IRELAND - The head of the agency set up in 2009 to manage property loans offloaded by Irish banks has defended the organisation against criticism that it overpaid for distressed loans and announced plans to provide as much as €2bn in vendor finance aimed at sweetening property deals.

In an address to the parliamentary public accounts committee at the end of last week, NAMA chief executive Brenda McDonagh justified the 57% discount implied when it paid €32bn for distressed loans nominally worth €74bn, pointing out that each loan and underlying asset had been valued individually.

His appearance before the committee followed the publication of the comptroller's second report on the agency - a report interpreted by some as suggesting the agency had overpaid for the loans. 

"I reject this categorically," said McDonagh, claiming the comptroller had received "reasonable assurances" that the valuation processes had been robust.

In a speech early last week, NAMA chairman Frank Daly had been equally bullish on the acquisition price, saying: "In less than two years, NAMA built up a loan portfolio of €74bn - most lending institutions take several decades to build up loan books of that size."

McDonagh defended NAMA against criticism for spending €74bn on due diligence, €64bn of which he said had been recovered from participating institutions via a reduction in loan acquisition values.

Due diligence costs shaved €2.7bn of the acquisition price overall.

"It was money judiciously spent, given that, otherwise, the taxpayer would have paid substantially more for these loans than they were actually worth," he told the committee.

"In all cases, our acquisition price was the long-term economic value as determined by the EU Commission-approved methodology," he added. "I regard that as reasonable in the circumstances.

"It was never our objective to pay as little as we possibly could for the loans. We paid as much for the loans as was allowed under [EU] state aid rules, no more and no less."

McDonagh acknowledged NAMA would be making provision for a "material impairment" when it posted results later this month, and that a 20% drop in Irish property prices had made repaying the agency's debt more difficult.

However, he also announced it would provide as much as €2bn in vendor finance to encourage commercial deals, and a further €2bn development capital to complete Irish commercial and residential projects 2016.

Last October, NAMA offered 70% vendor finance to institutional investors on bundled Irish assets that make up €18bn (56%) of its remaining portfolio.

Yet the agency only recently completed its first vendor finance transaction.

Despite McDonagh's claim of positive long-term prospects for Irish assets located near urban population centres, NAMA has up to now struggled to sell its Irish portfolio, believed by many would-be buyers still to be overvalued.

To date, NAMA has approved sales of assets worth €9.2bn, 81% of them in the UK.
Daly said the provision of €4bn signalled a new phase for the agency.

"Whereas the first phase was about protecting Irish taxpayers by being rigorous in the acquisition and valuation of the loans, the second phase is about being innovative and dynamic in maximising the return from those loans and the assets securing them," he said.

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