Initial staff of 50 adequate for 'bad bank'

THE STATE’S “bad bank” Nama could operate with a small core staff initially, but would need to hire more later to avoid mismanaging toxic loans, according to an accountancy partner who worked on a French bad bank in the 1990s.

Michel Barbet-Massin, a partner at accountants Mazars in Paris, said a team of 100 to 200 staff worked for a French bad bank created with €40 billion to €50 billion in toxic loans moved out of Crédit Lyonnais in 1995.

He said the bad bank was created as a subsidiary of Crédit Lyonnais, and was guaranteed without limit by the French government.

Mr Barbet-Massin said Nama could initially be run with 40 to 50 core staff, who could manage the existing lending teams within the banks, but that more employees would need to be hired as bank staff would start to focus more on developing new business rather than managing old bad loans on behalf of the State.

“The solution was very much criticised when it was created and you would still find people criticising it,” he said.

“If this had not been created at the time Crédit Lyonnais would not exist. It could be a good solution for the Irish banking sector.”

The original estimate of the losses at the French bank was expected to be more than €15 billion but ended up being “considerably less”, said Mr Barbet-Massin, due to a recovery in the property market and the assets being managed out. “When the ‘bad bank’ was formed it was envisaged that it should operate for a maximum of five years. In practice, it operated for about 10 years.”

Mr Barbet-Massin said the first assumption of how long it would take to resolve the loans “was not realistic”, and that working out the bad bank assets took time as the market recovered.

The French accountant, who also worked on the bailout of Bankgesellschaft Berlin in Germany in 2001, said some of Crédit Lyonnais’s existing lending teams continued to work on the loans initially because they understood the “economics behind the loans”, but the teams were later “split” to avoid possible conflicts of interest.

Mr Barbet-Massin said Crédit Lyonnais had to provide new loans and capital to its bad bank in addition to normal banking services as the new entity was not granted a banking licence. Joe Carr, managing partner at Mazars in Dublin, said the toxic assets being acquired by Nama needed to be “triaged”. He said they needed to be categorised as “red” where property firms were liquidated immediately, “orange” where properties had “a fighting chance” of being “worked out” over five to 10 years, and “green” where good properties could be sold, creating solvency to finance the entire bad bank plan. “It will take 10 to 15 years,” said Mr Carr.

“Rush it too much and you will probably accelerate too many losses, and there will be an unnecessary jolt to the system.”