The reality behind Lenihan's Nama plan

 

OPINION:The Government has no idea how to address the banking crisis or how to rescue the country from the calamity that threatens it, writes VINCENT BROWNE

SIX WEEKS ago, Brian Lenihan announced in his April Budget speech the creation of a new agency, Nama (the National Asset Management Agency), whose role was to take over toxic assets from the banks. The point was to enable the banks to start lending again, thereby protecting jobs and the economy generally.

While no timetable was mentioned, clearly, there was, and is, an urgency about enabling the banks to supply credit lines to businesses. The tone of Lenihan’s remarks was such as to suggest that the proposal was well thought through. He said: “A National Asset Management Agency (Nama) will be established on a statutory basis, under the aegis of the National Treasury Management Agency (NTMA).”

You would have expected that at a minimum the idea of Nama would have been discussed in some detail with Michael Somers, the head of the NTMA, under which Nama was to operate; that how Nama was to be structured would have been agreed; that the staffing of the new agency would have been discussed and agreed; indeed, that the head of Nama would have been fully involved in the decision and fully aware of what the Government wanted his agency to do.

It now transpires that Somers has no idea of what is expected of him or his agency, does not have a clue how Nama might be staffed, does not know whether it is to operate independently of his organisation NTMA. At one stage in his extraordinary evidence last Thursday to the Committee on Public Accounts, Michael Somers said: “I know very little apart from what has appeared in the newspapers.”

Earlier on in his evidence he said: “In his Budget speech, the Minister stated it would be set up under the aegis and auspices of the NTMA, but what that means has not been clarified.”

Asked if the NTMA had clear directions from the Minister on what is to be done, he replied simply “No.”

When it was put to him that he had not made any arrangements in relation to Nama because he had no clear brief, he said: “That is correct.” He made it clear that the interim managing director of Nama, Brendan McDonagh, was appointed by the Government, not by him or his agency. He said: “I was asked whether I had any objection [to the appointment] and I said no.” The clear inference was that he had had no other involvement in the appointment.

He pointed out to the committee that the banks had up to 5,000 employees dealing with the assets that were to be transferred to Nama but that the NTMA had no way of recruiting such numbers and had no means of undertaking the management of these loans, which is the point of Nama.

Quite obviously, there is no realistic prospect of Nama getting up and running for months, perhaps years, by which time the credit drought in the banks, which Nama was intended to rectify, will have stifled the economy fatally. Alternatively (and more likely) the Government will have realised it was talking through its hat in talking about Nama and will adopt another panic measure – probably the nationalisation of AIB and Bank of Ireland.

It is clear the Government has no idea how to address the banking crisis and, by extension, no idea how to rescue the country from the calamity that threatens it.

In the course of his further evidence and the evidence of colleagues from the Pensions Reserve Board there were further revelations. Somers was asked about the engagement of Merrill Lynch as advisers to the Minister for Finance on the banking crisis. He said they were “directed” by the Minister to hire Merrill Lynch.

Clearly it was not NTMA’s idea and they did not think much of it. He said the cost of Merrill Lynch’s advice will come to €6 million. “We do not feel comfortable about paying €6 million to these people but we were asked to get the advice and that is unfortunately what it will cost.”

He also revealed he had had very serious reservations about Anglo Irish Bank as far back as 2007. Such was his alarm about this bank that he did not want to deposit any NTMA cash with that bank, although he was under considerable pressure to do so.

But if the head of the National Treasury Management Agency was alarmed by what he saw was going on in Anglo Irish Bank in 2007, how was it that the Government was not alarmed or rather how was it that the Government did nothing about it?

And if Michael Somers had such reservations about Anglo Irish Bank, why did the National Pensions Board, for which he has some responsibility, have an equity investment of €13.5 million in Anglo Irish Bank at the end of 2007 (see page 54 of the National Pensions Reserve Fund Commission report from 2007)?

Which brings us on to the National Pensions Reserve Fund – its performance generally had been pretty poor in terms of return on its investments, right through to the end of 2007.

But in 2008 it seems the value of its investment depleted by €6 billion (Yes, €6 BILLION).

We are in big trouble folks and it doesn’t end there.