Seanad Éireann debate -
Thursday, 5 Nov 2009

Vol. 197 No. 13

National Asset Management Agency.

Senator Liam Twomey

I welcome the Minister to the Seanad. Before I speak on the matter, I should say that I grew up only two miles from where Michael Collins was born and reared. Many members from one side of my family would have spoken highly of the man in time and some of them even accused the Minister's grandfather of being responsible for his demise. They were the more passionate element of that family. When they spoke about Michael Collins they usually spoke of him as commander in chief of the IRA or the Free State army. Michael Collins had organisational abilities and when we recently had a discussion on the role of Michael Collins in Irish life, we focused on his role as Minister for Finance and how he established the national loan bonds between 1919 and 1921. He did this to legitimise the provisional governments of the first and second Dáileanna by collecting funding for those governments from the people.

Although the circumstances are remarkably different today, NAMA and its special purpose vehicle, SPV, have a serious identity crisis for the people. Rather than inviting the privileged few to become the effective owners of NAMA, the Minister should consider establishing our own national loan bonds that would allow Irish citizens to purchase units in NAMA's special purpose vehicle. An Post could easily act as agent, as it did for the privatisation of Telecom Éireann, and the units could be sold for €100.

This would allow each citizen to participate in ownership of the SPV. There might even be a counterfoil attached to each of these units in order that the purchaser, or a person on behalf of the purchaser, could nominate people to sit on the board of NAMA as directors, rather than have the Minister extend an invitation to persons who consider they are qualified. Again, it would give a role to citizens to nominate the directors and strengthen the legitimising of the SPV.

We have concerns about NAMA which is greatly complex. Few of us can say how it will turn out as none of us possesses a crystal ball. My party and I have enormous concerns about it and what it will do. I ask the Minister to give me his views on giving ownership of NAMA to citizens through a scheme such as this. It might help them to understand better NAMA and its role, as it is clear it is the only option the Government is prepared to take. Perhaps in ten years time we might see whether it was a good decision and in the coming decade people might consider they have a role. I am interested in hearing the Minister's views.

Deputy Éamon Ó Cuív

I thank the Senator for raising this issue. It might surprise him to hear that when I started off as a young co-operative manager many years ago in Corr na Móna, it was impossible to get money from the banks. Therefore, some things do not change. I applied to the ACC for a loan on behalf of the co-operative and decided the second time round that I would not leave anything to chance. Therefore, I rang the chairman of the ACC who happened to be called Michael Collins and a nephew of the Michael Collins to whom the Senator referred. He also had been a very good friend of my mother when they were children. I will always remember the day I got through to him in Clover Meats. When he came on the telephone, I started to explain who I was and what I was about, namely, that I was trying to raise some money for the co-operative. However, he interrupted me. "Tell me," he said, "Are you Emer's son?" I said I was and he replied, "Tell your mother I was asking for her." Then he asked me my business and I must say the co-operative got its loan, is still going strong many years later and that its offspring have created many jobs. Any notion that there was bad blood between the de Valeras and the Collins family, certainly on our side, would be very wrong. My personal experience of all the Collins family——

Senator Liam Twomey

I would say most would accept they were great friends and that it was unfortunate what had happened.

Deputy Éamon Ó Cuív

These were friendships in the 1930s. I am happy to record in this Chamber that I always felt I owed a huge debt to Michael Collins Junior because I honestly believe he sympathised on what we were trying to do and ensured we got the money. I am thankful his confidence was justified.

I wish to set out the circumstances leading to the establishment of the NAMA master SPV and its proposed role in the NAMA process. The Minister for Finance made it clear on a number of occasions prior to the publication of the preliminary decision that discussions with EUROSTAT were ongoing to determine the accounting treatment of the NAMA debt. I make the point also that the draft legislation has always envisaged the establishment of NAMA group entities such as the proposed master SPV.

The importance of keeping NAMA bonds off balance sheet should not be taken lightly. As a small country, our having our asset relief mechanism on balance sheet while other countries have theirs off balance sheet could create significant anomalies when international market analysts or investors are comparing Ireland to others as regards EUROSTAT debt and deficit statistical returns. The Minister for Finance has consistently stressed that the statistical treatment does not change the fact that operations of NAMA will lead to an overall increase in the number of the State's potential liabilities. Neither should it be overlooked that these liabilities will be matched by a countervailing asset holding. Therefore, we have never suggested NAMA's being off balance sheet implies no net potential liability to the State. On this point, the Government will continue to take the necessary measures to stabilise the position of the public finances and protect the State's ability to fund itself. It was never suggested NAMA contained no risk. However, the Bill contains risk sharing mechanisms such as part-payment in subordinated debt and the imposition of a tax surcharge on the participating financial institutions to protect the citizens of the State should NAMA, including this SPV, make a loss on its winding up.

How will the master SPV work? It is intended that a master SPV will be established by the NAMA board to conduct the purchase, management and disposal of loan assets which have been identified and valued by NAMA. The master SPV will be a separate legal entity and jointly owned by private investors who will own 51% of its ordinary equity and by NAMA which will hold the remaining 49% ordinary equity. The subscribed capital of the master SPV is likely to be €100 million which has been accepted by EUROSTAT as being appropriate. The master SPV will be run with the objective of making a profit on the purchase and management of the assets it acquires from the financial institutions. This will be for the overall benefit of taxpayers and the potential return to private investors is capped annually and at maturity. If the master SPV makes a loss in its lifetime or is wound up, the equity invested in the master SPV and associated undeclared dividends will be lost.

