Nama must not become a bonanza for advisers
BUSINESS OPINION:The Government has a duty to drive down the obscene fees paid to lawyers, accountants and other advisers, writes JOHN McMANUS
WE ARE one day into the five-day Dáil committee hearings on Nama (National Asset Management Agency). Our elected representatives (average salary plus expenses €150,000) are slowly making their way through some 220 proposed amendments, ranging from the fanciful to the very technical.
If last Thursday is anything to go by, it looks like being something of a missed opportunity. Rather than doing the job they are actually paid such vast sums for – to legislate – our TDs have reverted to type, with the grandstanding and point scoring that passes for debate.
Fine Gael’s performance is probably the most disappointing. Rather than try to protect the taxpayer by improving the legislation where they can, they have instead concentrated on putting themselves in position to deliver the mother of all we-told-you-sos should Nama flounder. The bulk of their proposed amendments, which in turn make up the bulk of all the amendments, are pointless efforts to have Nama replaced with their own national recovery bank.
It’s pretty poor stuff, and does not even constitute good theatre. But it is politics as we know it here, and viewed from the Fine Gael benches there is little point in taking the knife away as the Government prepares to cut a rod, or a set of rods, with which to beat itself.
One of those rods – without a shadow of a doubt – is the fees that Nama will be paying to the various legal, accounting, surveying and auctioneering firms who had their snouts so deeply buried in the Celtic Tiger trough that they never thought to trouble their €500-an-hour minds about where it was all heading.
The extent to which Nama – the structure drawn up by the Government on the basis of advice from a number of these same firms and individuals – relies on external professional firms is little short of obscene.
The draft business plan for Nama envisions it paying fees and expenses of €2.64 billion over the agency’s projected 10-year life. The fees will be paid at every step of the process. The banks will have to get external valuations of their loans; these valuations will have to be checked by Nama external valuers; Nama’s external legal advisers will then have to check all the legal documentation related to the loans; other advisers – called loan valuation firms – will then put an overall value on the loans. The whole process will then be audited by yet more external advisers.
Nama – both directly and indirectly – is going to be the single biggest employer of lawyers, accountants, auctioneers and other professionals over the next 10 years. The potential conflicts of interest for a country whose business culture is already riddled with them really does not bear thinking about.
It is obvious that the Government should act at this stage to make sure that Nama does not become some sort of bonanza for the same firms that participated so unthinkingly in that which led to its creation. Nama’s market power will allow it to be a price setter, and any firm quoting fee rates from any time this side of 2000 should be sent packing.
It would of course be very uncompetitive of the Government to act in this fashion, but when you set out to spend €55 billion buying bad loans off your failed banking system, you have pretty much thrown the competition rule book out the window.
Some sort of limit on fees is just common sense in terms of Nama’s corporate governance, but would also have a powerful spillover effect on competitiveness. Professional fees – and legal fees in particular – have a direct impact on the costs of business.
The other big win for the Government in driving down professional fees via Nama is the extent to which it will underpin its wider economic strategy of deflating ourselves back to fiscal stability and competition.
Rather than have some sort of fee structure imposed on them by Nama, it would be welcome – and very surprising – if the big firms that will take the lion’s share of the €2.64 billion were proactive about it. What is needed – according to one senior Dublin auctioneer – is something akin to a system allegedly employed by the Israeli airline El-Al in its early days when one of the baggage handlers who loaded an aircraft was picked at random and then made to fly on it, as part of security measures.
The story is no doubt apocryphal, but gets across the point that Nama is built around an assumption that the use of external professional advice is part of the best solution to the biggest single challenge faced by the State in its history. Looking back over the last five years, it’s hard to justify any such optimism.