COMMITTEE OF PUBLIC ACCOUNTS debate -
Wednesday, 26 Oct 2011

2010 Annual Report and Financial Statements: Discussion with National Asset Management Agency

Mr. Frank Daly (Chairman, National Asset Management Agency) and Mr. Brendan McDonagh(Chief Executive, National Asset Management Agency) called and examined.

Chairman

Before we begin I remind members and those in attendance to switch off mobile telephones as they interfere with the transmission of the meeting. I advise witnesses that they are protected by absolute privilege in respect of the evidence they give to the committee. If they are directed by the committee to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they do not criticise or make charges against a Member of either House, a person outside the Houses, or an official by name or in such a way as to make him or her identifiable.

Members are reminded of the provision within Standing Order 158 that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government, or the merits of the objectives of such policy or policies.

I welcome Mr. Brendan McDonagh, chief executive, National Asset Management Agency, and invite him to introduce his officials.

Mr. Brendan McDonagh

I am accompanied by Mr. Frank Daly, chairman of NAMA, Mr. John Mulcahy, head of portfolio management, Mr. Brian Finn from the Department of Finance, Mr. Pat Leahy, Department of Finance, Mr. Brendan Murphy, director of finance, technology and risk at NAMA, and Ms Aideen O'Reilly, head of legal and tax at NAMA.

Chairman

So the Department of Public Expenditure and Reform-----

Mr. Pat Leahy

Actually, the note is incorrect. It is the Department of Finance.

Chairman

I invite Mr. Buckley to introduce these accounts.

Mr. John Buckley

The implementation of the tasks assigned to NAMA will take place over a number of stages from the acquisition of the loans from the participating financial institutions up to ultimate disposal of either the loans or associated collateral. Up to this point, the principal developments that are in train are the bulk of the loans have been taken over - although, the price has not been finally settled for some of those assets; NAMA has begun to manage the loans of those larger borrowers with multiple facilities in a combined, joined up way; it is seeking to draw up agreements with those borrowers that set out the debtor obligations to it; and it has begun to approve the disposal of some of the underlying collateral

The initial financial statements of NAMA for the year ended 31 December 2010 reflect the status of the NAMA project at that point. In future years, the content of the accounts is likely to change as the result of work-out activities including disposals of loan assets and underlying collateral take place.

Up to the end of 2010, NAMA had taken over loans from the participating financial institutions that had a book value of €71 billion. It paid €30 billion for those assets. From a balance sheet valuation perspective, around 53% of the loans acquired had been fully valued and the due diligence process finalised. The balance of the loans was acquired in bulk on a basis of interim valuation rules set by statutory instrument. The take on value recorded in the accounts for this set of loans was subject to adjustment. The chief executive officer will be in a position to update the committee on the extent of any subsequent adjustment to the value recorded on the balance sheet for these bulk transfers.

The accounts, which consolidate all NAMA activity, were drawn up under international financial accounting standards and have received a clear report.

My audit opinion drew attention to two material uncertainties and caveats that pertain to the accounts. First, the terms of the floating rate note instruments used by NAMA to pay for the loan assets do not provide an express right for NAMA to issue new floating rate notes when these short-term debts mature. The accounts assume that replacement funding will be available to the agency when the notes expire. Second, the impairment or reduction in value of the assets recorded in the accounts is based on cash flow projections made by management. Actual cash flows and their timing may differ significantly from those projections.

The accounts are complex, and reflecting the nature of the business, necessarily mirror the presentation that would be adopted by a financial institution under accounting standards. The key message in the accounts is that the net loss incurred by the agency was €1.1 billion. The loss was largely attributable to the fact that by 31 December 2010 the assets acquired had diminished in value by some €1.5 billion. The balance sheet, in turn, reflects that drop in the value of the loan assets acquired equivalent to this impairment in value.

In interpreting the reported results, some factors that derive from the accounting base that need to be taken into account are as follows. The receipt of the loan interest income reported may not occur for a number of years and, consequently, users may find it helpful to focus on the cash flow statement as a useful record of cash movements. The fact that level of reported impairment is based on judgments made in the course of the debtor review process and, as required by accounting standards, the impairment does not take account of post year-end value reductions in value.

Specifically, the results only take account of impairments or reductions in value that are estimated to have occurred up to 31 December 2010. Where additional cash flows were identified in reviews of the debtors' business plans, these offset the impairment to the extent that they do not exceed the value in NAMA's books. Where they exceed this carrying value they are not, in compliance with accounting standards, set against the impairment provision. The figures reported are heavily reliant upon estimates and judgments made in the context of an Irish property market where there was a low level of transactions.

While the audit concluded that these estimates and judgments were reasonable based on the information available, they will need to be kept under review and further adjustments may be necessary in subsequent accounting periods.

I draw attention to the fact that an initial special report on NAMA, published in October 2010, outlined the asset acquisition process, the governance structures put in place to run the agency and how the agency was handling procurement and resourcing. The special report found that reasonable steps were being taken by NAMA to establish a structure and systems to enable it to put its mandate into operation. A further special report will be finalised in the coming months.

Chairman

I invite Mr. McDonagh to make his opening statement.

Mr. Brendan McDonagh

In our discussion today on the NAMA 2010 annual report and accounts, I propose to refer to some of the key issues arising from the accounts, to update the committee on progress made this year and to outline some of our plans for the years ahead.

The year 2010 was a pivotal and challenging year in the evolution of NAMA. As an organisation, we began the year with seven members of staff and a board that had been appointed only days before the start of 2010. We ended the year with more than 100 staff and a portfolio of loans with nominal balances in excess of €71 billion. The securities we paid as consideration for the loans meant that more than €30 billion could be injected into the banking system during the year. We also began the process of engaging with the major debtors whose loans had been acquired and we set in train the necessary asset enhancement and work-out programmes of asset disposals and setting of debt repayment targets for debtors which, in turn, will enable NAMA to pay down its debt over time.

There was an enormous effort involved in 2010, and again this year, in conducting the necessary due diligence and valuation of the loans transferred from participating institutions. A recent transfer of close to €2 billion completes our acquisition and brings the total portfolio of acquired loans to €74.2 billion. For this we have paid €31.7 billion to date; the consideration will be finalised when we have completed the full due diligence and valuation, although the final figure is unlikely to deviate materially from the consideration paid to date or the overall discount of 58% that we estimated last year.

The loan assets that we acquired generated a net operating profit of €305 million for us in 2010 but the requirement to take an impairment charge of €1,485 million resulted in an overall loss of €l,180 million. As the accounting issues involved are not necessarily straightforward, I would like to dwell briefly on the question of the impairment charge. Under international financial reporting standards, IFRS, rules, we are required to review our loan portfolio for impairment at each year end reporting date, that is, 31 December. A loan is considered to be impaired if its recoverable value, as updated, is less than its carrying value on our books at the reporting date. Under IFRS rules, we were required to assess impairment by reference to whether or not a debtor was deemed to be individually significant. For an individually significant debtor, the question that arises is whether there is objective evidence of impairment in each particular case. As for debtors who are not considered to be individually significant, the question becomes whether there is evidence of impairment, either individually or collectively.

The debtors deemed to be individually significant as at the end of 2010 were those whose loans were acquired in the first and second tranches and whose business plans we had assessed. Those loans had a carrying value of €13.3 billion or 44% of total NAMA debt. The valuation methodology approved by the European Commission required the adoption of a standardised approach to the valuation of loans, including standardised assumptions about the timing of asset disposals and the treatment of certain asset classes. As part of the detailed engagement with the tranche 1 and tranche 2 debtors, many of these standardised assumptions had to be revised to reflect the outcome of our review of debtor business plans and to reflect the market environment and economic conditions in this country and outside of it. It also included updated valuations of certain property assets. Loans had initially been valued by reference to property valuations as they stood on 30 November 2009. As prices in the Irish market continued to fall subsequently during 2010, that obviously had an impact on the value of the property collateral securing the loans and, therefore, ultimately on the proceeds likely to be realised from planned asset disposals by debtors.

Based on the case-by-case review, we recorded an impairment provision of €719 million, or 5.25% of the carrying value, against the loans of individually-assessed debtors. It should be pointed out that one of the features of IFRS rules is that, where NAMA projections of expected cashflows indicate that it will realise more than the carrying value of the loans, it is precluded from recognising such potential gains until they are realised. On the other hand, potential expected losses must be recognised immediately. The impairment provision is not reflective of an actual loss that has occurred but a possible projected loss.

Debtors in the third and later tranches, representing loans and related derivatives with a carrying value of €16.1 billion, the residual 56% of NAMA debt, had not been individually assessed at the end of 2010 and these debtors were therefore included in the collective assessment. In the absence of relevant historical data on likely default rates and given that we had very limited knowledge of the debtors as neither due diligence nor business plan reviews had been completed, the collective impairment assessment was particularly challenging.

We considered the best guide available to us was the impairment information derived from the review of the individually-significant debtors. The average impairment rate for the individually-significant debtors was applied to the collectively assessed loans, with some adjustments being made for specific outlier impairments which are deemed not to be relevant to collectively-assessed debtors. Arising from that, a collective impairment provision of €766 million, or 4.8% of carrying value, was recorded against the collectively-assessed loans. That resulted in a combined impairment charge of €1.485 billion for 2010.

I would point out that the assessment of impairment on a portfolio of loans which has just been acquired is an inherently subjective and complex exercise. As the Comptroller and Auditor General has pointed out, the projection of cashflows for individual debtors and of future realisation values and timings of disposal of property collateral is obviously fraught with uncertainty, particularly in current market difficult conditions domestically and internationally. Notwithstanding these constraints, we adopted the stance that we would be utterly prudent and conservative in terms of our expectations of what can be realised from the acquired loans and the underlying collateral. Obviously we will undertake another rigorous exercise at the end of 2011.

I would like to take the opportunity to update the committee on the further progress we have made in 2011, particularly as regards our engagement with debtors. Members may be aware that our intention is to deal with the largest top 188 debtors directly, with more than 600 debtors being managed by the participating institutions under delegated authority from us. Of the 188 debtors which are being managed directly by us, 143 business plans have now been assessed by us and the rest are at various stages of review which will be completed by end-year. Of the debtors whose plans have been assessed, approximately 30% are subject to full or partial enforcement; the others are implementing strategies which have been agreed with NAMA or are at an advanced stage of negotiation with us. Good progress has also been made on business plans by debtors whose loans are being managed by the participating institutions on our behalf.

Engaging with debtors has meant that we have to deal with a substantial flow of credit applications, averaging about 300 a month, and in some months up to 400, and including applications for credit advances, sales approvals and insolvency appointments. To date, we have approved advances of more than €900 million in working and development capital and asset sales in excess of €4.6 billion. Some 91 insolvency appointments have been approved across both NAMA-managed debtors and those managed by the institutions.

The proceeds of asset sales and the associated debt repayments by debtors have contributed to the strong cash position of the agency and this, in turn, has enabled us to make significant inroads in terms of repaying NAMA debt. To date, we have repaid €1.55 billion: €1.25 billion of NAMA securities redeemed plus loans totalling €299 million repaid to the Minister for Finance. We expect to be in a position to make a substantial additional redemption of securities before the end of 2011.

One issue which is raised on a regular basis and about which there appears to be some misunderstanding is the extent to which debtors are expected to repay all of their debt to NAMA. The position as far as we are concerned is that debtors remain legally obliged to repay all of their debt. NAMA will pursue all debts to the maximum extent feasible. As of today we have to acknowledge that some of the property securing loans has fallen in value by about 60% on average in Ireland since the peak of the market. Therefore, if we were to enforce against each and every debtor and sell the property securing the loans, we know that we would realise only the current value of the property collateral as the debtor has no other assets and the pursuit of debtors would not be economic. Frankly, in the case of some debtors, this is all we can ever hope to recover and, in some of these cases, we have initiated, or expect to initiate, enforcement. Members can rest assured that we will pursue every penny where it makes economic sense to do so.

In the case of other debtors, we have every reason to expect that, by working with them over time, we can generate a lot more than the current value of the collateral. This may be for a number of reasons: because of their knowledge of the assets, their managerial ability and their willingness to co-operate, including the extent to which they are willing to give us a charge over unencumbered assets and their agreement to reverse earlier asset transfers to relatives and others. In these cases, by working with the debtors, we expect to optimise the return to the taxpayer. In some cases, we will consider incentivisation arrangements which are designed to extract best value for NAMA. For instance, if in six or seven years' time, a debtor were to achieve a key financial milestone, such as the repayment of all NAMA's loan acquisition costs plus 10%, an incentive could be put in place which would enable him to retain 10 cent of every euro achieved above that challenging financial milestone. Momentum towards the initial target will largely depend on the asset mix and the performance of the property markets in which the assets are located. The key point I wish to stress is that debtors will not be allowed to walk away from their debts as soon as they reach the initial repayment targets set for them; these targets are the very least that they must achieve. If the Irish and other property markets should experience any price gains over the next five to seven years, debtors will be in a position to repay well in excess of their initial milestone targets and NAMA will capture that.

Within Ireland, our loans are secured by about €11 billion of property in the Dublin area, with another €7 billion of property in other parts of the Republic and some €1.3 billion in Northern Ireland. Property in the London area accounts for €6 billion with another €4.7 billion in other parts of England, Scotland and Wales. The residual €1.5 billion of property is located outside of Ireland and the UK, mainly in continental Europe.

In terms of asset types across all geographies, about €14.5 billion of the assets securing our loans are commercial assets, including retail, office and other investment assets. Residential assets account for about €5 billion and hotels for about €3 billion. The residual is land, which is valued at €6 billion, or assets under development, which are close to €3 billion. We are currently developing strategies for each of these market segments by asset type and geography.

Our exposure to the Irish commercial market is of the order of €5.3 billion and we are reviewing a number of strategies in order to monetise this segment of the portfolio. One initiative involves the provision of vendor finance to purchasers. Against a background in which financial institutions are reluctant to underwrite a high proportion of lending to individual property ventures, liquidity continues to act as a serious constraint on market activity. With a view to generating sales transactions which would not otherwise take place and to attracting new equity into the Irish market, NAMA is willing to provide up to 70% vendor debt finance to purchasers of commercial property which is either under the control of its debtors or of NAMA receivers. Purchasers, such as pension funds, insurance companies, private equity firms and sovereign wealth funds, will be expected to be in a position to inject significant equity capital up front. The assets most likely to attract interest include large office buildings, shopping centres and other retail and industrial properties. The first financing under this programme has recently taken place and the programme is likely to gain significant momentum next year as more properties are offered to the market.

Another initiative being explored is the creation of monetisation vehicles which are attractive to potential investors, mainly international. When it currently enforces against debtors, NAMA seeks to maximise debt repayment through the appointment of receivers or other insolvency professionals so as to realise the value of underlying property assets. NAMA will likely acquire property assets on an arm's length basis from receivers, or for debtors to cede secured property directly to NAMA, and package them into various combinations which could then be monetised through sale to investors.

It should be possible to assemble portfolios based on asset types, such as office, residential or retail, or by geographical region, such as Ireland, Dublin or UK, and to secure international investment based on specialist investor preferences.

NAMA's exposure to the Irish residential property market is of the order of €4 billion. As is the case with commercial property, liquidity has also been a major constraint on activity in this market. The majority of the residential stock is located in Dublin, Cork, Galway and Limerick and, not surprisingly, much of the stock is in the form of apartments as this was what the planning system catered for in recent years. We are currently in advanced discussions with several Departments on an initiative which could be used to target a particular segment of the market, that is, potential house buyers who have an interest and a capacity to purchase but who are constrained by fears that prices may fall further from current levels. If a decision is made to proceed with the initiative, it will first be offered on a pilot basis for a small number of properties and further roll-out will depend on the response to the pilot project.

We also see a possible synergy between NAMA housing stock and the potential demand for social housing and we are in discussions with the Department of the Environment, Community and Local Government and the Irish Council for Social Housing on that matter to try and satisfy a mutual accommodation.

The sale of loans provides NAMA with another option to monetise its portfolio. There has been substantial interest to date from investors wishing to purchase particular loan sub-portfolios. The loan sale market is well developed in the US but less so in Europe. However, with a requirement on financial institutions under Basel III to hold more capital which may involve reducing their balance sheets, the market in Europe is expected to develop significantly in the coming years.

To ensure that it is well placed to avail of loan sales opportunities, NAMA is establishing a panel of loan brokers in each of its main jurisdictions to manage its loan sales process. It has initiated a tendering process under EU public procurement rules to appoint a panel of loan sale advisers in Europe and the US. It will look to sell loans which can be packaged in different ways, including the sale of all loans of a single debtor or debtor connection and the sale of loans held in individual special purpose vehicles, SPVs, or corporate entities with no recourse beyond the assets of the SPV/corporate entity. Another option is to sell sub-portfolios of loans assembled by reference to underlying property asset types or locations.

I emphasise that we currently insist on a competitive process for any assets being sold by our debtors or by receivers and we will follow the same practice in our sales of loans or loan portfolios. I make this point because we are aware that certain parties have been complaining that NAMA is not willing to do business with them. What they invariably mean is that NAMA is not interested in offering them exclusivity. In other words, a minority of these potential buyers appear to believe that they should be allowed to acquire property or loans at low ball prices and in off-market transactions without any element of competitive bidding. This is certainly not in our interest or in the interest of the taxpayer. Whether we sell loans or approve the sale of property, we aim to obtain the best attainable pricing and that can rarely be achieved without some element of competitive bidding.

There has been some comment on the question of how NAMA might best contribute to the social and economic development of the State, which is one of the purposes set out in section 2 of the Act. Clearly, NAMA will make major progress towards fulfilling this purpose if it succeeds over time in making a positive return on its management of acquired loan assets. However, there is a belief that, challenging though this commercial mandate may be, it is not sufficient and there is an expectation that NAMA must also meet certain social objectives.

I emphasise that, within the context of its commercial remit, NAMA is at all times open to considering proposals aimed at contributing to broader social and economic objectives. For instance, Deputies may be aware that NAMA participated in the working group set up by the Government to examine the issue and extent of unfinished estates in Ireland and has committed to funding the €3 million estimated cost of carrying out the necessary remedial work in the 31 Category 4 estates which are under the control of NAMA debtors.

We are working closely with the Minister of State with responsibility for housing and with his officials to identify properties which may be suitable for social housing. We have recently made available to Dublin City Council a list of more than 300 properties which may be suitable for the needs of residents evacuated from Priory Hall and we have committed to provide funding for costs of completion, where required, even though the Priory Hall loan is not in NAMA. Our board has committed to giving first option to public bodies on the purchase of property which may be suitable for their purposes where they have requirements such as schools, hospitals or parks. We have constructive engagement with the Departments of Education and Skills, Health, and Arts, Heritage and the Gaeltacht, universities and the HSE to try to identify mutually beneficial solutions. Although we do not directly control our debtors' property, we are happy to facilitate dialogue between our debtors and parties interested in acquiring property for social or public purposes.

Chairman and Deputies, I have tried to address some of the key issues that may be of interest to you. My colleagues and I are happy to respond to any additional points you may wish to discuss.

Chairman

Thank you, Mr. McDonagh. May we publish your statement and the updated information you have provided?

Mr. Brendan McDonagh

Yes.

Deputy Eoghan Murphy

I thank Mr. McDonagh for his opening statement and the witnesses for coming to today's meeting. I note from Mr. McDonagh's statement that with the recent transfer of close to €2 billion, all of the loan acquisitions are now complete. Mr. McDonagh says the total portfolio is now at €74.2 billion and NAMA has paid €31.7 billion for that, and by the end of the fourth quarter of this year all loans will have been acquired, due diligence will have been done and all business plans will have been agreed. Is that correct?

Mr. Brendan McDonagh

That is true for our major debtors.

Deputy Eoghan Murphy

So, we are moving into a new phase for the agency. Would that be correct?

Mr. Brendan McDonagh

Yes.

Deputy Eoghan Murphy

Would this be the time to bring new members on to the board?

Mr. Brendan McDonagh

That is a consideration for the Minister for Finance, with whom the power of appointing new members rests. The Deputy will be aware that a board member recently resigned so there is, currently, one vacancy on the board. That is a matter for the Minister.

Deputy Eoghan Murphy

Has Mr. McDonagh made a recommendation to the Minister to bring new people on to the board?

Mr. Frank Daly

Chairman, may I answer that question?

We have not made recommendations. The Deputy is probably aware that the board initiated a review of NAMA by Mr. Michael Geoghegan, who is a well known international figure. He was chief executive of HSBC and has direct and relevant experience in the type of operation in which NAMA is engaged. We took the view that we had reached the stage where we had taken all the loans across, which was a major operation, and, as the Deputy observed, we were now moving into a different phase of our operation. It was, therefore, timely to get someone to come in and look at NAMA. We asked Mr. Michael Geoghegan to give an objective assessment of the agency with a particular focus on reviewing the overall progress of the agency to date, ensuring that we had the requisite skill at senior executive level, and at the board, for the next phase of our work and that we had appropriate structural relationships between the board and senior management. We were delighted that Mr. Michael Geoghegan undertook to do this, and particularly grateful that he declined any fee for the work. That speaks volumes for his interest in and support for the recovery of the Irish economy. I know he is deeply interested in that. In terms of the structure of that exercise, it was agreed with Mr. Geoghegan that he would have full private access to each board member and senior executive, that he would provide a verbal briefing to the board on completion and that he would also provide a verbal briefing of his findings to the Minister for Finance. Mr. Geoghegan met the Minister at an early stage in the process.

It was agreed that Mr. Geoghegan's findings would remain confidential. However, there are two issues I would like to address in that regard. It is important to point out that Mr. Geoghegan acknowledged the significant progress made by the agency. He was struck in particular by how far the agency had progressed without any significant crisis moments, as often accompanies undertakings like this in other countries. He was also positive about the skill set of the agency and its inherent capability to deliver on its objectives into the future. Mr. Geoghegan did make proposals in relation to skills and in regard to where the key strategic focus of the agency should be in the future. He has discussed these with the board and Minister, both of whom are currently considering them.

Deputy Eoghan Murphy

Was Mr. Geoghegan asked by NAMA or the Minister to undertake the review?

Mr. Frank Daly

We would have initiated contact at board level. I spoke to the Minister about this at an early stage and he was enthusiastic about it. He then met Mr. Geoghegan.

Deputy Eoghan Murphy

Did NAMA ask the Minister to get someone in to take a look at the agency?

Mr. Frank Daly

The Minister had always indicated to me that he wished to have someone look at it. It was at the end of the day a mutual arrangement. We would have identified Mr. Geoghegan as a person who could do the review.

