Laois TD launches report of Dáil investigation which finds that NAMA was 'seriously deficient' in NI property sale

Sean Fleming introducing report on sale of property crash loans which cost taxpayers €3.55 billion

By Conor Ganly

Reporter:

By Conor Ganly

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news@leinsterexpress.ie

Laois TD launches report of Dáil investigation which finds that NAMA was 'seriously deficient' in NI property sale

Laois TD Sean Fleming has announced the findings of an inquiry into how NAMA sold a property crash loan book which culmimated in the €3.55 billion loss for taxpayers.

Through the so-called Project Eagle the State ultimately only recovered 36% of the original par value of these Northern Ireland loans taken over by NAMA following the property crash.

Sean Fleming is Chair of the Dáil Public Accounts Committee which investigated the porcess.

"It is the view of the Committee that the sales strategy pursued by NAMA included restrictions of such significance that the strategy could be described as seriously deficient. It is, therefore, the opinion of the Committee that NAMA has been unable to demonstrate that by pursuing such a strategy that it got value for money for the Irish State in relation to the price achieved," said the Fianna Fáil TD.

The Committee concluded that:

• the sale of Project Eagle was not a well-designed sales process.

• NAMA’s failure to effect Mr Frank Cushnahan’s removal from NAMA’s Northern Ireland Advisory Committee, following his disclosures in relation to provision of consultancy services on behalf of a number of NAMA’s Northern Irish debtors, was a failure of corporate governance by NAMA.

• the NAMA Board was not explicitly informed of the extent of the financial loss which would be recorded in NAMA’s accounts as a result of setting the minimum reserve price of STG £1.3 billion.

• key elements of the Sales strategy were influenced by the firm, PIMCO, which made the initial approach to NAMA in respect of buying the Northern Ireland portfolio.

• the sales strategy pursued by NAMA included restrictions of such significance that the strategy could be described as seriously deficient

• NAMA has been unable to demonstrate that by pursuing such a strategy that it got value for money for the Irish State in relation to the price achieved.

Statement made by Deputy Fleming at the launch of the Report into the Examination by the Committee of NAMA’s sale of Project Eagle.

On behalf of the Public Accounts Committee, I want to thank you for attending today at the launch of the Committee’s report into NAMA’s sale of Project Eagle.

In June 2014, NAMA sold its Northern Ireland remaining portfolio of loans in a single lot to Cerberus for a price of STG £1.137 billion. The sale of the portfolio was code named Project Eagle.

The Comptroller and Auditor General (C&AG) carried out an examination because of the size of the sale and the recorded losses associated with the sale.

In his Special Report, Number 94 he criticised elements of NAMA’s performance in relation to the sale.

While the conclusions of the C&AG’s report would in any event merit considerable attention by the Committee, the fact that some of the contents were so vigorously disputed by NAMA made closer examination by the Committee essential.

The Committee is mindful that there are a number of ongoing investigations in relation to Project Eagle in Ireland and other jurisdictions and we sought not to prejudice any of these.

I wish to draw attention to some key aspects in our Report:

Financial Outcome

The focus of the Committee was to concentrate on the actual financial outcome and the actual losses incurred.

In evidence to the Committee the CEO of NAMA accepted that NAMA recorded a loss of STG £162m in its accounts on the sale of Project Eagle.

NAMA incurred losses in respect of its Northern Ireland debtors of €800m during the period of 2010 to 2014. This figure includes the loss of STG £162m on the sale of Project Eagle.

The Committee looked at the overall picture in relation to all the loans that were acquired by NAMA and the original par value of these loans.

When NAMA acquired its Northern Ireland debtors’ loans in 2010 and 2011 they had a par value of €5.38 billion. 46% of these were acquired from Anglo Irish Bank and the remainder from the other banks.

The €2.75 billion discount on the original par value of these loans was a cost borne by the State. This €2.75 billion loss was realised prior to the loans coming under the control of NAMA.

When this figure is added to the €800m losses incurred by NAMA, the total combined losses on these loans borne by the State was €3.55 billion. The State ultimately only recovered 36% of the original par value of these loans.

Cerberus, a private investment firm based in New York, was the successful bidder for Project Eagle.

Cerberus went on to make further purchases from NAMA. Up to the 22nd December 2016 Cerberus had purchased €14.4 billion of assets from NAMA: This is 20% of the total par debt of €74 billion acquired by NAMA.

Cerberus, is the biggest purchaser of NAMA assets having bought more than the next 4 largest purchasers combined.

Corporate Governance

Mr. Frank Cushnahan was a Member of the Northern Ireland Advisory Committee. During 2011 and 2012 Mr. Frank Cushnahan submitted 6 disclosures of interest stating that he was providing financial consultancy services, mainly on a non-fee basis to 6 NAMA NI debtors.

