Developers have begun taking legal advice on whether they can avoid having their loans moved into the proposed National Asset Management Agency (Nama), and some solvent developers are considering no longer paying their interest bills because they believe they will be driven into bankruptcy when Nama is created.
"What's the point in paying the interest," said a senior executive at one development company. "We've worked our nuts off to make thing work and to have performing loans. We're going to be screwed to balance against the developers who messed up. They're hijacking the income from the assets to pay for the revenue they have to pay out on the bond [that the government will use to fund the acquisition of Nama's loans]. Are guys supposed to work out these problems for nothing? Because once something goes into Nama you're effectively no longer involved. The income is ringfenced so they'll take it away and cripple you. This thing is ferocious."
The same source criticised the lack of information being given to developers. "There's a lot of rumour and counter rumour about… There's very little detail in it about what will happen to the developers. We've got to run around and scratch and try to find out information."
One of the country's most prominent developers said the lack of communication was creating huge uncertainty. An abridged summary of Peter Bacon's proposal for Nama was circulated to the media at the announcement of its creation but was not given to developers, and the Sunday Tribune had to send several of them copies of it. The document has since been put up on Nama's website.
"I'm very worried about the haphazard way they're going about setting it up," said the head of one of another of the country's top development companies, which is solvent. His main concern is that the government may not have enough clarity or information to hand before launching Nama.
Developers also say the banks have pulled down the shutters on working capital because, they point out, they won't get the full value back when assets are moved into the agency. "Senior guys in the banks don't know how and what loans will be moved into Nama," said a senior stockbroking executive. "The banks are paralysed. Guys are going to lose their jobs in the banks, that's a given, so if you support a particular developer how will that be viewed in a post-Nama world?"
Several development sources suggested that, ahead of the creation of Nama, AIB is engaged in a review of loans where it allowed developers roll up interest. However, the bank said it "continues to engage with customers". Sources close to the bank insisted there was no concerted campaign against those loans ahead of Nama coming into operation.
The development sources also said developers who were not paying any interest on their loans were being put under pressure to pay something by the banks because the banks believe Nama will pay a higher premium when it buys a loan if it is shown to be even partially performing.
One source said last week that developers are coming around to the idea of Nama but believe only large loans should be placed in it. This would tally with an increasing belief by bankers that only large cross-collaterised loans should be placed in the body. Bacon has been clear from day one that the property and development loans are a tumour that must be removed in one go. Problem is, this government has proven itself incapable of making the hard decision on day one. As a result, the risk remains that both the banks and Nama will both not function after this comes into effect, resulting in further hits to the taxpayer.