O’Flynn and Nama triumph is still a defeat for taxpayer

And with one bound our hero is free! Could Michael O’Flynn be the first big property developer to successfully escape the clutches of the National Asset Management Agency? It looks like it. But is this a good thing? That really depends on whether you plan to be paying taxes here for the next decade or so.

O’Flynn is what passes for a poster boy where Nama is concerned. He was one of the 10 big developers whose debts were the first to be subsumed into the agency. Unlike several of the others he went quietly, and crucially seems to have played it straight with Nama. He gives every appearance of understanding the necessity for Nama and making the best of it.

Debt to taxpayer
For O'Flynn, going into Nama was really just a case of exchanging several banks for one new bank, albeit one with frightening powers and a mandate to get back from him every last penny he owed the taxpayer. He agreed a business plan to this effect and has, we assume, executed it well.

The proof of this lies in the reports that various institutions, ranging from German behemoth Deutsche Bank to US distressed assets specialist Lone Star, are now looking to buy his loans from Nama. They are said to be bidding about €950 million – which looks like a good deal for Nama.

The agency bought property loans off the banks at about 60 per cent of their face value to reflect the collapse in the market and the risk they would not recover all the money owed. In O’Flynn’s case, they probably paid more than this as he did not appear to have made as big a mess of his affairs as other developers.

In total, O’Flynn owed the banks €1.5 billion and when you apply the 40 per cent Nama discount you get a purchase price for Nama of €900 million. When you subtract that from the figure of €950 million to €1 billion that Nama will sell them for, you have a tidy “profit” of about €100 million for Nama .

The problem – there is always a problem – is that a good deal for Nama may not necessarily be a good deal for the taxpayer in the round. Before the taxpayer can reach a view on the merits of the deal, they need to know what happens to the balance of the €1.5 billion O’Flynn borrowed from the banks. The short answer is that it will be written off by the taxpayer.

The banks that sold O’Flynn’s loans to Nama at a discount have already written off the balance between what they lent him and what Nama paid them for the loans.

But the money to cover this loss – €400-€500 million – came from the taxpayer as part of the €64 billion pumped into the banks by the Government over the last five years . Unless O’Flynn repays the full amount he borrowed from the banks, the taxpayer will be out of pocket.

Even allowing for the putative €100 million profit made by Nama on selling his loans, there is still a potential deficit of €400-€500 million on O’Flynn’s overall account with the taxpayer that may not be collected. It could be less if Mr O’Flynn has been forced to sell other assets.

In theory, Nama must pursue him for the outstanding figure but this does not seem likely. Indeed the purchasers of O’Flynn’s debt will probably require assertions to the contrary as they need him to run the business for them.

Contrasting fortunes
It looks very possible then that O'Flynn could get a bailout from the Irish taxpayer of up to €500 million, which will stick in many people's throats. But there is not much comfort in the flipside – afterall, a business that employs people and could contribute to the economy has been saved.

But, if it happens, what will ultimately irritate people most is the contrast between the Government’s apparent willingness to bail out Michael O’Flynn with taxpayers’ money and its reluctance to bail out taxpayers in mortgage arrears and negative equity with their own money.