Deputy Eoghan Murphy

Mr. Daly stated that Mr. Geoghegan had commented favourably on the significant progress made by the agency. He also said there would be significant changes in the structure of the agency. What are those changes?

Mr. Frank Daly

I did not say there would be significant changes to the structure of the agency.

Deputy Eoghan Murphy

No. That was stated by Mr. Geoghegan.

Mr. Frank Daly

He suggested some areas where there could be structural changes and a broadening of skills, which suggestions we are currently examining.

Deputy Eoghan Murphy

A member of the board recently departed stated on departure that Mr. Geoghegan had come in to review the structures of NAMA and that the result of that would be significant changes to the structure of the agency, which would be a watershed in the life of NAMA.

Mr. Frank Daly

That was the opinion of one board member. The proposals are being considered by the board and Minister. I do not believe the outcome will be that stated by the former board member as referred to by Deputy Murphy.

Deputy Eoghan Murphy

Is that former board member incorrect in terms of how he perceived what Mr. Geoghegan was at NAMA to do and what he was recommending?

Mr. Frank Daly

Everyone has a different perception of a person's presentation in a company. Mr. Geoghegan's review of the agency is useful to the agency and Minister. It is being discussed by the board. Mr. Geoghegan was adamant that the most appropriate way to deal with his suggestions was, first, to have them considered by the board and then the Minister, which is what we are doing.

Deputy Eoghan Murphy

Will Mr. Geoghegan's recommendations be published?

Mr. Frank Daly

The understanding with Mr. Geoghegan, and the basis for his undertaking the review, was that his recommendations and analysis would be confidential. He has been at pains to remind us in NAMA that that was the basis on which he engaged in this exercise.

Some of the suggestions put forward by Mr. Geoghegan were internal procedural ones, which are matters for the executive and board. Obviously, if there are any changes of significance they will emerge following consideration of the review by the board and Minister.

Deputy Eoghan Murphy

As I understand it, Mr. Geoghegan made a number of recommendations. Does Mr. Daly support all of those recommendations?

Mr. Frank Daly

I would have no great problem with most of them. There are one or two which I would like to discuss with my board colleagues and the Minister. I have already discussed these with Mr. Geoghegan, who fully accepted that they are only suggestions based on his discussions over a fortnight with members of the board and executives. The board discussed fully the suggestions put forward. Mr. Geoghegan fully accepted these were issues for discussion and that someone coming into the agency for a fortnight would not necessarily get everything right. It was a useful review, which will be valuable to the agency in the future.

Deputy Eoghan Murphy

Can we expect significant changes in the structure of the agency?

Mr. Frank Daly

The Deputy can expect some changes to the structure of the agency. However, if he is speaking of structural changes in the sense of the legislation behind NAMA, Mr. Geoghegan did not make any suggestions in that regard.

Deputy Eoghan Murphy

That is not what I am speaking of. Perhaps Mr. Daly would comment on what structural changes will take place.

Mr. Frank Daly

I would prefer not to. As I stated, it was agreed that Mr. Geoghegan's recommendations would be confidential. They are currently being discussed by the board and considered by the Minister, which is the appropriate way to deal with them.

Deputy Eoghan Murphy

I understand that concern was expressed in the review that should Mr. McDonagh leave the agency there would be a significant loss to NAMA in terms of institutional knowledge gained since its inception and that recommendations were made to put in place something for a potential successor should Mr. McDonagh leave any time in the near future.

Mr. Frank Daly

I hope that Mr. McDonagh has no intention of leaving.

Mr. Brendan McDonagh

I would not leave.

Mr. Frank Daly

Mr. McDonagh might perhaps change his mind after three hours here. I fully agree that Mr. McDonagh is hugely invaluable to the agency. It is the responsibility of any board, in particular the chairman of a board, to ensure there is a succession plan in place. That is not a new idea in NAMA or a matter that needed review. We have had that in mind for some time. It is good corporate governance to have that in place.

Lest Mr. McDonagh gets nervous, we are not putting someone in-----

Deputy Kieran O’Donnell

That is a vote of confidence for the CEO from the chairman of the board.

Mr. Frank Daly

It is absolutely a vote of confidence. What we are doing is good, prudent management and corporate governance.

Deputy Eoghan Murphy

It was stated following the review by Mr. Geoghegan that NAMA had too many accountants on its board.

Mr. Frank Daly

That was a headline in one of the newspapers, which I saw. Deputy Murphy is dragging me in - I know where this is going - to talking about the recommendations of the Geoghegan review, which I do not want to do. In fairness, Mr. Geoghegan engaged with us on the basis that his recommendations would be confidential.

Deputy Eoghan Murphy

I will step back from that issue.

Mr. Frank Daly

In case there are accountants in this room - I am sure there are - I did not hear Mr. Geoghegan say to us at any stage that there were too many accountants on the board. Obviously, Mr. Geoghegan had views on where NAMA should be going in the future, all of which are being discussed by the board and considered by the Minister.

Deputy Eoghan Murphy

How many members are on the board of NAMA?

Mr. Frank Daly

Nine.

Deputy Eoghan Murphy

How many of them are accountants?

Mr. Frank Daly

Three. Previously four members of the board were accountants.

Deputy Eoghan Murphy

The figures I have are that previously five members and currently four members of the board are accountants. Does that include Mr. McDonagh?

Mr. Frank Daly

Mr. McDonagh's background is in accounting. The CEO is an ex-officio director. Of the non-executive directors, three are accountants. Previously four of the non-executive directors were accountants. Mr. Stewart was an accountant.

Deputy Eoghan Murphy

Were there previously eight ex-officio directors?

Mr. Frank Daly

There are nine members on the board, including two ex-officio members, Mr. McDonagh as CEO and Mr. John Corrigan, who is the chief executive of the NTMA. As such, there are seven non-executive directors, including myself as chairman. Of those seven, three are accountants and accountants with other experience also.

Deputy Eoghan Murphy

Does Mr. Daly believe the board comprises enough expertise in terms of managing assets and property portfolios?

Mr. Frank Daly

I believe a board should always comprise a wide range of disciplines and experience. Leaving aside the Geoghegan review, one of the people with a particular discipline has left. There is a vacancy and it is an opportunity to have somebody with what I would not necessarily call property experience. At the end of the day, we need somebody who is experienced in what we are at, which is the management and the disposal of assets, and who has a knowledge of the market and workout I suppose. That is the sort of skillset. I would not like the Deputy to think there is not a wide range of skills on the board. I believe there is. When one looks beyond the board to the senior management team and the 200 people in NAMA, there is a wide skillset and experience in banking, finance, legal, property and asset management. I would put that all together as a team that is working in NAMA. There is an opportunity for the Minister.

Deputy Eoghan Murphy

Is there anyone particular in mind to fill that gap?

Mr. Frank Daly

Obviously, I would always think about names when there are vacancies but I would keep them to myself and for my discussions with the Minister.

Deputy Eoghan Murphy

Has Mr. Daly made recommendations as to who might be appointed in place of-----

Mr. Frank Daly

No. I have not made recommendations.

Deputy Eoghan Murphy

To continue with the opening statement, Mr. Daly sought clarity in regard to the priority for NAMA in respect of the loans, the outstanding debt and the pursuit of debtors. Section 10(2) of the NAMA Act states that NAMA is required to operate so that it obtains the best achievable financial return for the State. There has been some debate recently as to what that means. If we go back to the foundation of the agency, the former Minister, the late Brian Lenihan, said that the amount a borrower owed would not change because of the transfer of the loan from the bank to NAMA. Recently, a communications company speaking on behalf of NAMA said that the priority of NAMA is to recover the amount paid for the loans. Indeed, developers have said publicly that they will pay back what NAMA paid and nothing else. There is a bit of conflict there as to whether NAMA is pursuing the €70 billion plus or the €30 billion plus. It is difficult to resolve this.

Mr. Daly said NAMA's minimum target is to recover what it paid for the loans. Indeed, he has plans to do that and they are set out in the report taking us to 2019 when 100% of the NAMA debt will be paid down. Will NAMA get anything back beyond the minimum targets?

Mr. Frank Daly

It is in Mr. McDonagh's statement.

Mr. Brendan McDonagh

The reality is there is €74 billion worth of debt and we have paid €31.7 billion for it. The valuation methodology basically resulted in the value of the property being equal to the value of what was paid for the loan. If one looks at the value in terms of securing the loans, that is what it was worth by reference to November 2009. Obviously, we would have taken a substantial impairment in 2010, as the Deputy will have seen, as a result of a fall in asset values.

I have said before that we will pursue debtors for the maximum amount we can. If they have unencumbered assets and have done asset transfers, we will pursue those to get them back on top of selling the assets over time to get that amount of money back.

In our experience of having gone through almost €27 billion by value of the €31 billion we paid for the assets in terms of debtors' business plans, and we have done a number of things like asset searches in terms of debtors, there is no pot of gold out there that we have found to date, that is, that there is a huge amount of assets in addition and that if one sold all the properties and used the money to pay off the loans, these developers have a huge amount of money syphoned off. There will obviously be exceptions where guys have but from our experience to date, there is not a huge pot of gold out there.

However, what one is looking at in terms of NAMA is that we are in a very depressed economic cycle at the moment. Asset values overseas have recovered substantially from November 2009 and we are doing well in terms of those properties and are achieving more than what we paid for them. Obviously, asset values in Ireland have gone down since November 2009. Members will all see the indices. They are down about 20%, whether one looks at the commercial or the residential.

The reality is that over the life of NAMA, if we get economic recovery in Ireland and in Europe, and given that 93% of our assets are in Ireland and the UK which are the two main markets, then effectively one would expect that when one looks at the asset values today compared to what one can realise over time, and on the basis that one can realise them over time because NAMA is supposed to have a seven to ten year life, one would expect that those asset values would hopefully recover and one would get back more than what we paid for them.

In terms of debtors, we would pursue debtors to get back every single penny, as I said in my statement, but if it comes to a point where one knows the debtor has nothing left, why would one, on behalf of the taxpayer, bring a guy to court where one would just be gratuitous and waste taxpayers' money when one knows he has no assets left? If he has assets, and we understand he has assets, we will pursue every single penny.

Deputy Eoghan Murphy

I see plans for debt reduction targets. They are the minimum targets NAMA hopes to achieve but I do not see any plans for the best achievable targets. I do not see any plans for doing better than that. Mr. McDonagh talks about incentivising developers but the reality is that if one incentivises a development to help NAMA achieve more than what it paid for the loan and the incentive is that he makes a profit on that, it is not really a profit if NAMA still intends to pursue him for the rest of the debt for which NAMA paid the banks, unless it is admitting that it will not pursue him beyond that. If he achieves a greater target for NAMA than what it paid for the loans, NAMA will pay him a profit and say "Thank you".

Mr. Brendan McDonagh

No. Effectively, the way things are set up is that the amount of incremental income that a potential debtor could earn would be quite small. We generally set the targets up to around 10% above what the value of the properties are and when they achieve above that, effectively 90% of any excess of that comes to NAMA and up to 10% goes to the debtor.

Deputy Eoghan Murphy

Does the debtor pay off the remainder of the loan? What is the profit for him?

Mr. Brendan McDonagh

It could potentially be a profit for him but, effectively, if he helps us to achieve greater value for the assets, the alternative for us is a cost benefit analysis if one is trying to run a commercial business. If the guy brings value to managing the assets and helps us to achieve a greater return, that is in the best interest of the taxpayer. That is the commercial objective of what we are supposed to do. If he is not, then we appoint receivers. When we appoint receivers, effectively, the receivers have no knowledge of the assets and they are very expensive. We must have this trade off the whole time in terms of achieving the best return for the taxpayer.

It is important to understand that, effectively, if a debtor has borrowed €100 million and the asset is worth €50 million and one can get €60 million back over a number of years, that is a lot better for the taxpayer than just getting €50 million. We are always pushing for the highest amount we can get back.

Deputy Eoghan Murphy

NAMA will not pursue that person if he helps it to make a profit on what it paid for the loans from banks.

Mr. Brendan McDonagh

Provided he has fully co-operated with us and he has done what we asked him to do. If he has not done so, then he gets nothing.

Deputy Eoghan Murphy

If he helps NAMA to achieve a profit, it will not pursue him any further.

Mr. Brendan McDonagh

Not where we have captured the majority of the actual income that could be potentially realisable. When we look at the actual assets today, the danger, to be frank, is that if the markets stay as they are, we will not recover what we paid the banks for the assets because of the difficult economic conditions. One has to look at it in the round of actually working out the assets over seven to ten years.

Deputy Eoghan Murphy

Is NAMA still planning to make a profit? Mr. McDonagh mentioned the market being down.

Mr. Brendan McDonagh

Yes. The market is at a point in time. The history of markets has been that they recover. The question is where we will sit when those markets recover. We have to make these decisions every day. If it is a good asset, does one sell it today or does one believe one should hold it for 12 months and maybe get a better price? The board, in its own policy which is published on the website and in its annual report, is, effectively, that we are not into speculation and the view is to try to take a neutral view on the markets. The markets are the markets and they ultimately determine what one will get for the assets.

Deputy Eoghan Murphy

The market is down 20% or thereabouts since 2009 when the loans were secured and by 2013 NAMA hopes to have paid back 25% of NAMA debt paid down - €8.1 billion. Is that still expected?

Mr. Brendan McDonagh

Absolutely, and we have plans to achieve that. In headline terms, to pay off €7.5 billion, which is our bottom line cash target, we would have to generate just over €9 billion in sales because in the meantime we have to pay bond interest on the bonds we have issued.

Deputy Eoghan Murphy

What percentage of those sales come from overseas assets?

Mr. Brendan McDonagh

Probably close to 70%.

Deputy Eoghan Murphy

It would be correct to say that NAMA is offloading the portfolio of overseas assets before coming to the Irish portfolio.

Mr. Brendan McDonagh

The reality is that is where the liquidity and demand are. As the Deputy will be aware, there is no huge demand for Irish assets in the residential sector, where we have a €4 billion exposure.

We have noticed things picking up. There were about 25 transactions a month during 2010 in terms of house sales. The first nine months of this year have averaged about 100 units per month. It is not substantial but it is four times more than what it was in 2010 because people perceive there is value. As the Deputy will be aware, a lot of people are sitting on the sidelines and wondering when is the right time to buy. That is reflective of us working through the business plan process with the debtors.

We need to tell them they will not get €400,000 for a house any more because such prices are at 2007 levels. People were able to do that for three or four years because the banks did not want to do anything about it. However, we tell people a house is worth €200,000 which is the price at which it is put on the market. Our experience has been that when we permitted developers to reduce prices, sales took place. The market is very price sensitive.

On the commercial side, even at the peak of the market in 2006, 99 transactions took place, even though everyone thinks that year was knock the lights out type of territory. There were €3 billion worth of investment transactions in the Irish market but they were all Irish buyers and we know the reason, namely, because they were all getting money from the banks to buy assets from each other. In 2010 there were about €325 million worth of commercial property transactions but only about €79 million involved German funds which came into the Irish market. In the first six months of 2011, €150 million worth of transactions took place, €100 million of which came from NAMA when we sold the Google building.

Last year 1.4 million sq. ft. of office space was rented out in Dublin. This year approximately 1.6 million sq. ft. could be rented. There are underlying factors which show that there is starting to be a shortage in what we call grade A office space in Dublin. Some of our sites we have planning permission for future development and there may be opportunities to develop strategic locations in order that we have assets to generate cash flow after 2013. The major issue is that we have to hit the €7.5 billion target because it is part of the Government and troika programme and the memorandum of understanding.

The reality is that it is easier to generate cash if one sells all the good, income producing assets first. One has to make sure one is selling a mixture of assets. The demand and liquidity relate to overseas assets and there is not a huge demand or liquidity in the Irish market, which we are trying to address.

Deputy Eoghan Murphy

I do not see the mixture. NAMA is hoping to make €8.1 billion by 2013, which would be only 25% of what it would have to pay off. Some 70% of that figure comes from overseas assets. We know those markets are increasing in value. Therefore, it might make more sense to hold on to them.

My worry is that we will make the first target in 2013 but will be unable to make other targets after that because we would be left with only 30% of the overseas assets. The rest would be from the Irish market, a market which is in decline and could potentially decline further when Lloyds Bank and RBS come here and aggressively get rid of their property portfolios which are equal to what NAMA has. The market is about to be flooded. Prices are already down 20%. If banks come in, as they intend to, prices will decrease further.

Mr. Brendan McDonagh

The Deputy is completely right. We are looking very closely at the banks which are trying to deleverage into the Irish market and what they are doing. A certain element of dumping is taking place in the Irish market. There are fire sale auctions. The prices obtained compared with the rebuilding costs, which are very low, are causing issues.

The reality is that we have to make trade-off decisions every day in terms of which assets we sell and which we do not. We spend a lot of time looking at assets which are not currently cash flow producing but which could be if we put in additional working and development capital to turn them into finished assets to make them available for sale and rent. We are not running blindly into selling all the good assets.

Some of the prime assets we have in overseas markets are returning to yields slightly lower than those at the top of the market previously. Some property in the centre of London has returned to yields of 4%. No one has yet been able to tell me that if we hold on to such properties for 12 months or two or three years, the yield will go below 4%. They were at 5.5% or 6% when the UK market was in difficulty in 2009 but they have made a strong recovery. It is the best price one can get. There is a constant trade-off in terms of trying to figure out whether something makes sense.

Deputy Eoghan Murphy

When NAMA is making those deals and getting rid of assets in foreign markets, is it trying to put them together in portfolio deals and match them with Irish properties?

Mr. Brendan McDonagh

We have looked at that and spent a lot of time talking to potential investors. We are trying to get foreign capital to buy foreign assets in the NAMA portfolio because all the sovereign wealth funds and private equity firms like assets in Frankfurt, Berlin, London or New York. When one tries to get them to come into Dublin, they see the Irish economy is in a bailout programme which is not an easy sell. They were pushed out of the Irish market for about ten years because Irish buyers were overpaying for assets. It takes a lot to convince such buyers to come back into the market.

We have asked them if they are interested in a UK asset, whether they would consider buying an Irish asset with it. They are quite polite but they tell us it will affect the price because they will pay less for the UK asset to compensate for the Irish asset because they only want the overseas assets. We are trying to find out what will attract such buyers to Dublin.

One thing which works quite well in the US is vendor finance for commercial assets. That means the buyer of an asset puts in 30% equity and takes a loan over five years. From our point of view it turns an existing loan for a building which might not be performing into a performing loan. We have quite a good covenant and still retain our first charge. It effectively turns a loan into an income-producing loan. Such measures interest buyers.

Another structural change in the Irish market which we do not have in overseas markets is the high rate of stamp duty. It is 6% here but it is just 1% in the UK. When one is a foreign investor and deploying capital, all these things are taken into consideration by potential buyers. We spend a lot of time trying to incentivise people to come into the Irish market. It will be a slow burner but the mood music has changed. In 2010, as we went into the IMF, many people tried to bottom fish. They thought Ireland was out of money and desperate to sell assets at any price. We set up NAMA to ensure that we would be in a very strong position all the time and we will not take prices we do not want to accept. We keep telling them we are in a strong position. Effectively, they are opportunists. More fundamental buyers look at the quality of the asset, the state of the economy, the leaseholder and the asset, the strength of the covenant and they compare that in terms of where they expect the return will be. Irish investments assets are currently yielding anywhere between 8.5% and 10.5%. Any yield shift down, or improvement on that, makes a huge difference to the valuation. People are beginning now to say that Ireland is a recovery story. We are seeing a great deal of interest from people who are looking again at our assets to see if there is an opportunity for them. They are in the business of making money. They are interested in buying assets at the right price.

Deputy Eoghan Murphy

I thank Mr. McDonagh for that.

Chairman

NAMA is working with the debtors. How many of them fully co-operate with it? In terms of the same debtors, NAMA has obviously carried out an assessment of each of them as to their ability to repay beyond the amount in question? How many will NAMA be able to chase because it seems many of them are bust? Has NAMA assessed those debtors? Mr. McDonagh, in his opening remarks, commented on the debtors' agreement to reverse earlier asset transfers to relatives. How many have transferred assets to relatives and how many have reversed the transfers?

Mr. Brendan McDonagh

In terms of recovery, as the Chairman said, many of these guys are bust; he is right about that. They did not see the market changing. They did not hoard a huge amount of money for the rainy day because they kept investing in property. They thought it was a one-way bet. In terms of their co-operation, we find that the majority of the debtors are much more realistic about where they are at and they are realistic about wanting to work and co-operate with us. There are two types of people who do not want to co-operate with us. One is the type who probably should never have been in the property business. They got into it because they thought they would make money but they were never property people. The second type are people who potentially might have assets and do not want to bring them back and therefore we have to initiate enforcement action against them.

There is no pot of gold out there, but from the business plans we looked at today in terms of the potential extra amount of assets that are, I would say, across the portfolio, the maximum amount all the debtors combined would have would be somewhere between €400 million and €500 million. Effectively, we seek the return of that. Many of the transfers involve people transferring their PDH, or their house, from their name into their wife's name or into their children's names. Some transfers would involve transferring an apartment into a son's or a daughter's name. There has not been to date a huge amount of cash transfers. We would look at the statement of affairs these debtors would have provided to the banks in 2004, 2005, 2006, 2007. We would have compared them to the current statement of affairs they would have submitted to us which we would have requested. We would look at the changes and see where the assets go and we would ask those types of questions. Effectively, a number of debtors who have more substantial assets are transferring assets back to us.

Chairman

Has the transfer of assets back to the original position been completed in many cases, or is it just something NAMA is working on?

Mr. Brendan McDonagh

It is something we are constantly working on. There have been newspaper reports because people check registrations in the Property Registration Authority and they would have noted where assets were transferred back and NAMA got a charge over assets which were probably in wives' names and so on. That is a constant in which we are engaged. There is no pot of gold out there. If a debtor wants to work with us, he will transfer the assets back to us.

We have not as of yet sought to go to the courts, even though we worked in the background. If a debtor would not transfer assets back to us, we would be ready to push the button to go to the courts. We would make use of probably two provisions that would be available to us under the law. One is an old provision under section 10 of the Conveyancing Act 1634 but we would have to prove to the courts that there was fraudulent intent in terms of transfers. There is a burden of proof in that and that would not be not easy to establish. The second provision is section 211 of the NAMA Act. This would apply where a debtor transferred an asset. We would not have to prove intent but we could show the effect of that was to reduce the amount of assets that would be available to meet the debtor's loans. Section 211 of Act, as of today, is as yet untested in the courts. The first cases we would be bring under section 211 would be subject, we expect, and I say this advisedly, to challenge by the debtors.

