The NTMA’s new broom

Conor O’Kelly, the new chief executive of the NTMA, is inheriting a very different organisation from the one that Michael Somers built up over the years

4th December, 2014

Beginning in the 1990s, and right up until a few years ago, the National Treasury Management Agency (NTMA) used to publish its annual results after the markets closed on New Year’s Eve. A few members of the press would turn up late in the evening to speak to its founding chief executive, Dr Michael Somers, and to the few officials who had stayed on when most people would be off to celebrate the New Year.

The jovial and relaxed Somers, chief executive since 1990 and an experienced civil servant, would run through how much the agency had saved on debt interest costs. One of the anecdotes he told was about how, when he took charge, the national debt was equal to 100 per cent of the size of the economy and the interest bill sucked up 27 per cent of all tax revenues. By 2007, under 4 per cent of taxes went on interest. In fact, Somers said, just four months of tax revenues would have paid it off entirely.

For Conor O’Kelly, who was appointed last week to become just the third chief executive in the NTMA’s history, the picture is very different. Irish government borrowing costs may have fallen to record lows earlier in the week – 1.42 per cent was the yield on ten-year bonds, compared with more than 14 per cent at the height of the eurozone crisis in 2011 – but the 54-year-old Dubliner won’t be inheriting a benign scenario.

The gross national debt at the end of October was approaching €205 billion. The debt-to-GDP ratio is hovering at just under 120 per cent and 19 per cent of taxes go to service the debt.

The process of recruiting a new chief executive has been relatively swift since John Corrigan, one of the NTMA’s first employees when he joined from AIB Investment Managers, signalled his retirement. The Dublin-based headhunter Merc was brought in to handle the process that looked at internal, Irish and international candidates.

Few people would have put O’Kelly’s name on the list. While the Sutton-based O’Kelly has worked in fixed income for Barclays de Zoete Wedd, his background as chief executive and part-owner of NCB (once the country’s third-biggest stockbroker) makes him a surprising choice to join the public sector – even in a role that has some resemblance to a trading house.

Having stepped down as deputy chairman of Investec in Ireland, which bought NCB for €32 million in 2012, at the start of this year, it was clear, however, that he was looking for a fresh role. It will not be a soft start.

“As soon as he puts his feet under his desk, he’ll have to go to the market,” said a source. “There are a lot of things happening on the funding side next year. And the NTMA usually does something in January.”

The biggest priority for the government is to reduce the drag of repaying the International Monetary Fund portion of the bailout. Given the costly interest rate of almost 5 per cent, it wants the IMF repaid swiftly – every 1 per cent saving on interest rates equates to roughly €200 million extra for the public coffers.

That means €18 billion has to be repaid, probably by the end of next year. Finance minister Michael Noonan last week announced plans to repay €9 billion in IMF debt by the end of the year. The NTMA debt funding team is a small and hugely experienced operation. But Oliver Whelan, the man who led it for many years during the boom and the crisis, has retired, leaving his successor Frank O’Connor and O’Kelly to run the sale.

Assuming that’s a smooth success – and it should be, given the positive sentiment towards Ireland – attention then moves to the agency’s regular funding operations.

One of the NTMA’s goals has been to “pre-fund” Ireland’s borrowings, issuing bonds and treasury bills well in advance of when we have to repay loans.

“There are significant redemptions due in April 2016. There’s a €10 billion bond due to be repaid, and it’s been top-sliced down to €8 billion,” said an economist who tracks the agency. “The cash cost of a lot of the bonds that were issued is quite high. They came with coupons in the high 5 [per cent].”

The economist said the NTMA would want to ensure that much of this expensive debt was rolled over at lower rates and pushed out by years. That means there is plenty of work to be done tapping up investors in the early part of 2015.

If a wall of money needs to be managed by the agency next year, O’Kelly will also have to get to grips with an organisation that has morphed from a simple debt management outfit. Close to 400 people are employed at its headquarters in the Treasury Building on Grand Canal Street in Dublin 2.

It has sprawled to Nama, the State Claims Agency, the National Pension Reserve Fund, the National Housing Finance Agency, NewEra (the body that now oversees the semi-state sector), the Irish Strategic Investment Fund (ISIF) and the Strategic Banking Corporation of Ireland.

“Nama under Brendan McDonagh looks after itself. The NTMA’s role in the banks is not as high profile as it was a few years ago as the banking unit is with the Department [of Finance],” said an insider with detailed knowledge of the organisation.

“But you could be dealing with an issue in any of the others.”

After 25 years where the relationship between the chief executive and the Minister for Finance was the only one that mattered, all is about to change.

The biggest shake-up in the NTMA’s history will occur next year when, for the first time, a board and chairman will oversee the agency.

This is no glossy makeover. Willie Walsh, the head of BA/Iberian Airlines and the former Aer Lingus chief executive, will chair the board which will involve new committee and governance rules.

The internal pressures on the agency are also growing. Nama’s McDonagh told the Oireachtas finance committee last month that the “biggest risk to Nama achieving its various objectives is the very real risk that it will not be able to retain the specialist staff”.

The NTMA has always paid generous salaries so that it can attract employees from the private sector. As the banking and property industries bounce back and start paying bonuses again, the pressure will be on for Nama and the NTMA to meet market rates.

A rival stockbroker said of O’Kelly: “He’s come from a banking and broking background, so you’d expect him to be sympathetic and understand that if you don’t pay these guys, they can go to London or elsewhere. He’ll get that, but will the politicians?”

That will throw up one more thing for O’Kelly. Although well known and liked within the financial community, he is about to become a public figure, required to appear before the Oireachtas.

Michael Somers’s background in various departments meant he was skilled in dealing with both government and TDs in private and at committees. Taking flak from opposition deputies about the pay scales and the myriad of issues that will be thrown up is part of the job. Come January 5, when he moves into the fifth floor of the Treasury Building, O’Kelly will have to get used to that fact. And that’s before even more responsibilities are heaped on the NTMA’s shoulders.

Ian Guider presents Breakfast Business weekdays 6.30-7am on Newstalk 106-108

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