Senators should bear in mind the following important points. A detailed legal shareholder agreement will be put in place to ensure that at all times the NAMA board will have a veto over all the master SPV actions and decisions. This will protect the NAMA board which has significant responsibilities but also the interests of all Irish citizens. The Minister for Finance has indicated he intends to issue a direction to the board of NAMA that not a single decision should be made or allowed to be pursued by the master SPV which will not be in the best interests or in line with achieving the objectives and purposes of the NAMA legislation. In addition, the use of private investment in this way is not unprecedented. It will bring the Government accounting debt treatment of the Irish asset relief measure into line with other European financial stability and relief measures.

Following concerns raised by Deputies on Committee Stage in the Dáil to have the NAMA SPV and group entities addressed in more detail in the legislation, the Minister for Finance has made a number of alterations to the Bill. The changes confirm that certain provisions explicitly apply to NAMA group entities, including the master SPV. For example, amendments made ensure the Prevention of Corruption Acts will apply to all directors on the boards of NAMA group entities which include the master SPV and that duties applying to NAMA board members will also extend to the boards of NAMA group entities. In addition, the detailed reporting requirements in Part 3 of the Bill will also specifically apply to the activities of NAMA group entities.

The decision in respect of selection of an investor or investors is a matter for the board of NAMA. The legislation provides a robust process for the appointment of NAMA board members, requiring that they have senior level experience and expertise in relevant areas. The Minister for Finance has indicated that he will consult the Opposition leaders on appointments to the board in the interests of creating all-party confidence in the board. It will then be an executive matter for the expert board to select the appropriate investor or investors of high repute. Having said this, I expect the board of NAMA to have a preference for large, institutional, long-term investors such as pension funds or large insurers.

A major difficulty I see relating to the Senator's proposal would be the logistical challenge involved and the likelihood that the capital would not be raised in time to have NAMA up and running as projected under the draft NAMA business plan. Having NAMA operational as soon as possible is critical to addressing the threat posed by certain portfolios of risky assets to the Irish financial system, thereby ensuring these institutions can provide much needed credit for the economy. This could not be guaranteed if the Senator's proposal were accepted. We have seen how perceived potential delays have received negative commentary in the domestic and international media and the resulting reported negative market sentiment towards the NAMA proposal on foot of this. On that basis, I thank the Senator for his proposal but cannot support his motion.

Senator Liam Twomey

That is short-sighted. The Government should have gone ahead with a proposal like this because it would bring people on board. Overcoming the time delay and logistics issues would be straightforward if the Government had the will. The most appropriate investors and those of highest repute are our citizens. International and domestic media perception would be positive if it looked like the people of Ireland were buying into the Government's proposal to establish an SPV to run NAMA.

Rather than dismissing our proposal so dispassionately, perhaps the Minister for Finance should have taken it on board and made it work. The citizens would be the best people to involve. Other vehicles to manage the €51 billion could easily have been established. The amount could have been taken out of the Government's funds and, as the units were sold off to our citizens, the exposure would have lessened. If all the units were not taken up, inviting international and other investors to take up the remainder would have been easy. Encouraging people to buy into NAMA in this way could have been easy, but it is regrettable that, according to the Minister, such an opportunity will be missed.

Deputy Éamon Ó Cuív

As is obvious from my reply, there is a risk element. For citizens with small savings, it is better to avoid risk. If people want to invest, they can invest in the post office, which is Government run, if they want to help the Government. People are more than welcome to do so. I do not see the great advantage in encouraging people who are not professionals to take risks with their money when they could make the same contribution to the Government through risk-free investments.

It is tragic that some people I know got bad advice in the past four or five years. I always advise my constituents to take no risks if they have few means. However, the people in question invested in bank shares and so on, but people of low means cannot afford such risks. They could have opted for a smaller return and been much safer. If the Senator wants to encourage people to take ownership, the best way to do so is by buying fixed return Government securities.

Senator Liam Twomey

Some people would understand the high risks involved and would still like to participate in a scheme that is fundamental to our financial, political and economic systems. People have taken risks and been burned, but they were also burned in the purchase of their houses after the comments of the former Taoiseach. I do not underestimate the Minister's comments, but some people who would genuinely like to be a part of this feel as if they are being excluded from NAMA's ownership and the future of our economic system. If the Minister is dismissing their ability to understand it and their opportunity to own it in favour of large investors, I suppose we must accept it.

Deputy Éamon Ó Cuív

I am delighted because the Senator's proposal is a significant vote of confidence in NAMA by his party. I welcome this after a long and comprehensive debate. People are converging on NAMA being the way out.

I believe in the theory of proportionate risk. One must consider two elements when taking a risk, the first of which is knowledge. Professional investors are always in a better position to make a judgment. Second, the risk multiplied by the proportion of one's total resources is an important equation. Those who are of little resources and take high risks are always the ones to lose. I have outlined the position and we believe that our decision is prudent and right.

Senator Liam Twomey

Irrespective of my party's views on NAMA, that the Minister is prepared to reject this proposal shows the Government's lack of confidence in its own proposal.

The Seanad adjourned at 3.55 p.m. until 10.30 a.m. on Monday, 9 November 2009.