Chairman

In terms of an expectation of collecting the full amount of money due from these debtors, I make it clear that we have to focus on the part of Mr. McDonagh's statement where he said "where it makes economic sense to do so". The reality is that it does not make economic sense in many of those cases because the debtors are bust and that is the end of it.

Mr. Brendan McDonagh

Absolutely.

Chairman

In terms of the share in the profit, to which Mr. McDonagh referred, in the workout programme with the debtors, is that the only payment that is made to them, or are they paid by NAMA for work on the workout programme?

Mr. Brendan McDonagh

If the debtor is working with us, we allow him an overhead for helping us to manage out the assets.

Chairman

How would NAMA do that?

Mr. Brendan McDonagh

If we had a third party asset manager to do it, he could typically charge up to 2% of the asset value per annum to manage the asset. If we can get the debtor who will co-operate with us and do what we want him to do, it might only cost 0.25% per annum, a one-tenth of the typical charge. It would make absolute sense to make use of the debtor to manage out the assets because it makes more economic sense to do so.

Returning to the Chairman's original point, he is right in that if a debtor has no assets and has nothing left, it would not be credible for me to sit before a committee and talk of spending money pursuing people that would cost me money in legal fees and then to get nothing back at the end of it.

Deputy Michael McCarthy

In regard to the sale of assets, at a meeting of the finance committee in September NAMA outlined that it had approved for sale an estimated €4.6 billion worth of property. What did it pay for that property in the first instance?

Mr. Brendan McDonagh

In terms of the €4.6 billion worth of approved sales, with regard to the prices secured for the Irish assets, some of them were sold low having regard to what we paid for them in November 2009. On some of the overseas assets, we have made profits, on average, of around 12% to 15%.

Deputy Michael McCarthy

What is the breakdown of the €4.6 billion as between assets in Irish and assets abroad?

Mr. Brendan McDonagh

About 80% of the €4.6 billion worth of sales would have been abroad.

Deputy Michael McCarthy

I share the view Deputy Eoghan Murphy expressed. Is there a danger that there would be an inclination, in order to meet the 25% target set out for 2013, to sell the more attractive bits of the portfolio, those that would yield the highest return, so that when the upturn comes Mr. McDonagh will be left with a portfolio of properties that are not very profitable? What action can be taken to avoid that?

I can understand what is being attempted here but if we go into that territory and off-load 80% of the foreign portfolio which is profitable and which, if it is held off, may be worth more in the future, then NAMA will be left with assets here at home that are not worth very much. That would have implications further down the line. What can be done in order to avoid that and to strike a balance?

Mr. Brendan McDonagh

The board has always held the view that we should have an orderly and phased disposal of assets. The game changed with regard to the board having a free discretion in terms of the timing of the disposal of assets when the obligation arose under the troika programme with regard to generating cash. As I said to Deputy Eoghan Murphy, we are constantly trading off, in terms of whether it is the right time to sell the asset and whether the asset price is as good as it is going to be.

We have had a number of instances with prime property, particularly in the city of London where, effectively, people have made us bids way above what we believe the property is worth on the market at present. We would consider that and we would probably conclude it is a very good time to sell it.

In terms of other assets, it could be said it is better to sell now for all kinds of reasons. For example, if we had a development site which required an input of €50 million or €60 million to develop it and bearing in mind all construction risks and such like, it might make much more sense for us to sell that site with the full planning permission to a third party and remove the construction risk, and all that would go with it. Rather than us putting in €50 million or €60 million, it might be worth it to take the current value of that site, which could be €20 million or €30 million. We could hold the site at €20 million or €30 million, put €60 million into completing a particular building and then hope that we can achieve €100 million for it in 18 months or two years. In some instances we have done that but in other instances it might have made more sense for us to take the €30 million now and save ourselves the €60 million to be put into it.

It is a constant trade-off and is not an easy process. From our point of view, as I said to Deputy Eoghan Murphy, we are very conscious of trying to keep enough income-producing assets and of putting money into assets which will generate cashflow in future years so that, effectively, we deal with that scenario.

We also must be mindful of the fact, as I said, that, effectively, there is not a huge amount of liquidity in the Irish market at present. Over time we would expect that to recover in line with the fundamentals.

Mr. Frank Daly

To assure Deputy McCarthy, a key issue discussed at the board is the need to ensure that we do not just meet our stated 2013 targets but that we have the assets to meet all the targets beyond that, and that we do not sell everything off. There are many competing aspects to this. We must meet our debt reduction targets but we also have to get some movement in the property market because everybody is looking to us to do that. As I say, we have to make sure we have something after 2013. There is constant discussion and debate of the pros and cons. Given that this has been raised by Deputies Murphy and McCarthy and the Chairman, I wish to assure them it is something to which the board is very alive.

Deputy Michael McCarthy

What did the €4.6 billion in notes cost NAMA initially?

Mr. Brendan McDonagh

I do not have that with me.

Deputy Michael McCarthy

In that regard, how much is NAMA being charged in professional fees, in terms of legal fees and transaction fees to auctioneers, etc., for off-loading the €4.6 billion in notes?

Mr. Brendan McDonagh

The fees are in line with those in the market. Typically, legal fees and sales fees, probably combined, are 2.5% to 3% of the sales price. If a large asset is involved then effectively, a payment of 2.5% or 3% is not made but a much reduced fee is negotiated. If residential property is being sold the fee is, typically, approximately 3% combined.

Deputy Michael McCarthy

Are the fees incurred in the State?

Mr. Brendan McDonagh

Some of the fees are incurred in the State. It depends where the assets are located and if overseas firms have to be used.

Deputy Michael McCarthy

If, for example, NAMA is off-loading something in Edinburgh or London, would it use somebody there?

Mr. Brendan McDonagh

Typically in those instances, the local auctioneering practice or such like is used. In some instances overseas legal firms could be used as well.

Deputy Michael McCarthy

What is the time-lag from when a decision is made to sell a property to the money ending up in NAMA's account?

Mr. Brendan McDonagh

Typically, the property business is very slow, particularly in Ireland compared to in the UK. The turnaround time between our decision to sell and the transaction completing - many transactions do not complete at all for all sorts of reasons such as when full due diligence is done - is typically six months.

Deputy Michael McCarthy

Six months?

Mr. Brendan McDonagh

Yes.

Deputy Michael McCarthy

Mr. McDonagh referred to the UK. I want to refer, in particular, to one of NAMA's biggest transactions, that is, the Claridge's, The Connaught and The Berkeley hotels. Would they have been in high demand from hotel groups and particularly attractive to those who were interested in hotels?

Mr. Brendan McDonagh

Absolutely. There is a huge amount of interest in those assets. The important thing to understand there is that NAMA had a loan of £660 million against those assets, which is the maximum NAMA could recover in terms of them, even though they may be worth more than that. We got the full loan back at par - £660 million.

Deputy Michael McCarthy

Would there be a concern that if NAMA had held them for a longer period of time, they might be worth more in the future?

Mr. Brendan McDonagh

No, because all we would ever get back would be £660 million. That is the maximum amount. It is like a house. If a house is worth €250,000 with a mortgage of €100,000 outstanding, once the mortgage is paid off the house could be sold for €250,000. The equity goes to the person who owns it at that stage.

Deputy Michael McCarthy

What would be the process for disposing of those assets? Would it have been an open process? Would it have been advertised, tendered?

Mr. Brendan McDonagh

In terms of loan sales generally, we would go to the market. With the majority of the assets the loan-sales ratio would be at less than par but where somebody makes us an offer at par, that is the maximum amount we can get. We had a number of parties interested in acquiring those loans at par from us and the board decided to accept the first offer which put up the money. In this instance the party did pay. It offered, very quickly, to give us the money at par and we took it.

Deputy Michael McCarthy

Is that decision made at board level?

Mr. Brendan McDonagh

Yes.

Deputy Michael McCarthy

Would all of that be well teased out at board level?

Mr. Brendan McDonagh

Yes. The more difficult decision is in regard to assets where, for example, it is necessary to secure a par loan of €100 million for which NAMA might have paid €50 million. In that instance it is often a case of trying to figure out whether the best value is being secured if, say, somebody offered €49 million to buy the loan or somebody else offered €52 million. By contrast, where one is getting back par, which is the maximum amount one can get back, the decision is much easier.

Deputy Michael McCarthy

Would the portfolios be properly marketed? Would due diligence be taken into consideration? Would all that be exhausted?

Mr. Brendan McDonagh

In terms of the loan portfolios, when there is an open competitive process it is fully available. In regard to the instance referred to, the investors themselves in individual groupings were trying to re-finance the loan and were trying to buy the loan themselves because there was some sort of dispute between them. From our point of view, we were afraid as to whether we would get our money back at all on par and when the money was offered at par, we took it.

Deputy Michael McCarthy

Mr. McDonagh referred in his opening statement to assets in Ireland, the UK and further afield. How further afield are they? Is there property in America, in Florida and Miami?

Mr. Brendan McDonagh

Yes.

Deputy Michael McCarthy

It would have been very attractive to investors during the boom.

Mr. Brendan McDonagh

Absolutely. In terms of our overseas assets, we have approximately $600 million worth of assets in the US. The majority of them, by value, are in New York.

It is like the London market, a market that operates differently to the rest. That is not a major issue. Our main assets in continental Europe, by value, are in Germany, France and Portugal and we have smaller pockets of assets, ranging from €10 million to €20 million, in Malta, the Czech Republic and Poland. Collectively, these add up to €120 million so it is not a huge amount.

Deputy Michael McCarthy

What is the portfolio like in New York? Does it consist of apartment blocks, hotels and businesses?

Mr. Brendan McDonagh

Typically, it consists of apartment blocks and development sites.

Deputy Michael McCarthy

Mr. McDonagh recently made a statement about family law. We have all heard of sham marriages but there may now be sham separations. People may enter a legal process for the purpose of anything but ending a union. They may want to avoid responsibility. How many family law cases is NAMA involved in?

Mr. Brendan McDonagh

Family law cases are generally heard in camera and NAMA is not usually a notice party. Some of the more recent family law cases have been going on for a number of years, long before NAMA came into existence. People may have made provision when they were perceived to be richer than they are today and some are going back for adjustment orders to change the amount of money they pay. Generally, I cannot think of one but I will pass the question on to Ms Aideen O'Reilly, who is the head of the legal section.

Ms Aideen O’Reilly

NAMA is not involved in these cases as a notice party but is a secured creditor and the court, in fulfilling its function to ensure that proper provision is made, will take into account the financial obligations of the paying party. As secured creditors, NAMA is sometimes notified of potential settlements and expresses a view. That has happened once to my knowledge. As Mr. McDonagh said, that was a case that had been ongoing for some years.

Deputy Michael McCarthy

The courts said recently that wives are superior creditors to normal creditors. Has NAMA challenged that decision or judgment?

Ms Aideen O’Reilly

I am not sure of the case to which Deputy McCarthy refers. That statement may have been made in a newspaper article.

Deputy Michael McCarthy

The decision was made by Mr. Justice Abbott and the case is referred to as XY v YX. There is an overarching objective to protect NAMA’s interests and State interests. If that is a problem, and I am sure it may well be, there is a major onus on NAMA to ensure the interests of the State and the interests of NAMA are protected through a process that is being entered into by people who want to avoid their responsibilities. That will result in a very bad deal for the Irish taxpayer.

Mr. Brendan McDonagh

We have an open door with the Minister for Finance and he has always said that if we have any difficulty with any part of the law, we should let him know. We will look into that issue but it is not something we have been made aware of. We will check it out.

Deputy Michael McCarthy

Has Mr. McDonagh asked the developers he is involved with whether any of them are involved in family law cases?

Mr. Brendan McDonagh

When they submitted their business plans, a number of developers pointed out to us that they are subject to ongoing separation and divorce proceedings. They advised us of the details of that. We ask for full disclosure of all material facts.

Deputy Michael McCarthy

Does NAMA follow these cases or does it send someone in to examine them?

Mr. Brendan McDonagh

As part of the business plan review, we look at the impact of these cases. In any of the cases in which I have been directly involved, and I see a large amount of the portfolio, the issue has been that the developer entered into an obligation to make a certain number of payments and he cannot fulfil the obligation. He is usually being brought back to court because he has not fulfilled his obligations. Like everything, these things are complicated and, as a secured creditor, NAMA can take control of the assets. If the spouse wants to take action against the debtor, the debtor has nothing left. She cannot get hold of the secured assets and, effectively, we are trying to make a determination in terms of whether something can be done with the spouse to bring a logical and commercial end to the difficult situation. This is similar to how several of our debtors are in difficult situations with other creditors. NAMA must figure out whether we give the debtor money in order to come to a settlement and make the asset better.

Deputy Michael McCarthy

Has NAMA provided resources to debtors for settlement?

Mr. Brendan McDonagh

Yes, for their creditors.

Deputy Michael McCarthy

How often does that happen?

Mr. Brendan McDonagh

It happens quite regularly and I will give the following example. If there is a housing development into which a subcontractor has put bathrooms or kitchens for which he has not been paid, in order for us to sell the house we must get the debtor to come to an agreement with the subcontractor rather than the subcontractor trying to rip out the bathrooms or kitchens and cause even more damage. These are difficult situations and one must make a commercial call about leaving these creditors unsecured and causing more mayhem or coming to a settlement. The creditor will not get the full money because it is not available but some money can be made available so that everyone gets something out of it in trying to get the asset ready for sale.

Deputy Michael McCarthy

Does the creditor make a case to NAMA if he is owed money in this example?

Mr. Brendan McDonagh

We do not control the assets, which are controlled by the debtor, so we refer such people to the debtor. In a number of instances, the debtor has not told us he has unsecured creditors and when the creditor contacts us it is sometimes useful to us. We then ask the developer why he did not tell us about these creditors. Sometimes people say that they overlooked it but sometimes we think that they did not want to tell us.

Deputy Michael McCarthy

The dog ate my homework. How many developers are on the payroll of NAMA? Typically, what are their salaries and conditions and are they being paid bonuses?

Mr. Brendan McDonagh

Any of the debtors who we are working with have been allowed an overhead allocation to pay a certain amount of salary to themselves and a certain number to key people working for them. As I said at the meeting of the Joint Committee on Finance, Public Expenditure and Reform in September, the majority of them are paid between €70,000 and €100,000. It depends on the complexity of the portfolio they manage. If someone has 60 or 70 sites, that is different to someone with two or three sites.

Deputy Michael McCarthy

What is the maximum salary being paid to developers?

Mr. Brendan McDonagh

Two developers have substantial, multibillion euro portfolios and we have authorised the payment of €200,000.

Deputy Michael McCarthy

Are two developers in receipt of €200,000 per annum?

Mr. Brendan McDonagh

Yes, where they have multibillion euro portfolios.

Deputy Michael McCarthy

How many developers in total are on the payroll?

Mr. Brendan McDonagh

As we work through the business plans, of the top 188, we will allow some form of overhead, allowing them to pay themselves, in the case of 110 to 120 developers.

Deputy Michael McCarthy

Who makes the decision to pay developers €200,000? I understand they are handling multibillion euro property portfolios. Does the board make that decision or is ministerial sanction required?

Mr. Brendan McDonagh

The business plans of those with multibillion euro portfolios go to the board for review. Once we have reviewed them, the final decision would be to allocate an overhead within which we would see that this would be the amount we would permit them to draw down.

Mr. Frank Daly

Just to avoid confusion, there is no ministerial sanction or involvement in this at all. This is purely a decision for NAMA in terms of the overheads which we allow to the business. I know it is a sensitive area and I am sure everybody, including ourselves, would like not to be involved in this. However, it is a hard-nosed commercial decision that they are the people who can add value and are best placed, if they are willing to operate, to manage the assets. When they are in that position, one can characterise them as asset managers working on behalf of NAMA to protect, secure, develop and manage the asset. As Mr. McDonagh has said, in some cases they are multi-billion portfolios. I know that €75,000 or €200,000 is an extraordinary amount of money for ordinary people but it is a commercial reality. It is an absolute fraction of what they would have been taking out of the business themselves prior to NAMA getting involved.

Deputy Michael McCarthy

Would Mr. Daly agree with me that this is a huge amount of money? There are two people on NAMA's payroll who are earning nearly as much as the Taoiseach. There was a lot of controversy in recent weeks about the amount of salaries being paid to advisers, Ministers and the Taoiseach but these figures are quite frankly staggering.

Mr. Frank Daly

Yes.

Deputy Michael McCarthy

To contextualise this, we are approaching a very difficult budget and some horrific decisions will have to be made in the context of public expenditure. People who have inordinately carried the burden of the economic collapse will quite rightly be appalled by those kind of figures. How extensive was the discussion at the board and who arrived at the figure of €200,000 for two developers?

Mr. Frank Daly

First, I absolutely understand the sensitivity about this. I can assure the Deputy that members of the board and the management team in NAMA would share that. There is extensive discussion and it has been an issue that has gone around the houses at the board to quite a great extent. At the end of the day we are faced with a mandate that requires us to get the best financial return for the taxpayer. On a case-by-case basis, when we are looking at a particular loan portfolio or a particular debtor who has come into NAMA, we have to ask what is the best way of achieving that return. The hard-nosed decision at the end of it is to say "There's a debtor there. They are now prepared to co-operate with NAMA. They are prepared to work for NAMA and are prepared to help us get this return". The alternative is to appointing a receiver at €180 an hour. This is no reflection on receivers, but they will not be as clued in or dedicated to the business. They will not have the knowledge of the portfolio and all the systems around that which the individual debtor has. It is not an easy decision and, believe me, we do not take it lightly. To go back to our commercial mandate again, we have to get the best return for the taxpayer here. If we take a commercial decision that that is the best way to do it, that is fine. It is not the case that there is no discussion with these people about whether it is €70,000, €75,000 or €100,000. We would love them to do it for nothing, or for €10,000 or €20,000 but they have the option to walk away and say "Manage it yourselves. Get a receiver. Get somebody who doesn't know my business, and I won't co-operate with you then, and I'll frustrate you". So at the end of the day it is a commercial decision.

Deputy Michael McCarthy

Who are these two developers?

Mr. Frank Daly

It would be unfair - indeed, it would be impossible - for us to reveal that information to the committee. As the Deputy knows, there is a confidentiality clause in the NAMA legislation concerning our dealings with debtors. All we can say is that there are a couple of them and they are managing multi-billion portfolios on behalf of NAMA. In so far as one could say it now, they are certainly co-operating and they are doing that diligently.

Deputy Michael McCarthy

Okay. I presume that they are resident in the State and would have been hugely involved in the construction boom during the Celtic tiger period.

Mr. Frank Daly

Anybody with a multi-billion portfolio would generally be in that category, yes.

Deputy Michael McCarthy

It is a staggering amount of money. In conclusion, I wish to ask about NAMA's social obligations. According to NAMA's website, there is a lot of what would have been development land which is clearly not going to be developed. In terms of the social obligations, the State is paying €500 million per annum for rent allowance. NAMA has many properties or loans of which properties are a part. What discussions has NAMA had with the Minister of State with responsibility for housing, or with city and county managers? I think NAMA made an offer last week to the residents of Priory Hall, which was commendable. Whether that is taken up is a matter beyond NAMA's control. What is the extent of NAMA's discussions with city and county managers and the Minister of State with responsibility for housing about NAMA's social obligations aspect?

Mr. Brendan McDonagh

That is something we are very conscious of. We have about €4 billion of residential stock in our portfolio. Some 75% of that stock is based in Dublin, Cork, Galway and Limerick. We have had meetings with the Minister for the Environment, Community and Local Government, Deputy Hogan, and the Minister of State with responsibility for housing, Deputy Penrose, as well as their departmental officials. We currently have a person in NAMA, on secondment from the Department of the Environment, Community and Local Government, who is looking through the portfolios to identify what we have. They are also looking at what they potentially need and where they need it, to see if there is a fit. We had a constructive meeting with both Ministers recently and we hope to make substantial progress in terms of matching their requirements against what we have. About 75% of the property we have are apartments but there is not a huge demand for apartments in terms of sales. As regards longer-term rental options, we are open to arranging contact between the Irish Council for Social Housing, with whom we met this week, the Department of the Environment, Community and Local Government, and the Housing Sustainable Communities Agency to try to match up those requirements. It makes absolute sense for us and for them. The problem has been that until NAMA came along and was able to put this information in its remit, there was no real engagement over the last three or four years as this problem was building up.

Deputy Michael McCarthy

Mr. McDonagh referred to the land NAMA has, be it in Cork, Kerry, Mayo or Galway. Have sports clubs and sporting organisations expressed an interest to NAMA in acquiring some of that land for recreational sporting facilities?

Mr. Brendan McDonagh

Absolutely. To date, we have had a number of initiatives whereby a number of sporting clubs have approached us. Some of them are arranging to lease land from us, which will never be built on because effectively it is agricultural land. They may want to extend a sports pitch or have a new sports pitch, whatever the case may be. In instances like that, we have made arrangements to make it available on the basis that there is no demand for the land now. If we lease it to them for five or ten years, not at a huge rent, and the debtor agrees, then effectively we have done so. People write to us the whole time and we have done our best to try to accommodate them. In some instances we just cannot because it does not work out for all sorts of reasons. We have had a number of instances where it has worked out, however, and people have been quite happy with that. We are delighted to be able to do that.

Chairman

Does Deputy Murphy have a question?

Deputy Eoghan Murphy

No.

Deputy Sean Fleming

The delegation is very welcome. NAMA's 2010 accounts show an impairment figure on the loans it took in of €1.484 billion. We are now heading towards the end of 2011, so what are the figures to end-September? I presume that NAMA does quarterly accounts, as we have seen figures for the first quarter. What is the impairment figure in NAMA's accounts to the end of September 2011?

Mr. Brendan McDonagh

As I said in my opening statement, we will do that impairment assessment at the end of 2011. It is a complex process which probably involves in the region of 25,000 individual properties. It is not an exercise that one would do easily. Looking at it in the round, however, one would certainly see that the commercial and residential sectors in Ireland are down from what they were at the end of 2010 but because of where some of the overseas assets are located they have increased in value. Effectively-----

Deputy Sean Fleming

Mr. McDonagh has not done the figure yet on the economy but what is his estimated projection based on general market conditions? He knows the percentage of impairment NAMA had last year. Will it be a similar percentage or less? Can Mr. McDonagh give a ballpark figure?

Mr. Brendan McDonagh

If we look at the market as of today we will have an impairment. We would hope the level of impairment would be considerably less than what we took in 2010 but-----

Deputy Sean Fleming

Will it be over €1 billion?

Mr. Brendan McDonagh

I would be reluctant to answer that because we have not done the full exercise.

