that no borrower is too big to fail, which suggests that there might well be some significant casualities in the coming weeks and months. Daly also went on to criticise the planning process, questioning how many shopping centres or apartment developments a medium-sized town could accommodate? Clearly a question that some towns have answered the hard way, with hundreds of empty units that may remain as such for quite some time. A similar question could be asked of hotels and office blocks. It’ll be interesting to see what happens to the sales of champagne in Ireland over the next couple of years.