Court challenge to Irish property agency Nama

By Jamie Smyth

Ireland’s National Asset Management Agency faces a court challenge on Tuesday from property developer Treasury Holdings that could have significant implications for Ireland’s “bad banks” business model if it loses. The legal challenge in Dublin’s High Court takes place amid increasing political concern over the performance of Nama, one of the biggest property companies in the world with a portfolio worth €30bn.

Treasury, which is co-owned by businessman Johnny Ronan and his partner Richard Barrett, is one of Ireland’s biggest developers with a multi-billion euro property empire stretching across Ireland, China, France, Sweden and Russia.

The company is challenging a decision by Nama last month to appoint receivers to assets linked to €1.5bn of loans that the state agency acquired from the company. Treasury alleges the enforcement action by Nama will destroy the value of the property assets placed in receivership and could threaten Treasury’s wider businesses, according to people familiar with the case. It also claims Nama misled the company by continuing negotiations with Treasury on its overall business plan while privately making a decision in December to place its properties in receivership. Nama also rejected without sufficient consideration an offer by third party investors to acquire its loans, says Treasury. The prospective investors were the Australian
investment bank Macquarie and global real estate group Hines, which Treasury claims, were willing to pay Nama more for the loans than it originally paid the banks to acquire them.

Nama would not comment for this article ahead of the court case. The agency is expected to robustly defend its authority to appoint receivers even when a developer claims a bidder will pay more for its loans than Nama paid for them.

The agency released a statement on Monday claiming some parties were spreading unfounded and damaging stories about Nama to frustrate it carrying out its business. “Nama wants to place on record that it will continue to be resolute in fulfilling its legislative mandate and will not be swayed by inaccurate and misleading commentary,” it said.

If the court rules in favour of Treasury then Nama’s enforcement powers, which enable it to appoint receivers to developers’ property assets could be curtailed. This, Nama argues, would make it more difficult for the “bad bank” to recoup money for Irish taxpayers. Nama was set up by the Irish government in 2009, after a property crash, to purge the country’s banks of
toxic property loans in an attempt to restore credit flows to the wider economy. It paid €31bn to buy loans with a face value of €74.2bn, which represents an average discount of 57 per cent. Over 10 years Nama must sell the loans or assets to recoup the state’s original investment and pay back any working capital advanced to developers to complete projects and its own
operating costs. Nama has stepped up enforcement action against developers, appointing receivers to 1,093 properties during 2011. In December it appointed receivers to Treasury’s £400m Battersea power station development, a move which signalled that its relationship with the developer was breaking down.

The court challenge by Treasury comes amid growing political concern in Dublin that Nama does not have the commercial skills to recoup the money it spent on the loans. Last week the “bad bank” announced a significant shake-up of its business and said it would appoint a chief financial
officer. This followed a highly critical report by Michael Geoghegan, the former HSBC group chief executive, which was commissioned by the government.

The chief architect of Nama, economist Peter Bacon, who was commissioned by the previous government to design an asset management body, is now critical of the agency. “Rather than managing the assets it seems Nama is focusing on debt collection but you can’t draw blood from a stone. It needs to work more to maximise value,” he told The Financial Times. While in opposition Enda Kenny, Ireland’s prime minister, criticised the lack of transparency
surrounding Nama, describing it as a secret society that needed an injection of competence and openness. This week’s court challenge will give a rare view of the workings of an institution that must succeed for Ireland to recover.