Deputy Sean Fleming

I will make two comments on this first opening point. We have all looked at the unaudited quarterly accounts ending 31 March for the National Asset Management Agency and its group entity on its website. Essentially, Mr. McDonagh is telling me they are an unreliable set of figures and do not reflect the true and fair position of his organisation at the end of March. I have not seen the figures for the end of June and the end of September but Mr. McDonagh is saying that NAMA puts up quarterly figures on the website but we do not think about the value of the assets until we get to 31 December. No Stock Exchange company could publish quarterly figures and put them out on the Stock Exchange. NAMA is governed by international financial standards which are referred to in Mr. McDonagh's accounts. We are ten months into the year and presumably Mr. McDonagh has produced at least two sets of quarterly accounts since the last set of audited accounts. I accept Mr. McDonagh said they are unaudited but we would expect them to reflect the position in NAMA which would include any impairments incurred up to that time. Mr. McDonagh will say the task is big but he should put a health warning on the cover of those documents that they do not give a full and fair view of NAMA's financial position at the end of the period for which they are being published. Will Mr. McDonagh accept the point that these interim documents are not fully comprehensive?

Mr. Brendan McDonagh

The requirement to produce quarterly accounts, unlike any other State body I am aware of, is a requirement under section 55 of the National Asset Management Agency Act. By their nature they have to be unaudited and all the requirements in terms of section 55 are complied with. As I said to the Deputy, there is a scale of an exercise to be done in terms of calculating the impairment. I believe we say in the cover letter which goes to the Minister and which I believe is published on our website that we have not calculated an impairment charge. The exercise will be done for the end of 2011. It is a substantial and complex exercise. All I can say is that looking at the way the markets stand today, we are likely to be taking an impairment charge in 2011 the scale of which has not yet been calibrated.

Deputy Sean Fleming

I know the accounts are unaudited but just because the Comptroller and Auditor General does not certify them does not mean they should not be accurate from Mr. McDonagh's perspective. There are two separate issues one of which is that NAMA can produce accurate quarterly accounts. The issue of them being audited or unaudited is another day's work. Based on NAMA's market knowledge, and presumably it has acquired some market knowledge at this stage, come every quarter it should be able to put in its best reasonable estimate because many of NAMA's impairment loans were not done on a case by case basis but by using the best information it could get and then it drilled into them later. If it finds at the end of the year that the impairment provision it has been making in its nine months account up to that point is somewhat shy or generous it could be adjusted in the last quarter but it should be included in the figures as it goes along. NAMA does not seem to be doing that. I do not believe there is anything preventing it doing that.

On the audit, the figure for the audit fee is €530,000. Would that be the biggest audit fee in Mr. McDonagh's organisation?

Mr. Brendan McDonagh

Yes.

Deputy Sean Fleming

What would be the next biggest fee? Can Mr. McDonagh give a ballpark figure? Understandably, it is a big fee.

Mr. Brendan McDonagh

I could not tell the Deputy. It is probably the social insurance fund but I would have to look up the-----

Deputy Sean Fleming

It is relevant to the accounts we are dealing with today because the audit fee is a very big expense, which is understandable in a new organisation. Mr. McDonagh indicated in his opening statement that NAMA is doing a special report. Is that completed or when will it go to the Minister? Mr. McDonagh must have a good feel for what the audit fee will be at the end of the financial year. Will it be approximately in that area or does Mr. McDonagh expect it to be significantly higher? One would imagine it should be less because the first year was the most difficult year. Mr. McDonagh might comment on that. Did he have to take on additional staff or outsource some of the work? That would be a very big project to take on from the point of view of Mr. McDonagh's office if it is the biggest task NAMA had to do during the year involving the biggest fee.

Mr. Brendan McDonagh

From the point of view of staffing, we used our own staff largely but we got consultancy in the areas of property valuations and legal due diligence. We took on experts in those fields to advise us, and that feeds in to the cost of the audit.

Deputy Sean Fleming

The NAMA people have professional advisers doing evaluation and then Mr. McDonagh prepared its accounts. Another arm of the State, and perhaps rightly so, employed a different set of valuers to second guess or satisfy Mr. McDonagh. Was there much discrepancy between the organisation NAMA paid to value the assets versus what was presented by the valuers from NAMA?

Mr. Brendan McDonagh

In both cases they were able to independently confirm that the valuations were done in accordance with what would be the norms in the business and that the decisions were reasonable.

Deputy Sean Fleming

Generally, Mr. McDonagh was satisfied.

Mr. Brendan McDonagh

Yes, but I would point out that those two areas would have been outside our field of experience and it was necessary for us to hire people who would give us the independent assurance we needed to feed into the audit.

Deputy Sean Fleming

I want to deal with aspects of Mr. McDonagh's opening statement. NAMA realised €4.6 billion from the sale of assets but he spoke about the people from whom there might be very little to pursue and said he did not want to waste time following it. He further stated that he "would realise only the current value of the property collateral as the debtor has no other assets and the pursuit of debtors would not be economic". Does NAMA pursue them for bankruptcy? I am thinking of all the people in mortgage arrears, many of whom are going before the courts. It might not be economic to pursue them but in terms of the banks which are part of Mr. McDonagh's organisation because of the loans it has taken over, is Mr. McDonagh applying the same procedures to NAMA's debtors as the banks are applying to their debtors in terms of taking them to court, even to finalise the process, rather than somebody walking away and saying there is nothing else to be obtained? How many of those cases has NAMA in court to date? Mr. McDonagh made the statement that NAMA is not pursuing them because it is not economic.

Mr. Brendan McDonagh

We would pursue a debtor for the last penny if we thought he was being evasive with us, had hidden assets away or that there was something to get which we wanted to get back. If a debtor clearly had no money left and all that could be realised is the value of the asset and he had no other assets left, our policy is not to spend money pursuing something where there is nothing there. That would be after investigation. We would not do it lightly but only where we had investigated circumstances and we did not believe there were any other assets.

Deputy Sean Fleming

Does Mr. McDonagh not see the contrast in approach by what is effectively two arms of the State? Most of our banks, although not all of them, are nationalised. They pursue people to the end. They get a judgment against them. Mr. McDonagh is saying NAMA pursues them but walks away if they have nothing left. Does NAMA get judgments registered against them because the poor punter in arrears with his or her mortgage will have a judgment registered against him or her which will affect his or her credit rating for rest of his or her life? Does NAMA go through that process with these people or are the people who go to NAMA allowed walk away scot free from that process? Is the view that that applies only to the little people, so to speak? NAMA has not done any of that yet.

Mr. Brendan McDonagh

We are in court and the Deputy will see we are being challenged in court when we are pursuing judgment orders. We got a judgment order this week for €74 million, one of the biggest judgment orders in the State. We have other cases in which we are pursuing personal guarantees and we are being fought tooth and nail in the High Court. Those cases are ongoing so I cannot discuss them. If we believe there are assets we can pursue, we will do it. What the banks are doing is a decision for themselves. I am on record saying that the bankruptcy law need to be examined. Some people were silly and got themselves into difficulty by over-borrowing, be it for their own house or an office building-----

Deputy Sean Fleming

The banks over-lent, which is the other part of the same equation.

Mr. Brendan McDonagh

Absolutely. The banks have a great deal to answer for here. The bottom line as far as we are concerned is that we can only look after what we think we can look after, and that is getting the money back if it exists. If the money does not exist, I do not believe it achieves anything other than perhaps being prurient when the State comes down hard on somebody who has nothing left. If there is nothing there, there is nothing there. How could I defend to the Committee of Public Accounts spending €1 million pursuing debtors where I might get judgment orders against them but there is not a penny to be got? The Deputy would ask me questions about why I would do that. We must make the call on a case by case basis. However, where we believe people have assets or money, we go after them tooth and nail.

Deputy Sean Fleming

The bankruptcy laws are currently being examined by the Government, so this issue will probably arise again. I will move to the next page in Mr. McDonagh's statement and to an issue that has come to light recently. I realise the witness has a pragmatic reason for doing this but the public will find it grossly offensive that NAMA is effectively telling debtors whose loans the agency has taken over that if they get above a financial milestone, the agency will pay them commission. Mr. McDonagh said the agency will give them acquisition costs plus 10% as an incentive which could be put in place to enable the debtor to retain 10 cent out of every euro achieved over that financial milestone.

The public will find that offensive. In a case where, for example, a debtor's debt of €100 million was taken over by NAMA and the agency wrote down his debt to €50 million and if, somewhere along the line, he collects above a certain figure, although it is still millions short of the original loan, the agency will pay him commission to work for the agency. Does Mr. McDonagh understand that people will find it offensive that the agency will pay commission to people not to help recover the full value of the loan but just to recover a proportion of the loan above the financial milestone set by the agency? On that topic, will Mr. McDonagh discuss the financial milestone set by the agency? Is that in the public domain, so people can see how a developer will get this 10% commission? Is it based on what the agency took over? I am very concerned and I hope Mr. McDonagh can explain this.

Let us say the agency took over a loan where the title was not good in the first place so the impairment was almost 100%, but by virtue of the legislation passed by the Oireachtas the agency has the power to make good or perfect the title. The person getting the commission will be able to sell the asset or contribute to recovering some funds through the sale of that asset, primarily because the Oireachtas empowered the agency to perfect a title on the asset, which the debtor had not done. I hate to think he would earn commission on the sale of an asset, a sale which was only possible as a result of the Oireachtas and the agency perfecting the title because of the extraordinary circumstances of NAMA.

Will Mr. McDonagh elaborate on this financial milestone? Is there a yardstick? This is the Committee of Public Accounts and, Chairman, this is a point we will have to tease out in detail - the financial milestone above which developers who are not paying their full loans, and that is accepted to start with, will be given commission on top of the lifestyle expenses the agency is allowing them. Some will say those expenses are generous and some will say they are not, but the commission is in addition to them. The committee needs to know how these financial milestones, to use Mr. McDonagh's phrase, are calculated. Mr. McDonagh can explain to the committee, but I believe it is an issue on which we will require significant detail. We cannot judge how NAMA is doing its job unless we know how it arrives at its financial milestones with regard to particular debtors.

Mr. Brendan McDonagh

We fully understand how it would be viewed by the outside world. We certainly understand that it might not seem to be fair or reasonable. However, we must make the commercial call, and I assure the committee that it is not an easy commercial call. We would only deal with people who could add value. It will not apply to everybody.

With regard to setting a financial milestone and how it is set, I refer to the example earlier. Let us say, for the sake of argument, somebody had borrowed €10 million to buy an office block and the value of that office block when we bought it was €5 million. We would say it to the debtor, if we thought he would work with us. Effectively the financial milestone will not just cover financial considerations but also behavioural considerations whereby he would do everything to enhance the value of that and fully co-operate as to the return of uncovered assets. We would set the financial milestone and say: "If you can get anything over €5.5 million for that building for us, and it was worth €5 million in November 2009 and it is only worth €4.5 million today because property values have gone down, we might allow you to get 10% over or above that." If he got €5.6 million for that office block, for example, there is €100,000 there and €90,000 of that would come to NAMA and €10,000 would go to the person.

Deputy Sean Fleming

The taxpayer is still out of pocket by €4.5 million on this transaction.

Mr. Brendan McDonagh

No.

Deputy Sean Fleming

Mr. McDonagh is missing the point. When the loans were transferred to NAMA at 58% or 60% of their value, that put a hole in the balance sheet of the Irish banks, which the Irish taxpayer has filled.

Mr. Brendan McDonagh

Absolutely.

Deputy Sean Fleming

The Irish taxpayer has paid for this reduction in the loan, which is the result of the over-lending and over-borrowing, by recapitalising the bank. The hole in the balance sheet is the result of the property being transferred from the bank to NAMA. The taxpayer has paid once already for this and now Mr. McDonagh is saying the taxpayer will pay a second time. Even if the debtor does not recover the loan, he will get a commission for being a good boy. The taxpayer gets the bigger picture now.

Mr. Brendan McDonagh

Absolutely. We have inherited the loans from the banks who over-lent in the first place and the borrowers who over-borrowed. The assets are what they are when we acquire them. Our objective is to get the most we can for those assets over a period so we do not lose any more money for the taxpayer. The alternative for us each day is to assess whether the existing guy who borrowed the money is the best guy to maximise the return on that property or whether we appoint a receiver. As the Chairman said, the receivers charge up to €180 per hour and one would use up a huge amount of money paying receivers, whereas the guy who is managing the asset would do it a great deal cheaper, provided he is prepared to work with us.

Deputy Sean Fleming

Let us be clear about this. The loans that were transferred to NAMA of approximately €70 billion were taken in for more than €30 billion. Does the agency feel the loss is not its problem and that it has no responsibility to recover any of that loss, which the taxpayer has paid for, but just to recover up to the value of the asset when it came into NAMA?

Mr. Brendan McDonagh

We did not say that. We said we would recover the maximum amount we can. With certain loans, where the properties are being sold, we will recover more than what we paid for them, while with other loans, depending on the market, the circumstances and the economic conditions, we will recover less. The first milestone for NAMA is to get back what it paid for the assets. The second is to recover any cost it incurred while it had the assets under its control. The third is that anything we earn over and above that is pure profit for the taxpayers, which would go towards recovering the amount of money they had to put into the banks to cover for their bad lending in the first place.

Deputy Sean Fleming

I will move on from that. Can Mr. McDonagh give the committee a briefing note on how NAMA works out these financial milestones? I am very concerned about the person where some of the write-down was due to improper title and which had been put right though the good offices of NAMA. I would not like if a person earned a commission where the bulk of the work was done by NAMA. I accept the particular debtor may have contributed to some extent but he was paid on a daily or monthly basis for that work. I am concerned that some of the increase in value is due to market conditions or title issues unconnected with the debtor.

Mr. Frank Daly

I would like to make two points on that issue. The Deputy appears to be under the impression that we do not take any responsibility for the gap between our acquisition cost and the actual power value of the loan. We absolutely do. I reiterate what Mr. McDonagh has said. We have a primary objective of recovering what we paid for the loans plus interest plus our costs but we also have the objective of recovering as much as we can, right up to the power value. The two issues - the earlier discussion about an asset manager working on our behalf who might be taking a salary and the incentivisation arrangements we have talked about - are focused on getting that return beyond the NAMA acquisition cost and getting that return for the taxpayer. The other point is that an asset is realised at a good value because of work that NAMA does or the legislation allows us to do, rather than the debtor. We will not incentivise any debtor for work we do. Any incentivisation of a debtor or an asset manager is directly commensurate with the effort he or she has put in, not the effort we would put in.

Deputy Sean Fleming

I have referred to legislation, title and issues. Perhaps the witnesses would provide the committee with a note on how NAMA does that because it is not strictly based on the value of the loan. These other factors are relevant. I just want to move-----

Chairman

Before Deputy Fleming moves move off from that topic-----

Deputy Sean Fleming

Yes.

Chairman

In regard to the figures given and the story he tells about these debtors in respect of their payments and the bonuses, it could be that a debtor in receipt of €200,000 per year qualifies for the 10% bonuses in terms of the properties disposed of. The two individuals in receipt of the €200,000 per year have quite a large property portfolio and can qualify beyond the €200,000 for many bonuses as each individual property is disposed of. Given that taxpayers will be disgusted by some of these arrangements, how do those figures compare with getting somebody in a private company to manage some of the properties being discussed? Managing property is not a mystery. The work involved is pretty much the same in every property, relative to its size - more work may have to be done in one area than in another. Did the witnesses do that exercise? Did they compare the proposals they were making to all of these people - the two individuals on €200,000 and the others? How many more are in receipt of between €70,000 and €100,000? What is the outcome of that analysis? Perhaps the witnesses would answer this question also because I am missing a point. In regard to the three hotels disposed of and the £600,000 offset against the par loan, if the witnesses say they have to do this calculation on the basis of the best return for the taxpayer, why did they put somebody in to manage those properties because NAMA seems to have got less? Is it a fact that NAMA could have got a lot more?

Mr. Brendan McDonagh

No, Chairman. I will deal with the questions in reverse order. In terms of those hotel loans, the maximum amount of money we were ever going to get back was £660 million sterling. We were not entitled to any of the surplus. If the hotels were sold by a receiver or whoever for £750 million sterling, we would only get £660 million sterling back.

Chairman

I understand that. Could the operator or the debtor have got more?

Mr. Brendan McDonagh

He has, because he is entitled to the equity between the value of the loan and the actual value of the buildings.

Chairman

And NAMA is only entitled to the £660 million sterling.

Mr. Brendan McDonagh

In terms of managing property and comparing what it would cost us privately, certainly if some portfolios have been completed and rented out on long-term leases, then the costs will be much lower. I accept that. However, in the case of a portfolio where there is land and better planning needs to be achieved or if one is in the middle of a development, those assets are much more complex in terms of the time taken to manage them and a certain expertise is required. We do compare what it would eventually cost to what we would pay the actual debtor. Typically, if we took the debt out of the picture and put in a property receiver, the costs would range up to probably 1.5% of the asset value per annum. If a person had a loan of €100 million, and the assets were €100 million, one is comparing that with what the debtor is paid. One would pay €150,000 to a private sector individual to manage it while one might be able to get a debtor to do it for €60,000 or €70,000. That is the actual trade off that one has to make.

In terms of the debtors in receipt of between €70,000 and €100,000, if it is acceptable I will supply a note after the committee along with the note to Deputy Fleming. I do not have that information with me but most of the debtors fall into the €70,000 to €100,000 category. Since we are agreeing business plans every day I want to supply the correct figures.

Chairman

I ask Deputy Fleming to be brief.

Deputy Sean Fleming

I will deal with just one other point and come back after everyone else has had an opportunity to put questions. In regard to the interest charges to debtors, I note in page 78 of the annual accounts that interest on loans and receivables was €447,860 million. That is what NAMA charged on interest. How much of that €447,860 million was received by NAMA by 31 December 2010? That amount is in the accounts as receivable. How much of that had NAMA received?

Mr. Brendan McDonagh

Under IFRS accounts-----

Deputy Sean Fleming

I understand that.

Mr. Brendan McDonagh

-----one applies income into P and L, based on what is called an effective interest rate, which is the same as an internal rate of return over the life of the asset. That effective interest rate generates a return of just over 5% per annum. One has to compare that against the total cash receipts - the principal and the actual interest that is coming in. In the 2010 accounts, more than €1 billion in cash was received which would include both principal and interest receipts. If the Deputy looks at the footnote on page 62 of the accounts, he will see that it includes loan cash receipts of €375 million for the proceeds of collateral against loans and receivables of €363 million.

Deputy Sean Fleming

What did Mr. McDonagh say?

Mr. Brendan McDonagh

I referred to footnote 2 on page 62.

Deputy Sean Fleming

Page 62.

Mr. Brendan McDonagh

Of the €734 million in cash, receipts from borrowers and acquisitions - that is in the cash flow statement - €371 million of that came from the sale of collateral, which effectively is the sale of the property against the loans.

Deputy Sean Fleming

I am back to my first question. The €447 million includes loans and interest. What was the interest figure NAMA included in its financial statement given that it did not break down the interest it charged on its debtors for the financial year 2010?

Mr. Brendan McDonagh

That is the figure in note 5 to the accounts on page 78 - €447 million. We got €525 million in total interest income and-----

Deputy Sean Fleming

Will Mr. McDonagh say that again? The interest receivable was €447 million.

Mr. Brendan McDonagh

The interest receivable is €525 million, which is in the profit and loss account of our income statements, and a total of €447 million of that has been accrued on the back of the loans.

Deputy Sean Fleming

That is the figure I asked about initially. How much of that was received at the end of the year?

Mr. Brendan McDonagh

If the Deputy goes back to the cashflow statement on page 62, it is approximately €370 million.

Deputy Sean Fleming

Is Mr. McDonagh saying that approximately €80 million of interest that was charged is included in the accounts for the end of 2010 on interest and loans from debtors which was not received by the year end? Is Mr. McDonagh carrying on the practice of the bad old banks which used to roll up interest on debts? He indicated that almost €450 million of what is on the books is receivable, but €80 million of that was not actually received that year. It obviously came through this year or perhaps it will be next year. Am I correct in saying that the sum of €80 million was not received by NAMA in the year and it is effectively rolled up?

Mr. Brendan McDonagh

No, because if one looks at the top of page 62, the first line refers to value dates to transfer dates received, which is note 1. That effectively is cashflows between the valuation date and the transfer date from the banks. We got €196 million worth of cash in that period.

Deputy Sean Fleming

What does that mean?

Mr. Brendan McDonagh

When we were valuing the loans - let us say for argument's sake that we valued the tranche 1 loans by reference to the 31 January 2010 valuation date - they transferred to us between the end of March to mid-May 2010, so any cashflow that came in on those loans between 31 January and May 2010 was claimed back from the banks. That has been picked up. That happened in subsequent tranches depending on the valuation date we used. We picked up the income from the loan valuation date, the restructured valuation and when the loan transferred across legally.

Deputy Sean Fleming

I do not wish to refer to the loans. I refer to the interest only. Despite our complicated conversation due to which we might be losing people, am I correct in saying that Mr. McDonagh has a figure in his accounts for 31 December 2010 in respect of loan interest receivable from debtors, €80 million of which was not received by the year-end? Is that simple statement true or false?

Mr. Brendan McDonagh

I do not think it is entirely true.

Deputy Sean Fleming

Mr. McDonagh should tell me what I said wrong. I am interested in hearing the answer.

Mr. Brendan McDonagh

Some of that interest has been picked up in what we call in note 1 in the footnote-----

Deputy Sean Fleming

Could Mr. McDonagh give me the figure? They are his accounts. I am trying to extract information. I can quote three or four other notes on the topic as well. Mr. McDonagh should tell me how much of the €447 million that he has billed as receivable was not received at the year end. It is up to him to him to provide the figure, not me.

Mr. Brendan McDonagh

I will come back to the Deputy on that.

Deputy Sean Fleming

I hope the figure is available somewhere because it sounds like an old fashioned approach, that interest was charged on the loan but it was not collected so it was rolled up again. That is half of the reason we are where we are.

Mr. Brendan McDonagh

I will come back to the Deputy on it in writing because it is a technical issue. The difference between the accounts of the banks and the NAMA account is that the principal balance at the end of the year is less than the principal balance at the start of the year because we had collected the cash. Under the IFRS effective interest rate method, one accrues income at approximately 5% and then one takes off one's cash receipts and that results in one's closing balance at the end of the year. Deputy Fleming will see from the statement on page 88 that we got more hard cash in than what we charged.

