Robert Troy: Why NAMA comparisons are flawed

I thank the deputies for the proposed amendments which together seek to require the Minister to lay before the Houses reports on NAM's performance including analysis of whether higher returns could potentially have been achieved by retaining assets for longer and a comparison of disposable values with subsequent valuations. At the outset I want to acknowledge the intentions underlying these proposals. Scrutiny of NAM's performance and of the value delivered to the taxpayer is both appropriate and important. This matter has already been considered in some detail including at pre-legislative scrutiny where a comprehensive response was provided by the Tánaiste and it was also discussed at second stage. I must set out why the amendments are neither necessary or practical. First NAM's performance has already been subject to extensive reporting and ongoing scrutiny over its lifetime. NAM produced quarterly and annual accounts laid before the Oireachtas and audited by the Comptroller and Auditor General. The Department of Finance conducted statutory five-year reviews examining progress against its objectives. These reports were also published. The Comptroller and Auditor General also conducted independent statutory reviews including the most recent report published earlier this month. NAM has been subject to PQs and committee appearances over its life which has provided additional information and insights as to its operations and performance. Taken together these provide a comprehensive and independent evidence base on NAM's performance over the time. Second the available evidence indicates that NAM has met and in some respects exceeded some of its original objectives. The Comptroller and Auditor General estimates a lifetime return of approximately 6.8% compared with an original expectation of 5%. NAM delivered a lifetime contribution of 5.6 billion to the state and eliminated significant contingent liability through early redemption of its senior debt. More broadly it is widely regarded internationally as a successful example of a state-backed asset management agency. Turning to the specific proposals in the amendments there are significant practical and legal limitations. It is important to recall that NAM did not require property assets. It required and managed loans secured in property with the underlying asset remaining in the ownership of the debtors or receivers. Once those loans were resolved or the underlying assets disposed of they left the NAM system. It is also important to recall that NAM operated within a statutory mandate set by the Oireachtas and a binding EU state aid framework under which it was required to report regularly to the European Commission on progress towards completing its mandate. Together these frameworks required NAM to manage and dispose of its portfolio expeditiously rather than retain assets indefinitely and we can argue on whether that was right or wrong but that was the mandate that they were set. It was not established as a long-term asset holder and it would not have been appropriate for the agency to engage in speculative behaviour by retaining its portfolio in the hope of future price increases. As a recent report by John Fitzgerald found, the Irish government was under external pressure to persuade NAM to sell off its assets more rapidly. The report concluded in resisting these pressures and with NAM adhering to its preferred disposal strategy and taking adequate time to realise the full value of the assets, the right approach was taken. The report also notes that it did not make sense for NAM to begin a substantial programme of asset sales in Ireland in 2011 or 2012. The recovery in the Irish economy from 2013 played a vital role in allowing NAM to obtain a better return from its assets, from the assets it required. It also recognised, as John Fitzgerald observed, that there would have been cases where holding assets for longer would have realised a higher profit. However, there were also cases where the price achieved by NAM exceeded the current value of those assets. It is important to recognise that, as with any lender, where debtors were in a position to refinance or repay their loans as market conditions improved, these loans exited the NAMA system. NAMA could not and should not prevent borrowers from refinancing and moving on where they were able to do so, and I accept that wasn't always the case. This reflects the normal functioning of a recovering financial system. As a result, NAMA does not systematically retain or control information on subsequent resale values or updated values. Reconstruction such a database retrospectively would require assembling information from a wide range of third-party sources, many of which may not be publicly available or could be commercially sensitive. More fundamentally, the proposals to assess whether higher returns could have been achieved by holding assets for longer is inherently counterfactual. It relies on assumptions about market conditions, financing costs and risks that cannot be robustly reconstructed. Subsequent valuations do not provide a reliable basis for assessing decisions taken at the time based on the available information. In many cases, assets that were further developed, restructured or invested in after disposal, and any uplift in value reflects those subsequent actions rather than the position at the time of the sale. This is not unique to NAMA. It reflects the normal operation of property and asset markets, where the value evolves over time in response to investment, development and changing market conditions. No person or entity, other than the property owner, would have information on funds invested after the sale, be it capital or operating expenses, which would have been required to form a robust comparison of asset values over time. This is key information that cannot be obtained, even by the Department of Finance. Without this, any such analysis would be incomplete and potentially misleading. There are also strict statutory confidentiality obligations, which limit the disclosure of debtor-specific information and commercially sensitive information, and these obligations continue after NAMA's dissolution. It is also important to situate this discussion in the context of NAMA's overall outcome. NAMA has delivered a financial return to the State, repaid the debt in full and substantially completed its mandate. The evidence demonstrates that it achieved its core objective in managing a complex and high-risk portfolio. I again recall that NAMA was established to manage a portfolio of impaired loans and not to hold assets indefinitely in the expectation of higher future values. It operated within a clear statutory and State aid framework, which required it to manage and dispose of assets over time in a manner that supported financial stability. An approach of retaining assets on a speculative basis would not only have exposed the State to ongoing market risk, delayed the leveraging and potentially hindered the recovery of the wider financial system, but it would also have been inconsistent with and potentially in contravention of the European State aid's decision governing NAMA. In that context, comparison with later market values did not provide a meaningful basis for assessing decisions taken at the time. The central premise underlying these amendments, that NAMA's performance can be assessed by comparing disposal values with subsequent valuations or by assuming assets could simply have been held for longer, is not well founded. Such comparisons do not provide a meaningful basis for assessing NAMA's performance and would not yield robust insights. More broadly, NAMA's overall performance has already been subject to extensive reporting, auditing and independent review over the many years since its establishment, providing a comprehensive evidence base on its outcome. For that reason, I do not propose to accept the amendments.