Lenders, bricks and carnage

BACKGROUND:Just 14 months in to Nama, a board member outlines progress so far and the battle ahead, writes SIMON CARSWELL

SITTING IN an office looking out on Fitzwilliam Square in Dublin, Steven Seelig points to a row of “Office to let” signs running down one side of the square. This was a perfect example of just how stuck the Irish property market is, he said.

It is what the National Asset Management Agency (Nama) has to deal with if it is to start making money back on the €37 billion it will spend buying €88 billion in bank loans, said Seelig, a board member of the State loans agency.

In the absence of bank credit, Nama would have to consider lending to buyers of the properties backing its loans, he said. The aim would be to kick-start the market and deal with the massive amounts of over-supply. The quicker the property market recovers, the less Nama will have to lend, he said.

“There are going to be bigger challenges when you deal with these ghost estates. I have never seen anything like that in the world,” said Seelig, an American who worked on financial clean-ups in the US, Indonesia and Uruguay during 10 years at the International Monetary Fund (IMF). He retired last May, joining the Nama board.

Last summer, driving around Ireland on holiday, Seelig saw the carnage left by banks and developers driving past some of the State’s 2,800 ghost estates.

He agrees with the view of Nama chief executive Brendan McDonagh that some estates will have to be bulldozed.

“Some of them were built on a scale that there is no way a local government would have any use for them, unless you want to put prisons all over the country or senior citizens’ homes,” he said.

Seelig said Nama had made a decision to try to work with the 170 biggest borrowers in the first instance to recover as much of the debt as possible.

“It is not about selling real estate because you have to get to the real estate. It is about getting borrowers to give up money,” he said. This wasn’t popular, he said, as the media felt Nama should be more transparent and the public wanted those who forced large debts on the State to be punished.

“We are not going out tying some guy up to a pole in a square and whipping him until he gives up his wife’s money. But we are getting some of these people to get their wives to say, ‘okay, all of that money that we transferred is coming to Nama’,” said Seelig.

If borrowers were co-operative and the strategy worked, it could save jobs, he said. This was “the least disruptive” option for the economy.

Nama would pursue enforcement actions against borrowers who do not co-operate or because economic circumstances will “get in the way”, he said.

Seelig declined to comment on the views of the next taoiseach, Fine Gael leader Enda Kenny, who during the election campaign described Nama as a secret society that needed an injection of competence, openness and transparency. More general criticism that Nama was too slow to sell assets was “a bit harsh”, he said.

Seelig points to Nama’s approval of €2 billion worth of sales last year. The agency’s target is to sell 25 per cent of assets by the end of the year.

Seelig said Nama may have initially underestimated its staffing requirements but this had been recognised by the agency, especially in the legal area, given the amount of contract, administrative and litigation work necessary.

Only 14 months old, Nama has been preoccupied with acquiring the loans to the satisfaction of the EU, staffing itself up and putting procedures in place, he said.

Other state “bad banks”, in the US and Indonesia, for example, were plagued by controversies around the failure of internal controls in their first year.

“One of the things that struck me was that we managed to make it through without major scandals or big breakdowns, even though people may have grumbled about it being slow,” said Seelig.

Nama has an expected lifespan of seven to 10 years. Seelig said the board aimed to have most of the agency’s work wrapped up after seven years, with the “tail-end” years dealing largely with litigation. This will be revisited by Nama.

“There was a bit of Irish optimism here, that time would cure all ills and somehow the market would recover,” said Seelig. “This fits with the bankers’ perception going back to 2009, that somehow the economy will get better and the market will still recover and, if we can sort of hang on and hold the stuff, we will get our money back.”

Seelig was part of the team that carried out the IMF’s regular financial health-check on Ireland in June 2009. The team advised the Government that the nationalisation of the banks would have removed the thorny issue of applying the transfer value or haircut on the loans moving to Nama.

This may have bought the Government time, he said, but Nama was still necessary and the same black hole at the banks would have emerged.

Seelig’s IMF team at the time estimated that the Irish banks faced losses of €30 to €35 billion, a figure that is now long out of date. The IMF relied on information from the banks as outside them “no one had real numbers”.

“There was a very, very pervasive sense of denial in Ireland at the time,” he said. This stretched across the banks and into the regulator and Government. Banking supervision had been left to the auditors as the regulator had allowed the banks “to self-certify” that they were following its principles.

“I don’t think anybody, because of the absence of supervision in this country, knew about it,” he said. “I say that because some of the senior people in Nama were genuinely shocked when they saw some of the loans when they were being transferred. They saw the amount of leveraging that had gone on. That is part of where these huge discounts are coming from.”

Anglo Irish Bank was proof of why countries require proper supervision of banks, he said. “Spending money on decent supervision is a very cost-effective decision to make because Anglo was rotten to the core,” he said.

Seelig believes that, to some extent, the Government was misled by “a regulator who just didn’t know anything” and by the banks. “Either they had to know or they weren’t competent to be bankers. It is one or the other,” he said.

The Government didn’t help by failing to restructure the banks quickly, something which now must be done under the EU-IMF plan. Such a move would have led to job losses, and politicians were unlikely to agree to this during a recession, said Seelig.

“I remember saying to the Minister [for Finance Brian Lenihan] that you need to take advantage of the opportunity and shrink the number of banks. Dublin is clearly an over-banked city . . . There was a sense that this is the way it has always been – why would you need to do it? I think they just didn’t want to deal with it,” he said

Despite his career knowledge of the inner workings of the IMF, Seelig declines to comment on the Government’s chances of reducing the 5.7 per cent interest rate on the IMF’s €22.5 billion portion of the €85 billion bailout package.

Seelig’s focus is on Nama, an agency that will never win over people, he said. Even if Nama turned a large profit after 10 years, a State agency that acquires the worst loans from banks and tries to collect on them will never be popular.

“I told Brendan [McDonagh] that if you leave this job as the second-least popular person in this country, you will have succeeded,” he said. Asked by Frank Daly, the chairman of Nama, who the least popular person was, Seelig replied: “The head of tax of collection.” That, Daly reminded him, had been his former job.

“When you are in the business of getting money from people, you don’t become popular,” said Seelig.