Deputy Sean Fleming

Yes, but Mr. McDonagh must give the committee the figure for the interest included. I will finish on this point. He referred to 5%. If we take the example of the man whose €100 million loan went to NAMA, let us say he was paying his banks 6%. He had an interest charge of €6 million per annum on his €100 million. When the loan is transferred to NAMA it is written down to €40 million. That is a ballpark figure. There is almost 60% of a write-down. NAMA is now only charging interest on the €40 million and not on the original loan. Mr. McDonagh should bear with me. I am correct because there are several notes to that effect which we can go through if Mr. McDonagh wishes. NAMA is now only charging what is effectively 40% of the total interest and charging it only on the €40 million, which works out at only €2 million worth of interest. That debtor by the mere fact of his loan transferring from the bank to NAMA has received a reduction in his annual interest bill of €4 million per annum on the €100 million. Previously, he was paying €6 million to the bank at 6%. Will Mr. McDonagh confirm that he is now only charging interest on the value of the loan NAMA took over, which is the discounted value of 60% less than the loan value? Is that correct?

Mr. Brendan McDonagh

No.

Deputy Sean Fleming

Will Mr. McDonagh explain what he charges the interest rate on?

Mr. Brendan McDonagh

There are two differences. Until we restructure the loans, the debtor is liable for the interest charged on his original parked debt loan. If he has a loan of €100 million and he is paying an interest charge of 6%, that is the amount of interest he is being charged per annum.

Deputy Sean Fleming

On what value? On the €100 million loan or the €40 million?

Mr. Brendan McDonagh

On €100 million. If we had loans with debtors who were able to pay their interest charge, then there probably would be no need for NAMA. The reality is that most of those debtors cannot pay the €6 million per annum because the asset is not producing €6 million worth of income. What NAMA has included in its financial statements, which is different form the legal position with the debtor, is if the value of the asset is €40 million, as proposed by Deputy Fleming, then we would be taking €2 million of interest through our profit and loss account, but it does not mean to say that if the debtor could pay €6 million worth of interest that we would not be taking €6 million worth of interest from him.

Deputy Sean Fleming

I will move on.

Chairman

Deputy Harris wishes to speak.

Deputy Sean Fleming

I have just one point to make. I will give Mr. McDonagh an opportunity to reconsider what he said. In a note in his accounts he refers to estimated future cash payments of receipts. He is basing his interest on the future value of the loan-----

Mr. Brendan McDonagh

Yes.

Deputy Sean Fleming

-----which is the discounted value of the loan, which is the €40 million not €100 million.

Mr. Brendan McDonagh

Yes.

Deputy Sean Fleming

Mr. McDonagh told me I was wrong when I said that.

Mr. Brendan McDonagh

No. That is what we are taking into the accounts because that is what we are required to do under IFRS rules.

Deputy Sean Fleming

I am talking about NAMA's accounts.

Mr. Brendan McDonagh

Under the legal position of our loan with the debtor, if he has to pay 6% on €100 million and the loan is restructured, he is legally obliged to pay us €6 million per annum.

Deputy Sean Fleming

Right. I genuinely believe that we are not getting clarity. I am clear on reading NAMA's accounts which say that when a loan is assessed, that interest is charged on the discounted value of the loan - the €40 million - into NAMA's accounts. NAMA does not charge interest on the full original value of the loan. Interest is only charged on the discounted value of the loan.

Mr. Brendan McDonagh

It is purely for accounting purposes.

Deputy Sean Fleming

We are talking about NAMA's accounts.

Mr. Brendan McDonagh

Absolutely, but the amount of income-----

Deputy Sean Fleming

Does NAMA have another set of accounts somewhere?

Mr. Brendan McDonagh

No. What I am saying-----

Deputy Sean Fleming

Can we go on this set of accounts?

Mr. Brendan McDonagh

The amount of income that we are allowed under IFRS rules to take into our profit and loss account is based on the effective interest rate on the carrying value of the loans in the accounts.

Deputy Sean Fleming

Which is the discounted value of the loan that NAMA has set.

Mr. Brendan McDonagh

Yes, but it is completely different from the amount of interest which the borrower is legally due to pay us. That is an important distinction.

Deputy Sean Fleming

I understand that, but Mr. McDonagh is saying that NAMA's accounts refer to the interest rate-----

Mr. Brendan McDonagh

It is based on the carrying value.

Deputy Sean Fleming

-----which is the effective discounted value.

Mr. Brendan McDonagh

Yes, absolutely.

Deputy Sean Fleming

NAMA's priority is to get the value of the loan that was taken over initially.

Mr. Brendan McDonagh

Effectively, that is what-----

Deputy Sean Fleming

NAMA's second priority is to get more if it can.

Mr. Brendan McDonagh

Absolutely. If we get more than that, effectively the cashflow that we get on the loan is greater than the amount of interest we are taking to the profit and loss account. That is in effect additional cashflow which will amortise down our debt.

Deputy Sean Fleming

Will Mr. McDonagh give us a detailed note on it?

Mr. Brendan McDonagh

Absolutely.

Deputy Sean Fleming

I am quite right in everything I say, Mr. McDonagh is probably quite right in what he said and we will probably confuse the public.

Deputy Simon Harris

I thank Mr. McDonagh and Mr. Daly for their presentations. I apologise for missing some of the exchanges because of Dáil votes, and so on.

We commenced with a discussion of the confidential review carried out by Mr. Geoghegan. While we all appreciate his bona fides and goodwill in carrying out the review free of charge, I have serious concerns. A review has been carried out into an organisation charged with recovering public money. As Deputy Fleming pointed out, we the taxpayers have already paid the money. The review made recommendations about, I presume, how to improve the organisation, its efficiency and ability to recoup those loans, and we are not privy to it. This poses a difficulty for the Committee of Public Accounts in tracking and finding accountability regarding how NAMA is doing its job.

Am I correct in saying the recommendations are with the Minister for Finance? Does the Minister have a copy of the report?

Mr. Frank Daly

There is not an actual report. I am not sure if I made that clear at the beginning. The agreement between Mr. Michael Geoghegan and the board from the beginning was that he would do his review, with full access to anyone to whom he wanted to talk, that he would verbally brief the board of NAMA and then verbally brief the Minister. There is not a written report, as such. I am not holding back a report from the committee.

Deputy Simon Harris

When Mr. Geoghegan came to Mr. Daly and the Minister for Finance and offered to carry out this important body of work and when the terms of reference were being discussed one would have hoped he would have been asked to put the report and his recommendations in writing, in the interest of accountability. However, for the purpose of this conversation it is correct to say the Minister for Finance is privy, for want of a better word, to the same information as the board of NAMA.

Mr. Frank Daly

He has exactly the same information as the board and I have. In fairness to Mr. Geoghegan, he did not come to us. We had to do a little persuading because it was a sensitive area. Part of his reasoning in not doing a written report was that he could be more up front. He was going to be commenting on sensitive issues. That was the rationale for it.

The Minister is fully privy to all of his recommendations and to his view of NAMA. I will share two of Mr. Geoghegan's conclusions with the committee. First, he was very supportive and complimentary of the work NAMA had done. There was no mess up along the way, as he put it, which had been the case in other similar organisations abroad. Second, he did not question our inherent capability to do the job in the future.

Deputy Simon Harris

Two points come to mind. If such importance was placed on confidentiality, and the Committee of Public Accounts is not privy to the information, it is a pity some of the people in NAMA who did receive the information decided to make the media privy to some of it. Several leaks of apparent recommendations and comments have appeared in the press.

Second, how many of the recommendations is it the responsibility of the managers of NAMA to implement and how many are the responsibility of the Minister for Finance and the Oireachtas? I do not need a specific breakdown. I simply need to know if political action is required to be taken. Are there actions that need to be taken by the Minister for Finance and the Dáil separate from those that need to be taken by the management of NAMA?

Mr. Frank Daly

First, I cannot comment on media speculation. Sometimes in media speculation one sees one or two pieces of information which do not reflect the totality of any report or view. Second, the vast majority of Mr. Geoghegan's recommendations are matters for the organisation itself or the board. The areas of the report where Mr. Geoghegan had a view were not confined to structural issues. Some of those views would certainly be appropriate to the Minister, but not a huge number.

In all cases it would be appropriate for the board to engage with the Minister on all of the recommendations, apart from some minor procedural ones with which I would not bother the Minister. That would certainly be my view, as chairman.

Deputy Simon Harris

Have some of the recommendations been implemented to date? What sort of timeframe are we talking about?

Mr. Frank Daly

The board is determined to act on the report as quickly as possible. We have already had two sets of discussions about it and we intend to have another very focused discussion in the coming weeks. We are determined to act on the report. We value the report and what is in it.

We have already acted on one or two minor procedural recommendations. Indeed, some of the recommendations relate to things that were on our calendar in any event. They were there in the organisation.

Deputy Simon Harris

Some of my criticisms of NAMA relate to matters for which the board is not responsible. They relate to the framing of the legislation and require a political discussion, which we should not have at this committee.

However, the two developers receiving €200,000 of money which is owed to the taxpayer must be the only individuals in the State receiving salaries of €200,000 whose names are not known. Given that public representatives are expected, quite rightly, to produce information regarding their income levels and those of their advisers, it is disappointing that there are individuals who are receiving these salaries and that we do not know who they are. However, I do not expect Mr. Daly to answer that because it is a matter for the legislation.

There has been some discussion about NAMA's UK property. I know there have been some sales of UK property which the board would regard as successful. It has been asserted that NAMA has engaged in selling some UK property below market value. Can Mr. Daly assure the committee that is not the case?

Mr. Frank Daly

I think Mr. McDonagh can deal with that. There has been some noise about a particular property in recent weeks.

Mr. Brendan McDonagh

We are not selling property off-market or at low property values. A particular property was mentioned on a blog this week and distributed to all Members of the Oireachtas. The property was widely marketed by the selling agent and advertised in Property Week, which is the property bible in the UK. There were 30 viewings of the property, eight people went to the final bid stage and seven bid on the asset. The lowest bid was £65 million and the highest was £67.5 million, which we accepted. We were assured that the property was widely marketed and that was the best price we could achieve for it.

Deputy Simon Harris

I thank Mr. McDonagh for that.

The other assertion relates to the timing of selling London property when the market is, at worst, static and some say property values are expected to increase. What is NAMA's view on the UK property market, specifically in London?

Mr. Brendan McDonagh

We are seeing two property markets in the UK. One centres around prime property in the centre of London. Several buyers are interested in buying prime property. These buyers generally do not need debt. They have cash resources, whether private equity houses or sovereign wealth funds. A certain type of buyer is interested in such property, perhaps for the perceived prestige of owning prime property in central London. That market is holding up very well. The property market outside the M25 is much more difficult and subject to regional variations of supply and demand. There is not a huge amount of transaction activity in that market.

In terms of what NAMA and other big players in the UK property market are trying to do, members will be aware of the famous transaction announced this week in regard to RBS which has a loan portfolio of €1.4 billion. These loans are completely different to the majority of loans in NAMA in that they are SPV loans which can be put together with no recourse to the debtor. RBS has decided to take £1 billion for its €1.4 billion loan portfolio. While RBS provided 60% of the finance it was, in respect of the remaining €400 million, only able to off-load €50 million to the sovereign wealth fund, China Investment Corporation, and €100 million to Blackstone.

The UK property market has different features. Unlike other banks with loan books in the UK, NAMA has been able to take a write-down on properties and as such is able to sell. English and foreign banks have not yet taken the provisions and are effectively unable to sell because they would take huge capital hits. That differentiating feature has allowed us to sell some of our properties. As I stated earlier to Deputy Murphy, we must now figure out whether a property which 18 months ago was yielding 6% in the UK and is now yielding 4% will soon yield only 3%. I believe that in current economic conditions that may be unlikely. Perhaps, then, taking a price at a 4% yield is the right thing to do. We must deal on a case-by-case basis.

Deputy Simon Harris

I find the incentivisation agreement difficult to understand. Basically, what we are saying is that people with an ability to pay will not pay unless we incentivise them to do so. In other words, the State, through NAMA, is setting them a financial milestone and is, when they reach that milestone, because it knows they have a little more to pay, offering them a 10% return on anything extra they pay.

The Keane report on mortgage arrears was debated in the Dáil last night and last week. Many mortgage holders would appreciate being told that if they reached a financial milestone and paid us a little bit extra we would give them a 10% cash bonus. However, there has not been any such NAMA activity in that regard. Is it NAMA's view that people who have the ability to pay will not pay the extra unless incentivised to do so? Why are we incentivising them? Can Mr. McDonagh tell us how many people with loans in NAMA are being incentivised?

Mr. Brendan McDonagh

This is not about ability to pay but about our ability to manage the assets and secure the best return. A debtor who has the ability to pay will not be incentivised to do so. Such a person is expected to repay his or her loans, as per his or her legal obligation. The trade-off for us is whether it is worth our while keeping in place a debtor who can asset manage the asset for us, which is much cheaper than employing a third party asset manager, and achieve over time a value substantially above the current value. That is a commercial decision. The reality is that ultimately, the asset will be sold.

I understand that people experiencing mortgage difficulties want to remain in their homes. They do not want them sold despite their being in a huge amount of negative equity. However, in the former instance the deal is clear, namely, the debtor will sell all his or her assets. We have no desire for a long-term banking relationship with any of the debtors. One of two things will happen, namely, the asset will be sold and the debt will be paid down or the loan will be bought from us, effectively taking over the loan from NAMA with the debtor. What the person who purchases the loan does with the debtor is out of our hands. While a mortgage holder wants to remain in his or her home the assets of these debtors, to which they may be attached having paid €10 million for them, will be sold for €4.5 million. They will simply have to get over that. Some of the people against whom we have enforced do not want to sell their assets and will not co-operate with us. Debtors who do play the game with us will have their assets sold. We want our money back. That is the difference.

Deputy Simon Harris

Are there people on the payroll who are also availing of the 10% incentivisation agreement?

Mr. Brendan McDonagh

Yes, if they achieve the financial milestone, which is a stretched target rather than an easy one. The example I gave to the Chairman was a loan worth €10 million which we bought for €5 million, the current value of which is €4.5 million. In that regard, we instruct the person to manage out the asset over a period to achieve €5.5 million. While most people do not believe that could be done and as such will not do it, others believe they can do it. The alternative from our point of view is to sell the asset at €4.5 million and incur a €500,000 loss for the taxpayer, despite the fact that potentially €5.5 million could be got for the asset over two or three years. It is a commercial trade-off.

Deputy Simon Harris

I will end my contribution on what I hope is some positive news for the taxpayer and society. On the social dividend, reference was made earlier to NAMA's engagement with the Minister and Department responsible for housing and the Department of Education and Skills. When will we see tangible benefits of this on the ground? I appreciate the offers made by NAMA in respect of Priory Hall residents last week. Perhaps Mr. McDonagh will say when the discussions in terms of tackling our social housing list and reducing the Exchequer's pay-out on rent allowance and so on will bear fruit?

Mr. Brendan McDonagh

The first stages are well under way. A secondee from the Department of the Environment, Community and Local Government is currently examining the list in terms of determining if what is available matches need. This is the first time that the list has been made available to the Department. The Housing and Sustainable Communities Agency spent the last three years seeking access from the banks to it and was not permitted to do so. We are making that list available. As soon as an identified need is matched we will make arrangements with the debtors or receivers to make that happen as quickly as we can.

The issue for us is how to monetise that portfolio. If we cannot sell apartments but can rent them, we can then sell the apartment block with secured rents as a financial asset to, say, a pension fund. It makes sense for them and for us. As such, we are anxious to make progress. As stated to the Minister, Deputy Hogan and Minister of State, Deputy Penrose when we met them last week, we hope to see substantial progress on this during the next six months. The quicker it happens the better. We have already commenced the process with the councils in terms of their coming together as one body rather than on a piecemeal basis, which gives them greater bargaining power and means they can allocate supply on the basis of need within their areas.

We have sold a 48 block of apartments in Sandyford and have leased to Fingal County Council 100 acres of land for parkland in north County Dublin. We have also engaged with Fingal County Council in regard to an N2-N3 relief road, which will relieve traffic on the M50. It may be asked whey we did that. We did so on the basis of gaining road access.

We are willing to do anything on the basis that it would make commercial sense but we also want to achieve something on the social side. As I am sure members know, we receive a lot of invitations to do something on the social side. I can honestly tell them that we try to respond to every single one of them to see if we can do something to help them.

Deputy Kieran O’Donnell

I welcome Mr. Daly, Mr. McDonagh and their colleagues. The first question is for the Department of Finance officials. There has been a lot of discussion about Mr. Geoghegan doing the review of NAMA. I would like to know the view the Department of Finance has taken in respect of this verbal report.

I look at this from the perspective of value for money. What will be the total amount paid to developers by way of salaries in 2011? Am I correct in saying they are paid by NAMA and that their P60s will issue from NAMA? Some of the companies would say that they are being put into project management. How many of those are not paying any repayment on their loans to NAMA so that it is, effectively, a one-way flow?

I remember when the NAMA legislation was going through the Dáil, the question which came up all the time was whether this would be of benefit to developers. Of the 143 business plans, am I correct in saying that 110 to 120 of those concerned are receiving a salary from NAMA? What will be the total amount, in salaries, paid to NAMA staff in 2011? What is the average amount paid? What is the total amount paid by NAMA to date in legal and professional fees? How many receivers have been appointed to the 188 top loans and to the balance of 850?

I refer to question of the social dividend. Has NAMA carried out a strategic plan to look at adjoining holdings of land to come up with something strategic in terms of a social dividend? What amount has been extended by way of working capital and loans by NAMA to date?

There is a perception that NAMA is bureaucratic and cumbersome in the way it deals with plans going through the banks. We are hearing it in regard to smaller loans with NAMA where submissions are being looked at again by NAMA and it is taking months for decisions to be taken. When NAMA was formed not only did bad loans go in it but all development loans went in. NAMA has a lot of viable businesses employing people across the spectrum but they are being sucked in. The question is, has NAMA looked to come up with a policy to decouple those loans from the development element of loans? There are situations where people made unwise decisions and put their family businesses up as security for development property loans. They employ a lot of people in an area - perhaps up to ten people. Many of these plans are before NAMA currently. How can NAMA find a mechanism to keep these jobs in place in viable businesses? It must get a return for the taxpayer. That is extremely important but has NAMA looked at it at that level? What does NAMA expect the outturn to be for 2011? Will it make an operating profit before the impairment of loans? Will Mr. McDonagh indicate what the figure will be after the impairment of loans?

The Department officials might give me a view on Mr. Geoghegan's overview of NAMA first.

Mr. Pat Leahy

The Department, in general, welcomes the review. As the Deputy will appreciate, the review was not published. It was, more or less, made in the form of a verbal presentation to both NAMA and the Minister.

Deputy Kieran O’Donnell

Was the Department happy that it was a verbal presentation rather than a written one?

Mr. Pat Leahy

That was the approach generally agreed and the Minister was verbally presented with it.

As the chairman, Mr. Daly, pointed out, there are confidential issues associated with the whole review and, as I understand it, that was the basis on which the review was carried out by Mr. Geoghegan. The issues discussed with the Minister are being considered by him with a view to making decisions in the future. That is generally the position as far as the Department is concerned.

Mr. Brendan McDonagh

In terms of the debtors and business plans, we have 143 business plans done to date. Some 56 have been assessed and are the subject of discussions with the debtors in terms of what the outcome will be. The outcome could be that we will work with the debtors or we will appoint receivers. Some 25 have signed terms, there are 43 to which enforcement strategies have been applied and there are 19 other debtors where we have effectively entered into disposal strategies where there might be one or two assets, the assets will be sold or the loans will be sold or whatever the case may be. That is in terms of the top 180.

We have appointed about 90 receivers so, effectively, outside the top 180, there are probably about 47 receivers.

Deputy Kieran O’Donnell

Have 90 been appointed within the 180?

Mr. Brendan McDonagh

No. More than 90 have been appointed across the portfolio. So 43 are in the top 180 debtors that we have gone through to date.

As the Deputy will be aware, sometimes when one appoints a receiver, one appoints a receiver to a single entity and not to the whole connection. There are obviously instances of that.

In terms of us paying debtors, we are not paying debtors directly and their P60s will not issue from NAMA. In regard to the income which we ensure the debtor collects from, say, rent rolls, we are allowing him or her an allocation out of that in terms running the overheads-----

Deputy Kieran O’Donnell

Effectively, NAMA is paying it. One is reducing the payment to NAMA by effectively-----

Mr. Brendan McDonagh

Some of this money would be used to pay those very people on the payroll who are working for these developers.

Deputy Kieran O’Donnell

What would be the total cost of salaries of people being appointed to manage these portfolios?

Mr. Brendan McDonagh

I will come back with that. It is not something I have prepared and I do not want to give the Deputy the wrong amount, so I will come back on that.

The Deputy talked about NAMA being bureaucratic. We have a process in place. We will have been through the top 188 business plans by the end of the year and we will also have been through probably more than 200 of the business plans below that. That will represent 90% by value. That has taken a long time to do. I accept that but much of that has been caused by the debtors never having prepared business plans before and having to send information into us. We have to get clarification from them in terms of some of the information we get in but we are working through that.

In terms of the normal decisions, I said in my statement that it is sometimes up to 400 per month but on average it is 300 per month. The average turnaround time within NAMA is six days and in the majority of cases, it is less. We have always said to people that if they experience delays with, e.g. NAMA, they should write to me directly. The chairman has extended that invitation before because we are very interested in where any of those delays are happening. Some of them are happening within the institutions. It is also the case that when a debtor makes a request, he or she is not given enough information and clarification must be sought. We are extremely anxious to improve on that. I do not accept that NAMA is bureaucratic. However, I accept that it is rigorous in the context of knowing the position with regard to moneys we advance to people.

The Deputy also referred to trading businesses and individuals who might, for example, run solicitors' practices, accountancy practices or local shops and who, as a sideline, went into property development. These people might have entered into property development for genuine reasons. For example, they might have done so to fund their pensions. Now, however, they are under water in terms of their property dealings. We are very conscious of the position in which these individuals find themselves. In some instances, we seek to ensure that they continue with their main businesses because their doing so will produce the best outcome. Any cash these people earn from their normal businesses will be put towards their debts over time. In other instances, there are personal guarantees in place and people have added their property loans in with their existing business interests. It is not easy to segregate these. However, we are trying to restructure all of our clients' debts into logical groupings.

If there is a trading business involved, we would always seek to separate property and normal business dealings from each other while still retaining our interest in the context of ensuring that we capture any surplus cashflow. I do not want to return to the committee next year and have the Deputy state that he is aware of an instance where NAMA restructured an individual's debts, that said individual has waved goodbye to his or her property loans and that his or her trading business is doing very well and ask how we could have allowed this to happen. We must ensure that this type of thing does not happen.

I informed the Joint Committee on Finance, Public Expenditure and Reform in September that we expected our operating profit for 2011 to be €500 million before impairment. We have completed a number of transactions recently which resulted in good profits. As a result, we expect our operating profit for the current year to be at least €600 million.