These debtors’ connections accounted for approximately 50% by value of the Project Eagle loans.

It is the opinion of the Committee that NAMA’s failure to effect Mr. Frank Cushnahan’s removal from NIAC, following his disclosures in relation to consultancy services on behalf of a number of NAMA’s NI debtors, was a failure of corporate governance by NAMA.

The NAMA Chairman and CEO met with the Cerberus Chairman on the day prior to the bid closing date for Project Eagle.

The Committee is of the opinion that the Board should have been informed of this meeting when the Board met on the 3rd April 2014 and agreed to sell Project Eagle to Cerberus.

The Committee considers that it was not appropriate for NAMA, as the contracting body, to meet with Cerberus representatives the day before the Project Eagle bid closing date. It could have given the perception that Cerberus was benefiting from preferential treatment.

The Committee considers that it was not procedurally appropriate for the Minister for Finance to meet with senior Cerberus representatives the day before the Project Eagle bid closing date. This could have given the perception that Cerberus was benefitting from preferential treatment.

 
Sales Process

NAMA first became aware of interest in its Northern Ireland loan portfolio when it received a letter on 4th July 2013. Subsequently NAMA received a letter from PIMCO expressing interest in purchasing the portfolio. On the 4th December 2013 PIMCO submitted an indicative bid to NAMA of STG £1.1 billion to STG £1.3 billion subject to due diligence.

The Comptroller and Auditor General stated that he arrived at the figure of a probable loss of STG €190 million arising from his analysis of the cash flow projections which had been created by NAMA. He indicated, however, that the figure could have varied, up or down.

In his report the C&AG raised concerns in relation to a number of assumptions used in arriving at estimates of the net present value of the loans as presented to the NAMA Board. These concerns are highlighted in Paragraphs 116 and 117. Table 7 on Page 48 gives a concise reconciliation of NAMA’s and the C&AG’s valuations.

However, it must be stated that the overall actual loss incurred on the sale of Project Eagle was STG €162 million.

The NAMA Board was not informed of the extent of the financial loss which would be recorded in NAMA’s accounts as a result of setting the minimum reserve price of STG £1.3 billion.

When the Board was deciding to set its minimum price they already had an indicative offer on the table from PIMCO. When you compare the PIMCO offer to the actual sales process approved by NAMA, there are remarkable similarities in terms of: sales strategy, sales price, sales process and financial conditions.

I believe that NAMA was influenced by the PIMCO offer when deciding on the minimum reserve price and key elements of the sales process.

On the 13th February 2014 there were media reports on PIMCO’s approach to NAMA. Following this loss of confidentiality, NAMA/Lazard refused entry to 8 of 10 firms expressing an interest in joining the sales process.

It should be noted that Fortress was one of the 2 firms admitted into the process at that time and ultimately only Fortress and Cerberus submitted bids for Project Eagle.

The NAMA Board on the 3rd April 2014 considered a paper comparing the 2 bids from Cerberus and Fortress. The Fortress bid was STG £155 million below the reserve price. The Cerberus bid was STG £11 million above the reserve price, The Board agreed to continue negotiations with Cerberus with a view to closing the Project Eagle sale.

Lazard, NAMA’s loan sale advisor, provided a report to NAMA which referred to a number of restrictions on the sales process. This combined with Lazard’s limited role has to be taken into consideration when reading the letter of comfort that Lazard ultimately provided to NAMA in relation to the sales process.

In relation to market valuations NAMA provided a letter in May 2016 which included definitions of market value from 3 reputable bodies. All 3 definitions shared a common theme that the market value ultimately requires willing participants and a well-designed sales process.

The Committee is firmly of the view that the sale of Project Eagle was not a well designed sales process and accordingly these definitions of market value are not relevant to the sale of Project Eagle.

It is the view of the Committee that the sales strategy pursued by NAMA included restrictions of such significance that the strategy could be described as seriously deficient. It is, therefore, the opinion of the Committee that NAMA has been unable to demonstrate that by pursuing such a strategy that it got value for money for the Irish State in relation to the price achieved.


Public Accountability

NAMA is accountable to the Public Accounts Committee.

Accordingly the level and standard of public accountability is determined by the Public Accounts Committee and not by NAMA.

For there to be satisfactory public accountability it is essential that the Public Accounts Committee be provided with information on the reasoning and factors taken into consideration when decisions were arrived at regarding the sale of Project Eagle.

The decision to destroy and not retain contemporaneous notes of Board meetings has undermined NAMA’s ability to explain and account satisfactorily to the Public Accounts Committee in relation to its decision making processes.

The full report can be accessed here