Profile of Nama chief Brendan McDonagh: Ireland's powerful property man refuses to be pushed around

When Battersea Power Station falls into administration on Monday, it will, in no small part, be the doing of one man: Brendan McDonagh. McDonagh – the most powerful man on the London property scene you've probably never heard of – heads Ireland's National Asset Management Agency, or Nama for short. By James Quinn, in Dublin

9:30PM GMT 10 Dec 2011

Having stakes in such landmark assets as the seemingly doomed power station, the Citigroup tower in Canary Wharf and large chunks of Leicester Square, it is perhaps surprising he doesn't have a higher profile.

But then, he is a little backwards at coming forwards.

On Battersea, to which Nama is owed, along with Lloyds Banking Group, debts totalling £324m, he won't comment. But what is happening at Battersea is an example of how McDonagh is thought to view the way forward for some of its prime assets.

It is hoped that placing the riverside site into the hands of administrators Ernst & Young will end years of wrangling between the owners.

More importantly, it is hoped it will help to safeguard the future of the nearby "Embassy Quarter" at Nine Elms, owned by Ballymore but which Nama also has exposure to.

Conceived in April 2009 at the height of the banking crisis, Nama was the embattled Irish government's solution following the nationalisation of Anglo Irish Bank and the recapitalisation of AIB and Bank of Ireland.

Having appointed economist Peter Bacon to study the difference between asset insurance schemes – as adopted by the UK through the asset protection scheme – and asset relief schemes, the then Brian Lenihan-led government chose to purge the big Irish banks of their most toxic loans.

Assets bought by the archetypal bad bank – its role was essentially to cleanse the balance sheets of the three big banks plus smaller institutions in order to protect depositors and allow them to continue trading – ranged from the prestigious to the bizarre, including a car park in Bangor, north Wales.

"Nama was the first in the world in the current crisis to put the losses through," McDonagh notes, somewhat proudly.

After a year of constitutional wrangling and eradicating European concerns over state aid concerns, the first loan transfers took place at the end of March 2010, buying €74bn (£63bn) of loans at a cost of €31.4bn, a 58pc discount.

Of the €74bn of assets on its books at the end of October, 34pc were in the UK, with 57pc in Ireland, 5pc in continental Europe and the US, including Boston and Chicago, and the remainder in Northern Ireland.

But it is Nama's dominance in London, through assets such as Battersea and others, that has perhaps caused the most interest, and for obvious reasons. Not only does the capital contain some of its most high-profile properties, it has also seen the earliest sales.

"The market is stronger in London. The reality is that there is liquidity and there are transactions in the UK market. The buyers of Nama assets in the UK are not generally funded by other banks, they're generally cash purchases being bought by pension funds, insurance companies, sovereign wealth funds or wealthy individuals."

But despite this, McDonagh denies that he is the player he might seem to be.

"This thing about Nama owning the UK is completely overblown. I think at the peak there was €250bn of lending into the UK property market, and Nama's exposure is probably about €10.5bn. So it's very small in the scheme of things."

None the less, activity in London certainly outweighs that in McDonagh's motherland, where bar a handful of transactions – including Google paying €99.9m for Dublin's tallest office building in the city's Grand Canal Dock development earlier this year – deal flow has been near non-existent.

"Everybody is very sore about the property market," he admits about his domestic market, pinpointing an economy in the process of deleveraging and the fact that investors have been perhaps put off somewhat by the austerity measures agreed with the Troika – the European Commission, the European Central Bank and the International Monetary Fund – which funded last year's €67.5bn bail-out.

But what is also a real problem is that because of Ireland's domestic property boom in the decade that preceded the crash, international investors felt somewhat shut out, and so have been reluctant to return.

One of the reasons Nama was so necessary was because of the significant levels of borrowing among a concentrated group of developers, including the likes of Derek Quinlan, who co-owned the Citigroup tower, and Johnny Ronan, whose Real Estate Opportunities has owned the Battersea site since 2006.

Because of the intensity of demand, and the desire by the Bank of Ireland and AIB to emulate Anglo Irish, which was in many ways the poster boy of the property boom, the Irish banks quickly became firmly wedded to the success – and eventual failure – of the property market. Personal research carried out by McDonagh shows that between December 2003 and the end of September 2008, Anglo Irish quadrupled the size of its balance sheet, while the other two institutions doubled theirs.

"There were stories of guys getting 24-hour [loan] approval from Anglo, and probably 48-hour approval from AIB. Whereas Bank of Ireland took six days. And I think that's why Bank of Ireland has managed to avoid state ownership."

McDonagh – chief financial officer of the €20bn national pension reserve fund before being asked to run Nama – doesn't appear to blame the banks per se, more the environment they found themselves in, both commercial and regulatory.

"The borrowers were effectively taking money from every bank they could and were perceived to be very rich," he explains. Part of the difference in the interaction with the UK property market was that rather than stick to typical Irish enclaves such as Cricklewood and Neasden in north London, this new breed of developers had very ambitious tastes, leading to Nama taking on property across the capital, from Kings Road in the west to the Isle of Dogs in the east.

"But the reality was that it wasn't just the Irish banks who were lending to these borrowers, these guys were borrowing from Bank of Scotland Ireland [part of HBOS], borrowing from Ulster Bank [part of RBS] and from subsidiaries of Rabobank and Danske Bank.

"If you were in the bank, your targets and bonuses were based on sales of loans, and you needed these guys as they were seen as the guys to have. I think there was a failure of regulation," he says, "but that's spilt milk."

The speed with which transactions have taken place has also been up for debate. After admitting in April it intended to speed up the sale of some of its London assets, speaking to local property agents in his home city there is a sense that Nama has not gone fast enough in Dublin and surrounds.

Indeed, McDonagh himself told a conference last week that 80pc of sales to date had been outside Ireland.

Structurally, he believes that, given attractive yields and a surfeit of property far lower than media reports suggest, there is no reason why the market will not return, to Nama's advantage.

But has it hit the bottom yet? "People say, 'Do I need to get in now or do I need to go a little bit further?' That's the call people are making now, and I think it's probably that much [he pinches his fingers] away from that," he says.

At the same time – despite an Irish government study into Nama conducted by former HSBC chief executive Mike Geoghegan, which was incorrectly reported as suggesting the whole body could be imminently sold en masse – he insists he is in no rush to sell the assets within.

"The difference between Nama and the other banks operating in the UK is we've taken the write-down on the loans. The way I want to run Nama is that we keep ourselves liquid and strong. We will sell, but we'll sell at the right price… we're not going to be forced sellers or fire sellers."

McDonagh has another eight years to run off the portfolio based on Nama's
10-year life span, with the only other obligation being a commitment under the Troika bail-out to repay €7.5bn by the end of 2013.

Having approved sales of €5bn, in addition to €1.6bn already paid off, and €2.5bn in the bank, the quiet but quickly spoken first man of Irish property is not going to be pushed around.

Brendan McDonagh CV

Age 43
Education Dublin Institute of Technology
Current job chief executive officer, National Asset Management Agency
Previous job finance director, National Treasury Management Agency & Pension Reserve Fund

Nama facts and figures

€74bn: value of Nama's initial property portfolio

€31.6bn: amount Nama paid for the initial portfolio, a 58pc discount on average

25pc: amount of portfolio Nama must sell by end of 2013 to meet Troika bail-out commitments

34pc: percentage of Nama loans based in the UK, against 57pc in Republic of Ireland

2020: date by which, under current legislation, Nama must have wound up and sold all assets within Construction and Property

In Finance» In Construction and Property Hidden nasties that stop your home from selling You'd be crazy to buy a home right now
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