As I informed Deputy Seán Fleming, we will be dealing with the issue of impairment in the final quarter in the context of our year-end accounts. I do not want to speculate on what will be the position in respect of impairment.

Deputy Kieran O’Donnell

I presume NAMA has accounts up to the third quarter, which ended on 30 September.

Mr. Brendan McDonagh

That is correct.

Deputy Kieran O’Donnell

What do those accounts indicate in respect of NAMA's current operating profit and what will be its profit after impairment?

Mr. Brendan McDonagh

Our operating profit, pre-impairment, for the year up to the end of September probably stood at somewhere in the region of €400 million.

Deputy Kieran O’Donnell

Has NAMA made provision for impairment?

Mr. Brendan McDonagh

No, we will be doing that in the final quarter. When we come to deal with our year-end accounts, that matter will be the subject of detailed discussions with our auditors. The Comptroller and Auditor General will obviously have a view on both profits and impairment.

We have approved over €900 million in working development capital and in excess of €500 million of this has been drawn down to date. Approximately €400 million remains to be drawn down.

NAMA's overall costs per annum are probably in the region of €150 million.

Deputy Kieran O’Donnell

Does that amount relate to salaries?

Mr. Brendan McDonagh

No, it relates to all of our costs. Approximately €75 million of our annual costs are paid to the banks in respect of the 500 staff who are managing the portfolio. That relates to the ten basis points of the value of the portfolio which was agreed with the European Commission. NAMA has a staff complement of 200 and is obliged to pay rent, office expenses, etc. Again, we are also obliged to reimburse the NTMA under the European Commission approval. We expect that in a full year, and with all the staff on board, this would amount to approximately €45 million. Other costs arise in the context of legal fees relating to the restructuring of loans and the documentation required in that regard. Other expenses probably amount to €20 million to €30 million. So the overall figure would be €150 million.

Deputy Kieran O’Donnell

Is that per annum?

Mr. Brendan McDonagh

Per annum.

Deputy Kieran O’Donnell

I am interested in breaking that down. It is estimated that legal and professional fees for 2011 will be in the order of €25 million.

Mr. Brendan McDonagh

We budget for that. However, we expect the legal fees relating to the restructuring of loans in 2011 to come in at approximately €11 million. We have also had one-off legal fees for this year in respect of the completion of the due diligence with regard to the loans we acquired. This will probably be in the region of €12.5 million.

Deputy Kieran O’Donnell

If we include the fees charged by auctioneers and professional valuers, what would be the total amount for legal and professional fees?

Mr. Brendan McDonagh

I expect that in the context of property valuation costs we would probably have spent approximately €700,000. That is just in respect of the normal portfolio. Obviously we would also have incurred costs in respect of the property valuers involved in the due diligence process. Such costs would probably be in the region of €5 million to €5.5 million for 2011.

Deputy Kieran O’Donnell

To return to the €45 million relating to the overheads for NAMA.

Mr. Brendan McDonagh

That would be the amount in a full year.

Deputy Kieran O’Donnell

What are the average annual costs relating to the 200 people who work for NAMA? Will Mr. McDonagh provide a general profile of the staff of the organisation in the context of the qualifications they possess, etc?

Mr. Brendan McDonagh

In the context of qualifications, NAMA employs accountants, chartered surveyors-----

Deputy Kieran O’Donnell

I am seeking a breakdown in respect of the staff complement of 200. I want to know how many chartered surveyors, accountants, lawyers, etc., work for NAMA.

Mr. Brendan McDonagh

I do not have such a breakdown with me but I would be happy to forward one to the Deputy. The majority of those who work for NAMA are mid-career professionals who hold qualifications in three main categories, namely, banking, property and legal.

Deputy Kieran O’Donnell

What is the total amount paid out in salaries to the 200 staff of NAMA each year?

Mr. Brendan McDonagh

In a full year it would be approximately €20 million. On average, an employee of NAMA is paid €100,000 per annum.

Deputy Kieran O’Donnell

So it is €100,000 per person per year.

Mr. Brendan McDonagh

Yes.

Deputy Kieran O’Donnell

How many staff have been seconded from the NTMA?

Mr. Brendan McDonagh

NAMA has no employees. All members of staff are employees of the NTMA. When they are assigned to our organisation, they become known as NAMA officers.

Deputy Kieran O’Donnell

In the context of the portfolio, how much is being paid to developers who are managing projects on NAMA's behalf? Mr. McDonagh indicated that 143 business plans have been completed. How many of the original developers are in place to manage the projects relating to these plans?

Mr. Brendan McDonagh

At this stage, we have formal agreements with 25 developers. We are close to reaching formal agreements with a further 56. The Deputy must appreciate that before NAMA came on the scene, the majority of these people were collecting rents and, perhaps, not paying the interest. Effectively, we have mandated the rent directly to NAMA. This means that we control the cashflow directly. An important part of our process is to ensure that we obtain control of cashflows.

Deputy Kieran O’Donnell

Do all of the development companies involved have cashflows?

Mr. Brendan McDonagh

No.

Deputy Kieran O’Donnell

Are there companies which are not making repayments to NAMA?

Mr. Brendan McDonagh

There would be a number of borrowers in respect of which there is no real cashflow available. Effectively, these people borrowed a great deal of money on assets which are not producing cashflows. I refer to residential properties which are not selling and which cannot be rented out.

Deputy Kieran O’Donnell

Who is paying these people if their companies have no cashflows?

Mr. Brendan McDonagh

We do not pay their salaries. It is only where there is a cashflow available that we pay people's salaries. That is unless we have reached an agreement with someone because that person is best placed to manage out the asset. However, if the assets are of a poor quality, rather than making money from them, one would pay somebody to manage them.

Deputy Paschal Donohoe

I thank all the witnesses for their contributions. To return to first principles underpinning the operation of NAMA, the properties that are part of the loans NAMA is managing were valued in November 2009. By how much did Mr. McDonagh expect them to decline in value between then and now?

Mr. Brendan McDonagh

That is a very difficult question. Nobody expected the economic conditions here or internationally to be as difficult as they turned out to be. We expected there would have been some decline after November 2009. When the board was appointed in December 2009 and we set the November 2009 valuation date, we expected there could be some decline but we did not expect the level of decline that happened, which is a feature of the economic conditions the country entered into. The decline in our assets has mainly happened with Irish assets. While there were very difficult economic conditions, nobody expected the tsunami that happened during the second half of 2010 and that has continued on through 2011.

Deputy Paschal Donohoe

What are Mr. McDonagh's predictions for the decline in property values and the likely rebound point?

Mr. Brendan McDonagh

The rate of decline in the value of commercial property in Ireland has considerably slowed down. According to the latest indices available, prices are down 64% from peak. On the commercial side, save for external factors which are outside our control, we expect prices are not too far from the bottom. On the residential side, according to the CSO index published yesterday, property prices are down 44% on average across the country, 49% for houses in Dublin and 57% or thereabouts for apartments. We would say those indices are probably lagging in terms of what we have seen in the market. Residential property prices in Dublin are down between 55% and 60% and outside Dublin our experience is that property market prices are down 40%.

Deputy Paschal Donohoe

What is Mr. McDonagh's expectations about what will happen and the likely recovery point? Underpinning the NAMA legislation is the concept of long-term economic value, which, as Mr. McDonagh will know, has some assumptions about what will happen to the residential and commercial markets.

Mr. Brendan McDonagh

Absolutely. One aspect that has not been widely known about long-term economic value is that while it was assigned to property, it was completely eroded by the discounting that was done on the loans under the European Union valuation methodology. Effectively, the price we paid for the loans represents the current value of the property as of November 2009. Clearly, when we are sitting here today and looking at a drop of 20% in values on average since November 2009, we would have to think how much further they would fall. As I said in my opening statement, if one considers where many of our assets are, we would see a bottoming out in terms of the assets we have around Dublin, but there is probably still a downside risk to assets outside of Dublin in the current environment.

Deputy Paschal Donohoe

I have the CSO figures to which Mr. McDonagh referred, and he is correct in that the figures show that Dublin apartments are now down 59% from their peak value and they declined by 6% this month following a decline of nearly 6% last month, which is a huge rate of deceleration.

Mr. Brendan McDonagh

It is reflective of the market because there is not a demand from people wishing to purchase apartments. That time has passed for now. There is a huge oversupply of apartments in the country. We have said to debtors that we want some cashflow from their assets and have told them to rent the apartments they have. There is a good level of demand for apartments on a rental basis and rents have stabilised. There is a good rental market for apartments but there is no sales market for them and that is unlikely to return.

Deputy Paschal Donohoe

To return to my specific question, does Mr. McDonagh have within his plans an assumption as to what will happen to residential property values during the next one or two years as to when the rate of decline will stop and then when it will stabilise?

Mr. Brendan McDonagh

One aspect we constantly examine is what is the current value of a property compared to the rebuilding costs, which have come down. Some of the values achieved in fire sales in the market would have been values less than the possible rebuilding costs. That can happen while people are prepared to dump property on to the market but over time as that oversupply sorts itself out and if properties are in the right location, we expect that values would average out. Goodbody's has done some research on this. We think the average residential unit will average out at somewhere between €180,000 and €190,000 per unit.

A big and fundamental factor that is holding back the market is the lack of availability of mortgage finance. Many people write to us saying they want to buy somewhere but cannot get mortgage finance or that while they have got mortgage approval for three months the bank has told them to reapply because a new valuation is required due to altered circumstances. If we look at the property market in 2008 at the end of the boom, approximately €26 billion was issued in mortgage finance but this year, Goodbody's has forecast that will be about €5 billion while for the first six months of 2011, which are the only ones available that I know of, the figures show that only €1.2 billion was issued in mortgages. If there is no mortgage finance available people are prevented from buying.

We have instances where we have reduced the price with the debtor. In one instance in north County Dublin we reduced the price of units in a good quality property development by €100,000 and 25 of them sold over two weekends. That indicated to us that buyers were very price sensitive and were waiting for prices to drop.

Deputy Paschal Donohoe

In terms of recouping value, probably the largest single risk the taxpayer is facing is that the assumptions we have about how the property market will perform do not occur. The Central Bank figures produced for bank stress tests carried out by BlackRock Solutions in March and April of this year assume a baseline scenario of a 26% decline from January of this year and an adverse scenario of one-third of a decline on top of what has happened to this point. If such a scenario was to unfold on top of what has already occurred, the pressure on the ability of NAMA to recoup value for the taxpayer would be greatly diminished.

Mr. Brendan McDonagh

Absolutely. They said they would have a baseline scenario up to 2013 and I think the decline is about 55% from peak nationally and 59% under an adverse scenario if values continue to decline. The Deputy is right on that. The are two drivers of value decline. One is a lack of confidence in terms of buyers wanting to buy property and the second is the availability of mortgage finance. Both of them are invariably linked into the economic cycle of whether Ireland is a recovery story. When we consider where Ireland was and where we are moving to, the belief of the many people we meet - I am talking about external investors, as there is no point in asking people in Ireland what they think is happening here - is that Ireland is a recovery story and that we have a good chance of getting out of the troika programme in 2013. If that happens, it would be a great fundamental boost.

Deputy Paschal Donohoe

I have a few other matters. A specific building that attracted some media coverage over the weekend was the Anglo Irish Bank former headquarters in the docklands. There were indications in the media that NAMA was expecting some progress on that building. Can Mr. McDonagh bring us up to date as to where that stands?

Mr. Brendan McDonagh

It is at a very sensitive stage. What I would say is there is nobody more anxious than myself and the board of NAMA that that building would get finished. Unfortunately, it is becoming a landscape photo for Ireland internationally. The whole process has been complicated in that before NAMA took over the loans, because there are four different banks involved, there were four different receivers. We have been trying to stream that down in terms of appointing a single receiver because otherwise one is trying to negotiate with four different receivers in terms of trying to deal with it.

We are at a stage where there is a number of interested parties who are considering making credible offers and we would hope that that would come to conclusion by the end of November. It is at a very sensitive stage, but we would be very anxious that work would commence and deal with that building.

Deputy Paschal Donohoe

I need hardly tell Mr. McDonagh there would be no greater indication of consigning that part of the matter to our history than that skeleton either being removed or filled out.

Mr. Brendan McDonagh

Absolutely. Everybody who comes to Dublin to see us wants to see the Anglo Irish Bank building. They ask the taxis to bring them around by the Anglo Irish Bank building before they come up to Treasury Building, where we are. It is a landscape eyesore and it needs to be dealt with. We would hope by the end of November we can move that forward.

Deputy Paschal Donohoe

That is good news.

Another matter, also on which Mr. McDonagh has commented within the media, relates to this issue of individual developers moving or looking to move assets from themselves to members of the family, particularly their wives or husbands. In this regard, there was some media coverage of a case in the High Court at the end of last year which approved the transfer of a €4.4 million home to another member of the family, and also included the person who was transferring it being paid a salary by NAMA, which we have already covered.

Can Mr. McDonagh update us? First, does he recognise that as being an issue? As he looks at the business plans on which NAMA is working, can he see any evidence of persons looking to move assets within their family networks to minimise the scrutiny and the pressure they will come under from NAMA? Second, if Mr. McDonagh accepts it is an issue, what is NAMA doing about it and what could be done further to help NAMA manage it?

Mr. Brendan McDonagh

First, in terms of the High Court case, as I stated earlier, we were not a notice party to that and I understand that has been a long-running case of separation and divorce proceedings. The transfer of assets was agreed many years before NAMA came into existence and if it was approved by the court, it was approved by the court.

Deputy Paschal Donohoe

I am merely basing my comment on something I saw reported in the media.

Mr. Brendan McDonagh

Absolutely.

Deputy Paschal Donohoe

What of the general point then?

Mr. Brendan McDonagh

On the general point in terms of this particular developer saying he was going to be getting this amount of money out of NAMA, that is the figure that the particular developer proposed to us in his business plan. It is not the amount of money which we are likely to be able to provide to him and which he will be in a position to pay to deal with that. That is how we deal with that.

Deputy Paschal Donohoe

What about the point regarding the moving of assets?

Mr. Brendan McDonagh

On the movement of assets, we get sworn statements of affairs from developers. We go back and we look at the statement of affairs the developer provided to the banks in good times. In good times, people were very boastful about the type of assets they had in their possession. We compare what they had before and what they have now, and we look to do a reconciliation and see where the assets have gone.

Where the assets have transferred, we give the debtors an opportunity to return the assets consensually, and a number of them will. However, in terms of the others who will not transfer the assets back, then we are into issues of enforcement proceedings, going to the court to enforce personal guarantees and getting judgment orders. We have not done it to date, but we have got a number on the boil. We are giving people an opportunity to transfer the assets back where, effectively, we could make use of two provisions. As I stated, one is the Conveyancing Act 1634, which is a very old Act. That involves fraudulent intent which one must prove, which is not easy. The second one is section 2(11) of the National Asset Management Agency Act 2009, where the burden of proof is less. When we invoke that, I must be honest with Deputy Donohoe, as I stated earlier, it would not surprise us if that was subject to a challenge, but at the end of the day the courts will decide. As the Minister for Finance said to us, if we need anything which is inhibiting us from doing our job and recovering the money for the taxpayer, and even if there is some sort of legislation issue required, his door is always open for us to talk to him.

Deputy Paschal Donohoe

Mr. McDonagh stated there are some cases on the boil. How many would that be? This movement of assets is beginning to develop as a real perception out there.

Mr. Brendan McDonagh

The movement of assets is probably not as widespread as people think. Much of the movement of assets involves persons transferring their shares of the family homes to their wives or children, whatever is the case. There is a lot of that. There is not a huge instance of persons transferring assets, such as cash or other assets, into their wives' or children's names. There is a certain amount of it, but it is not a huge amount by value in what we have seen to date.

Deputy Paschal Donohoe

I will end with two questions. The first is a point to which Deputy O'Donnell referred earlier. It has been a theme in the discussion that we have been having, which is, the payment of salaries to the developers with whom NAMA is working. Apart from those who are earning the €200,000 salaries we discussed earlier, what is the total figure that NAMA is paying in salaries to developers?

Mr. Brendan McDonagh

As I said to Deputy O'Donnell, I do not have that figure with me. I am quite happy to write back to the committee on a number of issues which I have raised today, and give that figure to Deputy Donohoe.

Deputy Paschal Donohoe

Bonus provisions also have been the subject of discussion. Is there a provision in the accounts regarding the likely amount that NAMA might have to pay in the future for these?

Mr. Brendan McDonagh

No. Looking at this today, and looking at where current asset values are, the possibility of paying that is just too far away. The timeframe is too long. Looking at current values today, there are unlikely to be payments.

Deputy Paschal Donohoe

Is Mr. McDonagh satisfied that we will not end up in a situation where in the case of somebody participating, the assets in question enjoy an increase in value purely because of what is happening within Ireland? To put it more clearly, we need to ensure that persons are not being paid a dividend due to factors beyond their control where, for example, the property market increases in value, they deliver their business plan commitments with NAMA and then they get paid a dividend for it. Is Mr. McDonagh certain that will not happen?

Mr. Brendan McDonagh

To be honest, some of the increase in value, if it does happen, will be as a result of improving markets and market recovery. However, if we remain working with the debtor - it is not just a one-way system and the debtor must reach certain milestones in terms of achievement of sales targets through the life of a business plan - a lot of the increase in value will be down to the skills that he or she brings as an asset manager in terms of improving the assets, finishing off unfinished developments, getting them ready for sale, getting them rented at good rental levels. A lot of the work will come down to improving the asset values.

Deputy Paschal Donohoe

The bit I struggle with there is seeing many of these as asset managers in the first place. If their assets were being properly managed, much of the difficulty that NAMA is managing would not have occurred.

Mr. Brendan McDonagh

The problem here is that, when one looks at the top 190 debtors in the NAMA universe with debts of €62 billion, a relatively small number of people were chasing the same assets and it was like a Ponzi scheme. They overborrowed and were overlent to by banks. There was huge inflation of asset values and this was not sustainable in the context of the economy. There was a disconnect between the economy growing at 8% or 9% per annum and lending by banks growing at 35% or 40% per year. The problem was caused by overpaying for assets.

Deputy Paschal Donohoe

When people look at this, many will see the possibility of people being paid bonuses in return for delivering a business plan commitment as a repugnant idea, given that the assets transferred to the State have been written down by over 50%. The taxpayer has had to pay for this write-down. It is not just a commercial arrangement and there must be a reflection of the major loss to the taxpayer.

Mr. Frank Daly

I agree with the Deputy. What are the alternatives? We need someone to work with us to manage these assets. They might not have done it very well in the past but they are now under our supervision and general guidance. The Chairman mentioned that there are plenty of asset managers out there who we could employ, and I am sure there are, but if we consider the average salary in the industry and ask asset managers to manage portfolios of €2 billion, they will charge approximately 1%, which amounts to €20 million. That is the level in the industry if one wants a really good asset manager. We must compare that with the possibility of reluctantly paying someone €200,000. That is the choice we face and it is driven by the commercial reality of NAMA and the reality of the mandate in the legislation, which is the best financial return for the taxpayer. Having said that, I fully understand how people view this and the sensitivities and the comparisons that will be made. We are faced with the reality of getting the best we can out of this for the taxpayer.

Chairman

Mr. Daly also made the point that it is more cost-effective to employ the debtors for management rather than going to the market and that there is a significant difference.

Mr. Frank Daly

There is a huge difference and that is a commercial decision we must make. It is unpalatable because one would love to get someone from abroad or from Ireland to manage the €2 billion portfolio and maybe one would end up paying €10 million or €20 million to do so instead of paying €200,000 to someone who is not the ideal candidate but who will get as good a result. That is the choice we must make and it is not popular but it is the reality of where we are.

Deputy Paschal Donohoe

The reality is that people will look at this and see a group of people who led the State into this economic collapse potentially profiting at the taxpayers' expense at the end of this.

Mr. Frank Daly

Mr. McDonagh made a very important point that there is a long cycle to go and that these incentive payments may or may not kick in in five or seven years' time. He quite rightly made the point that, from where we sit now, we do not see a portfolio in NAMA resulting in a big payday for a developer in six or seven years' time.

Deputy John Deasy

I want to make the point made by Deputy Paschal Donohoe. The Minister for Finance has characterised this as a practical arrangement where pragmatism is involved. Even so, the electorate will see it as being unjust. I do not know Mr. McDonagh's former career but, when it comes to people who owe the State money, Mr. Daly is not known as a soft touch from his position as a former chairman of the Revenue Commissioners. People in government know that Mr. Daly is ruthlessly efficient. It must be a parallel universe for him to be paying a salary to someone who owes this kind of money. The State has taken on the debt. Everyone is touching on this point and Mr. Daly has tried to answer the question but the electorate will not understand it. While Mr. Daly was at the helm of the Revenue Commissioners, it chased people who owed €100,000 or €200,000 for many years. The thought of paying a salary to those people was probably anathema to the Revenue Commissioners. It is not a new concept that businesses make arrangements with people who cannot pay the full amount. This happens in the case of banks, credit unions and countries and is not a new concept. People understand this. However, in the case of Mr. McDonagh's example of paying 1.5% to an asset manager, this turns into €150,000 and we can compare it to the €70,000 earned by the person with whom he or she is making an arrangement. People will say that it is unjust and the electorate will say to hell with the €70,000 and that he or she should not make an arrangement with that person.

One must be pragmatic but there is a moral issue. This is the Committee of Public Accounts and the witnesses are from NAMA. Deputy Paschal Donohoe raised a moral question. When entering into negotiations with these individuals, what is the bottom line in respect of the arrangements and deals made? The public must understand this. In some instances, what happens when a person has a loan for €1 billion, and says that NAMA can waive his salary but that he needs his house and the charge on his pension to be protected? NAMA has seized cars, jewellery and helicopters. Is everything negotiable with these individuals? Does NAMA have a bottom line with regard to negotiations and the deals it can make? Knowing Mr. Daly's background, he is not a soft touch and everyone in government knows this. He must be dealing with a parallel universe compared to what he has dealt with throughout his career. The justification for entering into these deals must be more pronounced and the public must understand better.

Mr. Frank Daly

I will leave Mr. McDonagh to deal with some of the detail. Regarding the point about the parallel universe, this is a culture shock for me. I hope that, in some way, it might help ordinary people to understand. I had to change my thinking when I considered the mandate of NAMA. There is a constant in what I was doing for the Revenue Commissioners and what I am doing in NAMA, which is to get the best possible result for the taxpayer. If that means that I and my colleagues must take unpalatable decisions, we will take them. These are practical decisions.

