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Capital Markets

Geoghegan’s NAMA findings are a warning for Spain

Euromoney Skew takes a look at ex-HSBC chief executive Michael Geoghegan’s recent study of Ireland’s National Asset Management Agency (NAMA).


As Spain’s new government mulls over whether or not to set up a bad bank to deal with its real-estate problems it could do worse that study ex-HSBC chief executive Michael Geoghegan’s recent study of Ireland’s National Asset Management Agency (NAMA).

Geoghegan was hired in late September to conduct a pro bono review of the agency; the findings were communicated to the board on October 10. They have now been made public.

Geoghegan interviewed 36 board members, senior executives, middle-management supporting officers and auditors for his report. He emphasizes that while NAMA’s focus on control is not unexpected in its formative stages it must now evolve into a pro-active, externally focused entrepreneurial business.

He therefore advises that the board:


“needs to balance its current control” features with those of entrepreneurial skills, ideally within the property industry...”

Yes, one would have thought that would be a good plan for an agency tasked with managing €31 billion of bad property loans. The agency needs to repay €7.5 billion of debt by the end of 2013, €16.5 billion by the end of 2017 and €7 billion by the end of 2019.

Geoghegan highlights the ... 


“large number of internal meetings, long agendas and substantial numbers of attendees”

... that characterize NAMA in its current form and makes a series of recommendations for organizational change – not least of which is the appointment of a chief financial officer.

The report also suggests the establishment of a new debt-restructuring unit, to be staffed from the portfolio management and credit and risk functions.

Property specialists should be tasked with improving as many existing assets as possible for sale in 2014 and beyond. To achieve this an appropriate capex and borrowing limit of at least €500 million will be required. He wants NAMA to recruit 200 more staff at a cost of €25 million to bring in house the assets now managed by 600 participating institutions, which are paid 10 basis point a year, equivalent to €74 million, to manage NAMA assets.

He says that the arrangement is a big risk to recoveries for NAMA and failure to bring the assets onto NAMA’s books in the next six months might increase the risk of its failing to meet its bond repayments.

The revelation that bureaucrats rather than experts staff a government agency is hardly the most astonishing news. But that’s what bankers in Madrid should worry about if Spain follows in Ireland’s path.

The risk of a Spanish NAMA being run by civil servants rather than financiers with experience of dealing with problem real estate assets was certainly a constant theme in interviews on Euromoney’s recent trip to Madrid. 

Geoghegan says in his report:


“Efficient and effective controls need to be robustly maintained, but these should always operate in the background, not the foreground. NAMA does not just liquidate assets, it must also add value to assets so that this value can be realized in later years so as to meet the repayment schedule.”

- Euromoney Skew Blog

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