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Puffer’s paradise named Nama

Posted on: September 6th, 2009

WHAT happens when an able minister is boxed into a bad project — and an even worse government?

We are about to find out.

Last Monday, Brian Lenihan led a team of Nama zealots into a committee room in the bowels of Leinster House.

TDs and senators assembled to challenge the minister on the details of his plan to buy all those nasty assets from the banks.

We should have known better. Brian may be hopelessly impaled on the Nama hook but he is big into detail. The Minister for Finance is looking like the only guy in the government with a competent knowledge of his brief.

His senior colleagues are becoming more embarrassing by the day. The highlight of Taoiseach Brian Cowen’s week was a tortuous launch to the second Lisbon campaign; his Tanaiste Mary Coughlan surfaced trying to pull a public relations stunt when announcing a token replacement for the collapsed aircraft firm, SR Technics.

While both Taoiseach and Tanaiste looked withered, Lenihan was bright as a button. He prolonged the committee meeting for four-and-a-half hours, never once sought relief for a natural function and insisted on answering all questions.

None of us laid a glove on him — on detail.

A competent minister. A pity about the project. A pity about the government.

A pity, too, about the platform party accompanying him.

Lenihan was flanked by Nama chief Brendan McDonagh and property guru John Mulcahy — the latest convert to Nama. John comes from the Jones Lang LaSalle auctioneering stable.

Mulcahy was the rabbit pulled out of the hat for the meeting, the “expert” designated to tell us why the Government should pay top dollar for properties trading at lower levels elsewhere.

Mulcahy was not big into humility. Helpfully asked by Fianna Fail TD Frank Fahey about his credentials for the job, he related how he had been a “bear of property for the last four years”, how he had lost speaking gigs as a result, and was not very popular for his views.

Wow! How lucky we were to have John safe in the service of the nation. This unsung prophet of the property bust was finally being recognised by the taxpayer.

It later emerged that his bearishness was not unqualified. Just over two years ago, as the property market was turning downwards, the latest sailor on the sinking ship Nama had also been a bit of a bull.

Reflecting on the 10 per cent increase in office take-up in the first-half of 2007, Mulcahy said: “The prospects for the second-half of 2007 and the next year look equally promising, with a number of major users . . . seeking proposals for suitable office accommodation.”

What alarmingly familiar auctioneering puff.

Which uniquely qualified Mr Mulcahy for the vacant job of Nama’s “national puffer”.

He confirmed his fitness for the new position when he trotted out statistics indicating that, historically, property prices rebound by 88 per cent within seven years of their troughs.

John Mulcahy personifies the perversity of Nama. He is being employed by the buyer (the State) to puff the sellers’ properties. While Mulcahy will officially be acting for the State, the selling banks will be cheering him on from the sidelines. Quite a perverse position.

The whole Nama industry will row in behind him, including “independent valuers”, soon to be appointed to price those worthless Nama assets. According to reliable reports, all the usual suspects have already tendered for work as Nama valuers. Not surprising, as it is the only work in town.

Auctioneers like Lisneys, Gunne, Sherry FitzGerald and Douglas Newman Good are expected to pitch for the gigs. The same guys who puffed the property market for nearly a decade will be ideal “independent” valuers of Nama’s properties.

They had so much spoofing practice in the boom years that puffing the Nama properties will be second nature to them.

The contorted concept of “long-term value” being different to “current market value” will present no difficulties. Back in the halcyon days of “guide prices”, the same guys helped to conjure up an earlier fantasy property market. By comparison, cooking up Nama prices will be a doddle.

Parallel with the fantasy world of the Oireachtas committee last Monday, a closely connected court case was nearing a climax.

Fellow fantasists had been taking a pasting in the more realistic atmosphere of the Four Courts in recent weeks. Their lordships have given a reality check to the magic dust being poured on the business plan of Liam Carroll’s Zoe Developments.

Somehow, the hopelessly insolvent Zoe has made a monkey of the examiner process, designed to protect a troubled business from its creditors. Zoe’s appeal from ACCBank’s attempts to put it into receivership has been thrown out by the Supreme Court — but somehow Zoe is back again in the High Court seeking a different answer to the same question.

Like Nama, Zoe’s survival depends on convincing the beak that property prices will rise. In pursuit of this goal, Zoe marched its own army of property fantasists into the courtroom.

Carroll’s legal team produced a report from accountants KPMG, maintaining that Zoe could see its assets rise to €1.36bn in less than five years. KPMG also happen to be auditor to AIB, Carroll’s biggest creditor. Presumably the blue- blooded auditors declared this fact. Carroll owes AIB nearly €500m.

An optimistic report from Goodbody Stockbroker’s economist Dermot O’Leary was offered by Carroll’s counsel as a reliable forecast that the general recession would bottom out in 2010, followed by a recovery in 2011. Goodbody is owned by AIB. Presumably this was declared in court?

AIB is not opposing Carroll’s court bid to keep the receiver at bay. Like the other banks, it wants to see Carroll’s loans bought at inflated Nama prices. All Zoe’s other creditor banks except one — the foreign owned ACCBank — are taking the Nama line.

The entire Irish establishment is backing Carroll’s bid for an honoured place in the world of fantasy valuations.

Next, the predictions of auctioneers CBRichard Ellis Gunne and Hooke and McDonald were read out, claiming that the property market was already improving. Such forecasts from our auctioneering friends have a familiar ring.

It was so far so good for Carroll, but the bombshell was the appearance in court of the latest work of UCD professor Morgan Kelly, the noblest hero of the entire property boom-to-bust.

Two years ago, Kelly was vilified by the establishment as a head-banger for predicting that property prices would fall by 50 per cent. Today Kelly has more credibility on property valuations than the combined wisdom of all the flawed auctioneers, bankers and compromised economists in the entire nation. Kelly compounded his heresy in early 2008 by brilliantly predicting a banking collapse.

Kelly’s latest report suggests that property values could easily stick around — or below — their current low levels for a decade. Not music to the ears of Nama zealots.

Such independent courage in the face of the big battalions is rare. Kelly is the nemesis of bankers, auctioneers, mandarins and regulators. That gives him credibility.

Brian Lenihan should ask him to join the State’s property team. The master of detail could recruit a man capable of putting him right on the big picture.