The Revenue Commissioners never paid a salary to any tax debtor but the Revenue Commissioners never wanted to get a tax debtor working for Revenue in respect of the collection of money. Mr. McDonagh can explain this in more detail but our bottom line in the process of negotiation is to get the best deal for the taxpayer at the lowest possible cost.

Deputy John Deasy

Does that mean making exceptions in individual cases? For example, in the case of someone's private home, does NAMA make these kinds of deals to get the best possible deal for the taxpayer and the State?

Mr. Brendan McDonagh

There is no negotiation in terms of what we offer the debtor if he will work on the asset. We have worked out in our minds what it would cost us for an outside party to do it and what we are prepared to pay the developer depending on the complexity of the asset. It is a take it or leave it proposal. It is not the case, for example, that we offer somebody €50,000 per year to manage these assets and that person can demand €75,000 instead. It is €50,000 or nothing; that is the way it works.

In terms of what a debtor brings back to the table, he or she might have unencumbered assets, moneys, art, jewellery or other chattels. We have and do take charges over pension funds, for instance, to which there is huge resistance. Many people are not aware that in the United Kingdom, when a person is declared bankrupt, the authorities do not go after his or her pension. One hears about so-called bankruptcy tourists who flee to the United Kingdom, but the reality is that if we discover such a person has a pension pot, we will go after it as an asset that is available. We have examined the law very closely in this regard. There is no such thing as allowing a debtor to maintain an existence which he effectively cannot afford. If he or she claims to be unable to pay interest on a debt while still wishing to remain in his or her €4 million house, for example, that is not sustainable and will not be tolerated.

Deputy John Deasy

That is the key point. It should be NAMA which sets the terms, not the debtor. That needs to be clarified for the public. Is it absolutely the case in every situation?

Mr. Brendan McDonagh

Yes, absolutely.

Deputy John Deasy

Okay.

Mr. Brendan McDonagh

It is a binary option. Debtors either play ball or they are heading for bankruptcy.

As I said, we have taken other types of assets. In one case, for example, a well known art collection is for sale. We have also taken possession of part of a second major art collection, with more to come. As soon as we are aware of what assets people have, we will go after them. I was surprised when a member of my staff discovered that a particular developer had bought jewellery for his girlfriend, who was a joint borrower with him. We knew she had nothing else, so we went after the jewellery and obtained it.

Deputy John Deasy

In cases where a debtor co-operates with NAMA, takes a salary, deals with his or assets and realises a certain amount, would NAMA then be willing to undertake not to go after the person's home? Does the agency deal with people on that basis?

Mr. Brendan McDonagh

That might arise where a person is maintaining a modest family home. We must be mindful that where a debtor's spouse is not a borrower, that spouse has rights under the Family Home Protection Act. Seeking to extricate the family home in those circumstances through the courts is unlikely to be successful. We must be realistic in our approach. The guiding principle is that if a debtor cannot meet debt repayments, he or she cannot maintain a trophy house.

Deputy John Deasy

It is useful to set out the parameters in this regard.

Chairman

In terms of the overall discussion, we welcome the delegates taking the opportunity to outline, without naming the individuals involved, how NAMA manages these cases. The message that is quite clear in our exchanges today is that the public needs to understand how these matters are being dealt with.

Deputy Mary Lou McDonald

I thank the delegates for their contributions. I apologise for coming in and out of the meeting; it is a busy day in the Chamber. It is important that the witnesses provide us with details of the salaries being paid to developers. Mr. McDonagh said in his initial statement that NAMA has 100 staff. Am I correct in my understanding that those staff are employed by the National Treasury Management Agency?

Mr. Brendan McDonagh

There were 100 staff at the end of 2010, but that figure is now closer to 200. Our staff are employed by the NTMA rather than NAMA.

Deputy Mary Lou McDonald

What is the salary bill for these 200 employees?

Mr. Brendan McDonagh

The full-year salary cost for the 200 employees is approximately €20 million.

Deputy Mary Lou McDonald

What is the delegates' view of the public sector pay cap introduce by the Government? Will they comment on its applicability to NAMA?

Mr. Frank Daly

The first point to be made is that all of the people working in NAMA are employees of the NTMA. Therefore, we must talk about their remuneration in the context of the arrangements at the NTMA. I should point out that I am not presenting that body in this forum. I can say that the Minister has written to the chief executive officer of the NTMA in regard to remuneration in that organisation. As I understand it, the chief executive officer will discuss that matter with the Minister in due course, if those discussions have not already begun.

There is a great deal of comment about salaries, and I am commenting in regard to NAMA salaries. It is not a question of me explaining them away or anything like that, but I must point out in regard to NAMA that it is an organisation which requires a particular set of skills and experience which is still very difficult to come by. There is still a strong market for those skills. Unlike the rest of the public service, there are no general pay grades as such in NAMA. Rather, all staff are on individually negotiated contracts. That is the model which lies at the heart of the NTMA and it is one of the reasons NAMA was set up as part of the NTMA family. The NTMA has the operational freedom to secure the right people in a very competitive market. We have had mid-career applicants with a particular set of skills and the first thing we tell them is that they will be setting out to work themselves out of a job in seven or ten years' time. That is not an easy sell when there is a good market for their skills.

Deputy Mary Lou McDonald

I appreciate all of that. Mr. Daly will be conscious of the level not only of public disquiet but disquiet within the Oireachtas as to the lack of transparency regarding the NTMA and, by extension, NAMA in regard to the salaries paid via individual contracts. Having said that, I accept that the persons concerned are very skilled; I do not wish to take from that for a moment.

Mr. McDonagh indicated in the course of a public commentary last June that staff in NAMA had taken a 30% reduction in their pay at the beginning of the year. Will he confirm whether this is the case?

Mr. Brendan McDonagh

I was speaking about my own remuneration package. I declined a bonus I was offered which equated to 30% of my salary.

Deputy Mary Lou McDonald

Mr. McDonagh chose to forgo that bonus.

Mr. Brendan McDonagh

Yes.

Deputy Mary Lou McDonald

I do not wish to personalise the issue, but it is important that these matters are on the public record. I understand Mr. McDonagh's salary is in the neighbourhood of €430,000. Is that correct?

Mr. Brendan McDonagh

Yes.

Deputy Mary Lou McDonald

Are there many other NAMA employees who are at that salary level?

Mr. Frank Daly

Again, this is an NTMA issue rather than a NAMA one. The information that has been put in the public domain - my understanding is that one of the issues raised by the Minister with the chief executive officer is the issue of transparency - is that right across the NTMA family, there are 17 people earning in excess of €200,000, 14 of whom earn in excess of €250,000. That is the extent to which the information has been put in the public domain. Everybody who comes into the organisation is given an individually negotiated contract which includes a confidentiality clause. Confidentiality in regard to salaries is an important issue for many of the people we are seeking to recruit to NAMA. They are coming from a sector where there is privacy in terms of confidential contracts.

Deputy Mary Lou McDonald

I accept that NAMA employees are employees of the NTMA, but Mr. Daly is passing the buck to the latter. It is very unsatisfactory that NAMA representatives would appear here and not be in a position to answer those questions. It might be the case that somebody from the National Treasury Management Agency, NTMA, should have been made available for this session to answer the questions. I raise it with Mr. Daly because he laid heavy emphasis on getting value for the taxpayer for which I applaud him. I do not believe NAMA is a good creation. It proves a very expensive day out but as they say, we are where we are. The concentration on value for money for the taxpayer must relate also to the salaries earned by individuals within NAMA. That is a reasonable expectation on the part of the general public and Members of the Oireachtas as we face into a vicious budget in December.

Mr. Frank Daly

I agree with the Deputy on the value for money point. Do not get me wrong on that but value for money for the taxpayer also means that NAMA must have a first team to put out there-----

Deputy Mary Lou McDonald

I appreciate that.

Mr. Frank Daly

-----against everybody else who is engaging with us, whether they be investors, debtors, bankers or whatever. That is why those salaries are needed.

Deputy Mary Lou McDonald

I appreciate all of that but I put it to Mr. Daly that that is the same rationale the Government, in breaching its own pay caps, has put forward, namely, the issue of competency, skill and so on. Be that as it may, a figure approaching €430,000 per annum is one hell of a salary. That is not to personalise it to Mr. McDonagh but in respect of any of those individuals within the NTMA family who are drawing down such salaries there must be an explanation if not from the representatives then from Government as to precisely how those types of salaries are justified. In my view they are not justifiable and I suspect that the individualised contracts, whatever about the concerns around privacy, provide a mechanism for a lack of transparency that is not acceptable, particularly in the current economic climate.

Mr. Frank Daly

As I understand it there was a discussion around that when the NTMA representatives were before the Committee of Public Accounts some weeks ago.

Deputy Mary Lou McDonald

Yes, and indeed the discussion-----

Mr. Frank Daly

So there has been a discussion.

Deputy Mary Lou McDonald

-----will continue until the matter is resolved.

On NAMA's legal fees, the 2011 expenditure and its projected outturn, the expense incurred up to 30 September was €7.5 million, with an anticipated spend of €10 million up to the end of December. Who is providing the legal services? Is it Deloitte? To whom are these fees being paid?

Mr. Brendan McDonagh

They are paid to legal firms on our panels that we appointed following a tender process.

Deputy Mary Lou McDonald

Who are they?

Mr. Brendan McDonagh

They are on our website. It is in the public domain. They would range from the well-known names like Goodbody's, Arthur Cox, McCann Fitzgerald and William Fry down to smaller legal practices which are on our panel. I do not have the names with me but they are in the public domain. They are on our website.

Deputy Mary Lou McDonald

Mr. McDonagh said NAMA went through a tendering process to appoint this panel.

Mr. Brendan McDonagh

Yes.

Deputy Mary Lou McDonald

Which of the firms has NAMA used most regularly?

Mr. Brendan McDonagh

At this stage because of the amount of work we have got to do in terms of due diligence in the portfolio and following up on legal charges and so on nearly all the firms would get a fair amount of work. Much of it depends on the capacity but because the cases are more complex the major firms would be pulling in the bigger amounts.

Deputy Mary Lou McDonald

A question was asked earlier about the manner in which NAMA engages with the developers in respect of them working the assets for it and so on. Can Mr. McDonagh recall the tendering process by which it appointed this panel and the manner in which it allocates work? Has it struck a good bargain with the lawyers?

Mr. Brendan McDonagh

There are two stages. The first is when we are acquiring the loans from the banks, that is, due diligence. We struck a very good deal. In terms of the portfolio of due diligence it is probably about 25,000 properties. The overall cost of that from start to end would probably be in the region of €50 million for the due diligence portfolio, which has to meet the European Commission requirements in that regard. In terms of work we do, say, where we are trying to get the additional security to capture unencumbered assets, they are all priced generally on a fixed cost basis where we ask a number of firms to tender for it and then appoint the firm we believe will do the job at the best price.

Deputy Mary Lou McDonald

That €50 million due diligence portfolio is on 25,000 properties.

Mr. Brendan McDonagh

Yes.

Deputy Mary Lou McDonald

Is that completed work or work mid-stream?

Mr. Brendan McDonagh

That is work from through 2010 to the end of 2011.

Deputy Mary Lou McDonald

The other work is on a fixed case.

Mr. Brendan McDonagh

Yes. We have appointed panels of solicitors which effectively are an enforcement panel or a restructuring panel and depending on the type of work we would ask a number of people on the panel to tender for a piece of work. We would then choose the one which will do the job properly for us at the best price.

Deputy Mary Lou McDonald

I want to refer to something that relates back to the salary issue. I realise I am labouring the point but allow me do so. This is a commentary from www.financialcareers.ie by a head-hunter, who is not identified, in which he states that NAMA is holding its own with the private sector when it comes to pay. He states he was about to place a lending manager in one of the Irish banks for around €80,000 but he decided to take a job in NAMA which was offering far more in terms of base and benefits on offer. That is a commentary on NAMA in a financial sector website which suggests it is an extremely attractive place to work in terms of remuneration and that NAMA is paying well over the odds via the NTMA.

Mr. Brendan McDonagh

Absolutely, but the reality is that when the recommendation comes to hire somebody I have to sign my life away to the chief executive of the NTMA to say that the person is worth the money. The Deputy will notice that it is on a website. We did not use a recruitment agency for the majority of people that have been recruited into NAMA. We put the jobs up on the NAMA website and got people to apply directly. We actually saved in the region of €3 million to €4 million by doing that rather than paying a recruitment agency to recruit people.

The second thing the NTMA does is that when somebody is offered a position we look at his or her P60 for the previous year to see the type of money he or she are earning and compare that to what we are offering him or her. If we want certain people we have to pay them a premium over where they are; otherwise they will not move. That is in some instances where we really want the person but that comment is untrue because I would sign off on everybody who comes into NAMA. I would make the recommendations.

Deputy Mary Lou McDonald

Is the Minister for Finance aware of the salary arrangements? Does the Minister have that information?

Mr. Brendan McDonagh

The chief executive of the NTMA has a direct reporting relationship with the Minister. He is aware of the general rather than the specific information but in terms of the conversation going on at the moment between John Corrigan and the Minister, I presume he will become more aware.

Deputy Mary Lou McDonald

Do any of the witnesses have a personal view on whether the Government pay caps should apply to their organisations? Do they have a position or a view on that?

Mr. Frank Daly

We have personal views but as chairman of NAMA it would not be appropriate for me to articulate any view on Government policy.

Deputy Mary Lou McDonald

Mr. Daly does not have a view on it. I wish to ask about NAMA's commercial property portfolio and the issue of upward only rent reviews. The issue has been widely debated and we are told that something will be brought forward to address it. What effect, if any, would that have on the commercial assets NAMA is managing? Would it have a detrimental impact in terms of value? Would it create a bigger hole in the balance sheet and would that translate into an even greater liability for the taxpayer?

Mr. Brendan McDonagh

The issue of upward only rent review and the speculation surrounding it has been a matter of great uncertainty for potential buyers of Irish property. Investment Property Databank, IPD, which is regarded as the property specialist both here and internationally, did an exercise which found that if there was a wide range in change to the upwardly only rent reviews, it would cause capital values to fall by 20% in Ireland. That is on IPD's website so it is in the public domain. I am not disclosing anything that is not available there. The Society of Chartered Surveyors said that in its estimation it would be approximately 18% to 20%. The biggest issue from our point of view, in terms of trying to get people to buy Irish property, is to try to ensure that the uncertainty is dealt with. There has been speculation in the press recently that it will be a much more limited form of adjustment of upward only rent reviews, and the market at present and the people we interact with are speculating that it would be of that nature. If it is that way, it will probably have a minor effect on valuations.

Deputy Mary Lou McDonald

Has NAMA given its view in that respect to the Minister?

Mr. Brendan McDonagh

Yes, absolutely. I wrote on behalf of the board to the Minister pointing out that if it was a wide ranging review, there would be an effect of at least 20% on the Irish property values of the NAMA portfolio. It was my job to point that out to him. At the end of the day, as far as we and the market are concerned, whatever the introduction is, it will bring certainty to the market. The buyers of the property will make the market assessment of what the effect will be in real life in terms of the price.

Chairman

On that question, how many properties does NAMA manage in which there are tenants who are subject to the upward only rent review?

Mr. Brendan McDonagh

The new legislation for new contracts only came into effect in February 2010 so a certain number of people are in those new contracts, which have upward or downward rent reviews. The majority of the people in the properties, as far as we can see, are on existing upward only rent review contracts. The reality, however, and we see it every day, is that where people are experiencing trading difficulties they have conversations with their landlords, who might be in NAMA, and deals are being done to try to give good people who are experiencing difficulty short-term relief to get them through.

Chairman

My next question was related to those who are in upward only rent review contracts and who are experiencing difficulty. With how many of those tenants has NAMA agreed rent reductions?

Mr. Brendan McDonagh

This is dealt with on a case by case basis. Where it has happened, where it is genuine and we make the assessment with the debtor that it is better to have the unit occupied by a person who is genuine, is experiencing short-term difficulties and needs an opportunity to trade out of them, we are in agreement in such circumstances. We have to be realistic.

Deputy Mary Lou McDonald

My final question is about so-called ghost estates. What initiatives has NAMA taken with developers to force them to either complete the estates or make them safe? There has also been some discussion of properties having to be knocked down and sites levelled. Does Mr. McDonagh have up-to-date information on that?

Mr. Brendan McDonagh

NAMA, the Minister for the Environment, Community and Local Government and the Minister of State with responsibility for housing set up an unfinished estates valuation group. Two people from our team are on it. That is the group that identified the 2,800 unfinished estates in the country at different levels. It categorised them as category one, which have small issues and just need to be handed over to the local authority, and category two, which have not very big issues.

The most difficult estates are those in category three and category four. In the category four estates, the Department, through the local authorities, identified approximately 250 estates as the worst estates in the country in terms of problems. It asked NAMA which ones the agency was exposed to through its debtors. We are exposed to 31 of them. At board level we committed €3 million in funding to improve those estates. That work is under way at present and involves fencing off the development, putting in footpaths, finishing the roads, putting in public lighting and so forth. We are awaiting information on the category three estates. We understand from the Department that there are approximately 1,000 estates in that category and we are awaiting that list to see what our exposure is.

Again, we are not found wanting in this regard. When people are living in difficult situations we see it as part of our social as well as commercial remit to do what we can to improve the circumstances. As Deputies are aware, these are estates where the development should never have happened in the first place. Some of those developments might have to revert to agricultural land but that is probably a conversation for another day. However, our real concern is to try to deal with the people in the estates already and see what we can do to improve the situation.

Deputy Mary Lou McDonald

With regard to the 31 category four estates, is Mr. McDonagh satisfied that the budget allocation is sufficient for the works required?

Mr. Brendan McDonagh

The board has made it clear that if extra money is required, once we quantify that money we will spend it. What we have done, in conjunction with the local authority, is agree a site resolution plan between the developer or the receiver, the local authority and ourselves regarding what works will be done and the standards to which they will be done. We allocated a budget to that and if we need more money to do what we agreed to do, we will allocate that money and do it.

Deputy Mary Lou McDonald

What time line does NAMA envisage for completion of the works in the 31 estates?

Mr. Brendan McDonagh

Some of that work is already under way. We hope it will be completed in approximately six months.

Mr. John Mulcahy

Yes, in six months.

Deputy Mary Lou McDonald

I thank the witnesses.

Deputy John Deasy

I do not wish to labour the point but from the witnesses' responses regarding how NAMA deals with these arrangements and the debtors, I believe it has an understanding of the pain that exists. However, it is worth reinforcing. There is an Irish colloquialism, which is probably global now, that the guy who borrows €100,000 gets destroyed but the guy who borrows €100 million gets off scot free. There is a pragmatic element to this but there is also another element, that justice must be seen to be done.

When one considers the type of erosion that has taken place in government generally over the last few years, the NAMA entity has a pragmatic element as an agency of government but the hidden pain and suffering needs to be constantly remembered, as well as the cost to the ordinary individual. I recall canvassing during the last general election campaign and a number of people I met had lost everything, including bank shares. That must be constantly remembered and acknowledged while the agency deals with this issue. The old adage that justice must be seen to be done must be remembered. However, it is clear from the witnesses' responses that they at least understand the sentiment expressed by members today and I thank them for that.

Mr. McDonagh mentioned that he had met the Minister for the Environment, Community and Local Government, Deputy Phil Hogan, and the Minister of State, Deputy Willie Penrose, regarding the social dividend. People, including Ministers, criticised the agency as being too focused on making money and not on the social element. Is the interface between local authorities good enough? Has it been good enough since the agency was set up? Is there constant communication between local authorities telling them what is available? Do they contact NAMA and does NAMA contact them? Does that line of communication exist? If not, do we need it in terms of expressing to those people who have an interest in engaging with NAMA so far as those properties are concerned that they could come together and work out something? Is that remiss at this point or is that something that needs to be worked on?

Mr. John Buckley

The disjointed effect previously has been a huge issue in terms of the social housing bodies trying to get houses, as individual bodies, to meet their own requirements. They have agreed to come together now. I spoke to them in Galway in September and they came to meet me this week as one.

Deputy John Deasy

That disconnection exists.

Mr. Brendan McDonagh

Yes, but it is disappearing. The Department of the Environment, Community and Local Government, the two Ministers involved, the Chairman and I met and advised the housing bodies to come together as one and they agreed. Through our planning advisory committee, we try to deal with the local authorities. We meet them on an individual basis and we have met them through the county and city managers association. One of the major issues up until this year, was that a budget allocation was made for capital purposes for them to buy property but from the end of this year, because of budget constraints, there will be no capital allocations. Effectively, it will be done in the form of giving money to the social housing bodies to rent the houses because the local authorities do not want to do it. We are coming to a stage where we can provide information on what we have in a consolidated basis to them. They can identify what they want and we can speak with the Department of the Environment, Community and Local Government, the social housing bodies and the local authorities, if they want to be involved - as I am sure the Department would want them involved in terms of identifying the solutions. I expect that huge progress will be made in this area over the next six months. The problem before was that there was no central repository for getting the information together. The Minister for the Environment, Community and Local Government, Deputy Hogan, told the chairman and me that 100,000 people are seeking social housing, half of whom aged between 35 and 55 years of age are in difficult situations. We see that as an opportunity. If 75% of our residential stock is apartments in Dublin, Cork and Limerick and there is no demand for sales but there is a demand for rentals, what better covenant from our point of view if these people can be accommodated and the rents from the private sector going towards servicing NAMA loans? It is Government making use of its resources in an efficient way.

Deputy John Deasy

I thank Mr. McDonagh.

Mr. Frank Daly

We need to know what the local authorities need. There is no point in us sitting down in Treasury Building with a whole list of properties and local authorities expecting us to be aware of their needs.

Deputy John Deasy

This is the central point. The local authorities need to start contacting NAMA.

Mr. Frank Daly

We have a good relationship with them through the county and city managers association because we engage with them but if they have needs I would certainly encourage them to get in touch with us.

Mr. Brendan McDonagh

In fairness, the Minister of State at the Department of the Environment, Community and Local Government, Deputy Penrose, is determined. He published a new housing strategy in June about doing this in a centralised way. The position will get much better for everyone going forward.

Chairman

In regard to those properties that NAMA is either selling on or properties it is dealing with in terms of local authorities, what about the fire certification and the engineers' certification and so on? Is all of that paperwork available? Have all those checks been carried out at the time of construction? How sure is NAMA that it is all proper? In respect of the bank loans given on the basis of all the certification being in place, how does it add up? Is NAMA satisfied that not only does it exist but that people can stand over the certification and, thereby, stand over the loans given on the basis of the certification?

Mr. Brendan McDonagh

This is a very real issue. As we have seen with Priory Hall, people got mortgages on the back of certification that was supposed to be in place. From our point of view when trying to do due diligence to loans, we are looking at the underlying property to ensure that certification is in place. There will be a certain amount of property, whether with NAMA or non-NAMA banks where buildings may not have major certification issues but minor certification issues. That is an issue that needs to be considered. This will come down to local authorities and the Department of the Environment, Community and Local Government taking a pragmatic view on the seriousness of the issue. Obviously if it is a very serious issue it has to be remedied. So many properties were built in the latter years of the boom that the local authorities said they checked only 10% to 15% of them.

Chairman

That is a serious issue for NAMA and those who will purchase the properties if the appropriate certification is not in place. The fact is that they were given the loans based on the certification. How valid are the loans?

Mr. Brendan McDonagh

That is an issue between the bank and whoever certified if issues emerge at a future date. In terms of the 100 or so purchases that go through NAMA per month, buyers are very conscious that the due diligence is done properly and the banks, if they give loans, are making sure the correct certification is in place.

Chairman

That is fine. When the property is transferred from the bank to NAMA and NAMA carries out its due diligence and checks the paperwork, would NAMA have queried a significant number of those loans in respect of engineers or fire certification?

Mr. Brendan McDonagh

Absolutely.

Chairman

How many did NAMA not take over because the certification was not available?

Mr. Brendan McDonagh

I will defer to my colleague, Ms Aideen O'Reilly, who is the head of legal and tax, as all her team did much of the due diligence in respect of those issues.

Ms Aideen O’Reilly

In terms of legal due diligence requirements and on the property valuation side, issues such as certification of building regulations and fire safety would have been looked at. I do not think it is a very significant issue in the portfolio, certainly in terms of the incidences of developments with very serious issues. It is very much on our radar because when either NAMA or the borrower goes to sell the individual properties there is a due diligence process on the conveyancing side for the ultimate purchasers of units. I would not think, based on current knowledge, that it is a significant issue in the portfolio.

Chairman

Would that have been the case with Priory Hall in terms of the individual buyers and yet they end up in the mess in which they now find themselves? How competent were the banks that NAMA is now dealing with when giving out this money, and in seeking the relevant paperwork? How often was it checked against the building and what went on in that building in terms of its construction? If they were not competent enough at that time to see through what was going on in terms of the certification, how competent are they now? Have they brought in the necessary skills to deal not only with that issue but the issue which was raised earlier? It is drifting away a little from the point I make but it is the same point of competence. Does Mr. McDonagh have a view on dealing with the loans that are now left in the banks, whereby debtors are trying to find a way to work their way out of the problems? Our information is that people are encountering major difficulties, particularly those in the small and medium enterprise sector, in dealing with the banks and in getting a decision to release them to do business while they deal with a debt that is perhaps not directly associated with the business. At some stage NAMA or some other body will end up with further debt in terms of how the banks are dealing with debt.

Mr. Brendan McDonagh

There are two issues. First, in terms of the loans that we brought across, we spent a lot of time doing due diligence to make sure that we knew what we were buying and that we had dealt as much as we could with all of those issues identified by the Chairman. I know very little about Priory Hall but I will speak about the issue in general terms. Developers were able to self-certify and that may have been relied on by the banks in terms of advancing mortgages to buy properties in developments.

What we are seeing today is that borrowers are more aware of what they are doing. Caveat emptor. The same is true of lenders who are lending money. They are ensuring that all the certification is in place. There is no doubt that other cases will emerge similar to Priory Hall. That is the nature of a time when self-certification was allowed and only 10% or 15% of developments were being checked by local authorities. That is a matter for another day.

Chairman

What about the banks?

Mr. Brendan McDonagh

Obviously if the banks have issued mortgages to people who are now in such a development, one must see whether the development is capable of being remedied and who is going to pay for the remediation of the development or else the bank will have security over property which has declined in value because it cannot be certified. That will certainly be an issue but I do not know the scale of the problem as it is outside my remit.

Chairman

Could I ask Mr. McDonagh another question on how the money is now advanced? He said advances of €900 million have been approved. How many borrowers are involved in that amount?

Mr. Brendan McDonagh

There are probably 70 or 80 borrowers responsible for the lion's share of that amount. A total of €900 million has been approved and €500 million has been drawn down.

Chairman

How does NAMA fund the loan?

Mr. Brendan McDonagh

Effectively, the cashflow that we get out through interest collection, people repaying loans or the sale of properties is recycled if it makes commercial sense for us to do it.

Chairman

Does NAMA ensure that the moneys are spent appropriately on the purpose for which it was advanced?

Mr. Brendan McDonagh

Absolutely. We use the banks and invoices must be certified to ensure that the work is done and that one is not just handing out money blind.

Deputy Eoghan Murphy

I thank the witnesses for their answers today. I wish to clarify a number of points that were made earlier to ensure I understood them correctly. Is it Mr. Daly's understanding that no change in legislation is required from the recommendations made in the Geoghegan report?

Mr. Frank Daly

I cannot speak for the Minister who will consider the report. It is my judgment, looking at what was said to us, that a change is not required. At the end of the day that is a matter for the Minister.

Deputy Eoghan Murphy

I thank Mr. Daly. We are anticipating having a new board member in light of the recent resignation but we are also anticipating having other new board members.

Mr. Frank Daly

No, I did not say that.

Deputy Eoghan Murphy

Okay, I just wished to clarify the matter.

I was not clear whether Mr. McDonagh said that the two developers who are participating in managing the assets are resident in the State for tax purposes.

Mr. Brendan McDonagh

My understanding is that both are resident in the State.

Deputy Eoghan Murphy

Could we get confirmation of that? When Mr. McDonagh says it is his understanding, does that mean they are both resident in the State for tax purposes?

Mr. Brendan McDonagh

They have interests in both Irish and UK properties. That is where the majority of their loans would be. I understand that they are resident in the State for tax purposes but I can check it for the Deputy.

Deputy Eoghan Murphy

It is important to know that they are living in this country and paying taxes.

Mr. Brendan McDonagh

They might not be living here full-time given the nature of their portfolio but I will check that out for the Deputy.

Deputy Eoghan Murphy

I would appreciate it if Mr. McDonagh could do that. I thank him.

My third question relates to incentivising developers. I wish to inquire from the angle I was coming from previously. Mr. McDonagh said he did not see a big pay day for any developer through the incentivisation scheme. Can I infer that he does not envisage NAMA realising that much more than what it paid to the banks? He does not envisage us making more than €31 billion or €32 billion.

Mr. Brendan McDonagh

As said today the market is very difficult, especially the Irish market. To be completely upfront, the asset values are declining as opposed to increasing. Asset values must increase by generally around 10% over what we paid in 2009 before any incentivisation will kick in. The maths are not difficult.

Deputy Eoghan Murphy

I thank Mr. McDonagh. Reference was made to €4.6 billion that has been realised in asset sales. Mr. McDonagh said that of the €4.6 billion, NAMA was selling Irish property at a loss and making a profit of approximately 15% on the overseas property. What loss is NAMA making on the Irish property?

Mr. Brendan McDonagh

Some of the residential property has been selling for anything from probably 5% to 25% below the November 2009 valuation, depending on location and the type of property. That is just the nature of the market when one sees the CSO index.

Deputy Eoghan Murphy

Did every Irish property make a loss?

Mr. Brendan McDonagh

Not every Irish property. I am speaking in general terms.

Deputy Eoghan Murphy

Could Mr. McDonagh indicate any properties or buildings that did not make a loss?

Mr. Brendan McDonagh

I can tell the Deputy of one because it was in the public domain. We did not make a loss on the Google building. It was a €100 million transaction.

Deputy Eoghan Murphy

Was what NAMA paid to the banks what it received for it?

Mr. Brendan McDonagh

We had to invest a considerable amount of capital expenditure to finish the building. There was also an amount payable to CIE which was the leaseholder on the site. Once we took those costs out it we made a small profit.

Deputy Eoghan Murphy

That is only a profit in terms of the NAMA operation. It is not a profit in terms of the overall cost of the loan when it was taken off the banks.

Mr. Brendan McDonagh

No, in terms of what NAMA paid for the site plus the substantial capital expenditure.

Deputy Eoghan Murphy

Essentially, it was a loss for the taxpayer.

Mr. Brendan McDonagh

Yes, because the price we paid for the loan was a lot less than what-----

Deputy Eoghan Murphy

Did Mr. McDonagh not see the headline that NAMA is making a profit for taxpayers?

Mr. Brendan McDonagh

I am not being trite but I can only deal with what I have in front of me.

Deputy Eoghan Murphy

There have been a lot of questions about transparency in the organisation in terms of the commercial dealings that are going on. Mr. McDonagh said it is commercially sensitive information at the time a deal is taking place but what about historical transparency? What about releasing more details on the individual deals that have been done? I refer to information on the profit and loss, fees paid out to advising consultants and whether there were competing bids and for what amount.

Mr. Brendan McDonagh

That is a good point. In terms of who is advising us, as I indicated to Deputy McDonald, their names are on our website because of the tender process but details of individual transactions are available to colleagues from the Comptroller and Auditor General's office. They have access to the full information.

Deputy Eoghan Murphy

Is that including the different bids, for example, on the Google building? Could we get access to that information?

Mr. Brendan McDonagh

In terms of the Google building, it was a special purchase because there was only one person interested in a building of that size.

Deputy Eoghan Murphy

Was the building marketed or was a direct approach made and a sale agreed?

Mr. Brendan McDonagh

It was a special purchase as there was no demand for a building of that size in Dublin at that point.

Deputy Eoghan Murphy

How was that fact established?

Mr. Brendan McDonagh

The purchaser approached the debtor.

Mr. John Mulcahy

The property was on the market all the time. It was available for sale or to let.

Deputy Eoghan Murphy

Had we gone out to see if anyone would be interested in it?

Mr. Brendan McDonagh

The debtor had it on the market and had appointed agents. It was for sale or to let.

Mr. John Mulcahy

People were interested in taking individual floors.

Mr. Brendan McDonagh

But not the whole building.

Mr. John Mulcahy

The Google offer was one we could not pass up.

Deputy Eoghan Murphy

Is it possible for the public to see the offers that were made for the different floors?

Mr. John Mulcahy

We have said publicly that we would welcome a change to the Data Protection Act to enable all property transactions to be published. This happens in the UK, the US and other jurisdictions, so that the whole market can see every transaction. Every transaction that is stamped would be published.

Deputy Eoghan Murphy

I believe that change is coming.

Mr. John Mulcahy

That would be terrific for the market.

Deputy Eoghan Murphy

I am interested in seeing the offers made prior to a transaction. I am interested in any property sold on behalf of the taxpayers and not only this property. NAMA assures us that it is doing its best and we want NAMA to do that. However, the Committee of Public Accounts has the oversight role of making sure it does so. Other people who have a knowledge of this area should be able to see the information and judge whether or not the best decision was made or why certain costs were paid out on a particular deal.

Mr. John Mulcahy

Our guidance is that all properties in which NAMA has an interest must be freely exposed to the market in a competitive situation where there is competitive bidding, other than where we are selling apartments, for example, where there is a fixed price. The market knows what our properties are changing hands for. All properties in receivership are listed on our website.

Deputy Eoghan Murphy

The market knows the prices property is changing hands for. The market does not know the competing bids. This committee, and the taxpayers, do not know. In terms of historical transparency, when deals are done by NAMA we do not see exactly what was involved.

Mr. Frank Daly

There are other parties to these transactions, including the people who are making the bids. There are often confidentiality clauses. If it becomes known that NAMA will subsequently, or historically, reveal the bids of other parties that will affect their willingness to get involved in the market.

Deputy Eoghan Murphy

One would not have to release their names. It could be recorded that a certain number of bids were made at certain values, what the winning bid was, who made the winning bid, what profit was made, how much was paid to a particular legal adviser, who did the valuation and what it cost, the cost of the upkeep of the building while it was on NAMA's hands and so on. All of these details, which are so pertinent to understanding what is going on inside NAMA, are not being released.

Mr. Frank Daly

We are always conscious of the need for transparency. In this year's annual report we gave as much information as we possibly could. We do not have any desire to be a totally opaque organisation. We intend to keep looking at this issue but we will always benchmark transparency against what it does to our capacity, as a commercial organisation, to get the best result for the taxpayers. We are not saying we will never examine any of the things the Deputy mentioned.

Deputy Eoghan Murphy

Is NAMA considering making those changes so that we can have historical transparency to a greater degree than already exists?

Mr. Frank Daly

The board is minded to consider all of that in the context of greater transparency. I am not making any specific commitment or promises.

Deputy Eoghan Murphy

I recently asked the Minister how much was spent on consultancy in 2011. He replied that it was €29.9 million. I heard other figures here today. Is there a total figure for the amount to be spent on consultancy this year and the amount spent in 2010?

Mr. Brendan McDonagh

I will give the major headings. The Deputy may see this information in the response I sent to the committee. In 2011, portfolio management fees were approximately €15 million. Most of that amount relates to independent business reviews. Legal fees amounted to approximately €10 million and audit fees approximately €2.4 million. Other costs are included in the response sent to the committee. The costs for 2010 are in note 8 on page 79 of the 2010 annual report.

Deputy Eoghan Murphy

What is the difference between consultancy fees paid in 2010 and those paid in this year?

Mr. Brendan McDonagh

In 2010 we paid approximately €5 million in portfolio management fees and approximately €15 million this year. Last year, we paid €700,000 in internal audit fees and this year we are paying €2.4 million. Last year we paid €3.3 million in legal fees and this year we expect to pay approximately €10 million.

Deputy Eoghan Murphy

All of NAMA's consultancy fees have gone up significantly since last year.

Mr. Brendan McDonagh

We were acquiring loans throughout 2010. The following year, 2011, is probably our first full year of operation.

Deputy Eoghan Murphy

Last year, the Minister said consultancy would cost more in 2010, because that was the beginning year, and would cost less in 2011.

Mr. Brendan McDonagh

There are other costs, which we do not regard as consultancy. Due diligence costs were €50 million in 2010 and 2011. That refers to due diligence on loans we have acquired from the institutions. They are one-off costs of €50 million.

Deputy Eoghan Murphy

When the Minister said consultancy would cost less this year than last year he was taking into account those due diligence costs, which are no longer being paid.

Mr. Brendan McDonagh

I would think he was.

Mr. Frank Daly

A huge amount of money was spent on consultancy. I have it at €29.9 million. Does that mean NAMA has employed the wrong people?

Mr. Brendan McDonagh

Why does the Deputy say that?

Deputy Eoghan Murphy

Why are consultants necessary?

Mr. Brendan McDonagh

Many of those are one-off due diligence costs when debtors' business plans are being assessed and we are trying to acquire knowledge of portfolios.

Deputy Eoghan Murphy

That is done. I am talking about this year.

Mr. Brendan McDonagh

Due diligence on 25 properties had to be done all the way through 2010 and 2011. It was finished at the end of 2011. When we look forward to 2012 we will not have those historic due diligence costs or business plan assessments. Those costs will not recur.

Deputy Eoghan Murphy

Will consultancy fees come down significantly from €29.9 million?

Mr. Brendan McDonagh

Absolutely. In the budget for 2012, which will be finalised in December, €75 million will probably go to the banks for administering loans on our behalf. Costs to the NTMA will be approximately €40 million. Other costs will amount to approximately €30 million. These include rent, legal fees, insurance and restructuring the loans in the portfolio. There will be legal costs in pursuing debtors. In the context of a €30 billion portfolio, our overall costs are approximately 0.5% per annum.

Deputy Eoghan Murphy

A recent newspaper article claimed that NAMA would only accept consultancy tenders from companies with a turnover of at least €25 million a year. Is that the case?

Mr. Brendan McDonagh

That referred to a tender for specific and technical international financial reporting standards, IFRS, accounting advice to NAMA.

Deputy Eoghan Murphy

I believe it referred to a tender for legal work.

Ms Aideen O’Reilly

There was a recent tender for a very specific legal mandate, which was to provide corporate legal advice to the NAMA group. The turnover figure the Deputy refers to does not apply to the refinancing and enforcement panels, for example.

Deputy Eoghan Murphy

The tender precluded firms with a turnover below €25 million from applying for a corporate legal and accountancy services contract.

Ms Aideen O’Reilly

For that specific mandate, yes.

Deputy Eoghan Murphy

It is unusual. I had never of tenders being invited on the basis of turnover.

Ms Aideen O’Reilly

It is my understanding that a minimum turnover figure is quite common in public procurement tenders.

Deputy Eoghan Murphy

Is it a means to establishing that a company has a certain degree of competence or expertise?

Ms Aideen O’Reilly

It establishes a certain financial capability.

Deputy Eoghan Murphy

Who gave the advice to set the limit at €25 million as a means of establishing which firms had the expertise or ability to handle what NAMA was asking them to do?

Ms Aideen O’Reilly

Turnover is very different from technical expertise criteria. The turnover figure relates to the financial condition of the tenderer and not the technical expertise. In this case we took advice from the NTMA procurement unit as to the standard measure for minimum turnover.

Deputy Eoghan Murphy

The procurement unit in the NTMA said that was how it should be done and set the figure of €25 million.

Ms Aideen O’Reilly

That is correct.

Deputy Eoghan Murphy

I would like to get into the detail of what is involved in consultancy. There was a recent sale of a NAMA debtor's art collection in Christie's. Who advised that the art collection be sold at Christie's?

Ms Aideen O’Reilly

We carried out a tendering process, in respect of which we received five bids and Christie's was the winner.

Deputy Eoghan Murphy

Why can NAMA not release information in regard to who bid, what were those bids and the reason it chose Christie's?

Mr. Brendan McDonagh

In that instance Christie's won the bid because it declined to charge us a fee.

Deputy Eoghan Murphy

That is the reason it won the bid.

Mr. Brendan McDonagh

Yes. It also provided in its tender best coverage in terms of potential sales and exposure of the art works to a particular segment of the market, domestically and internationally. A mixture of Irish and international artworks were involved.

Deputy Eoghan Murphy

No one else who bid offered to waive the fee.

Mr. Brendan McDonagh

It was not only a fee consideration. It was also a consideration in terms of-----

Deputy Eoghan Murphy

Did other bidders offer to waive the fee?

Ms Aideen O’Reilly

Yes.

Deputy Eoghan Murphy

Others did.

Mr. Brendan McDonagh

Yes.

Deputy Eoghan Murphy

Mr. McDonagh stated that Christie's was considered in the first instance because it offered to waive the fee.

Mr. Brendan McDonagh

It was one of the considerations. Its coverage was another.

Deputy Eoghan Murphy

That only came to light later. Mr. McDonagh said Christie's had been chosen because it offered to waive the fee. I am now hearing that other Irish companies or others may also have offered to waive the fee, which brings us back to the transparency issue.

Mr. Brendan McDonagh

There is more than one consideration in the assessment of any tender. The criteria was set out in the tender document, which included fees and the bidder's ability to do the job. I am not hiding anything.

Deputy Eoghan Murphy

Who decided Christie's would provide better coverage than other dealers?

Mr. Brendan McDonagh

An internal evaluation group.

Deputy Eoghan Murphy

Who on the internal evaluation group had the experience to decide that? Does the group comprise an art expert or someone with an understanding of the art world?

Mr. Brendan McDonagh

An art expert is not required to assess a tender.

Deputy Eoghan Murphy

Not even in regard to who would be the best dealer on which to off-load a portfolio of work?

Mr. Brendan McDonagh

In assessing tenders, people must make subjective judgments. One can only compare the information in the tender documents in terms of the ability of one dealer as compared to another, to market a portfolio. I do not believe anyone here could question the ability of a dealer such as Christie's to market an art portfolio.

Deputy Eoghan Murphy

I am not questioning Christie's ability to do the job, rather I am questioning whether NAMA has the capability to determine which dealer in a given situation will achieve best value for the collection offered.

Mr. Brendan McDonagh

In terms of assessment of documents submitted by bidders seeking work, one can only take into account the information put forward by them. The view of the evaluation group was that Christie's had made the best proposal.

Deputy Eoghan Murphy

Did NAMA seek outside advice before making a final decision?

Mr. Brendan McDonagh

No.

Deputy Eoghan Murphy

NAMA did not believe it necessary to consult on this?

Mr. Brendan McDonagh

We are speaking about an art portfolio. We had already taken evaluations of the portfolio, which is €1.5 million. We obtained independent valuations prior to the tendering process. It was then a question of who could best execute sale of the assets.

Deputy Eoghan Murphy

This is only one area for which NAMA is responsible. The lack of transparency raises many questions for me, some of which have been answered and others which I do not believe will be. That is a problem for us in terms of confidence that NAMA is doing what it should be doing, which is maximising the return for the taxpayer.

Mr. Brendan McDonagh

The Deputy has not established that NAMA is not maximising a return for the taxpayer.

Deputy Eoghan Murphy

I have established that we do not know exactly what is going on in NAMA. It is only when we get an opportunity such as this to ask questions that we find out information, which I appreciate. Many people do not read the transcripts of these meetings and will still not know what is going on in NAMA.

Mr. Brendan McDonagh

I, and other witnesses have answered all questions put to us today. NAMA is trying to do its job to the best of its ability, with a view to maximising the return to the taxpayer. If the Deputy's suggestion is that we should employ a consultant to help us evaluate a tender, then we will take it on board.

Deputy Eoghan Murphy

It is not my suggestion. While Mr. McDonagh has answered our questions, that does not mean we have been given the answers we wanted. My point is whether NAMA has the skill-set to deal with the sale of art portfolios. I did not mean to be detained on the issue of the art collection but have done so because I was not happy with the answers I was getting from Mr. McDonagh, who was drip-feeding them to me in a such a manner as to leave me with the perception that Christie's had secured the bid because it offered to waive the fee when in fact other bidders offered to do likewise.

I would like to know, in the context of property deals, what other bidders are offering and on what NAMA makes it final choice. It is not entirely clear why in this instance, which is just an art collection worth a couple of million euro, NAMA accepted a particular bid. Mr. McDonagh's is not very forthcoming in terms of his answers in that regard. It appears that after a decision has been made in respect of a property deal worth €1 billion, in respect of which there were competing bids, there is to be no transparency in regard to those bids and the reason a particular one was chosen.

Mr. Brendan McDonagh

With respect, the art collection will be publicly auctioned. The price we obtain for it will be known. In regard to sale of a property, as Mr. Mulcahy stated earlier, a property is openly marketed, following which bids are assessed and the best is chosen provided the person can prove the availability of funds to purchase the property. The Deputy is referring to two different scenarios.

Deputy Eoghan Murphy

No, I believe there is a relationship between how the two are approached in terms of transparency and what the public is told. Mr. McDonagh is not telling us anything after the fact about the differing bids. I accept we will be told the price for which something has been sold, often called a profit when in fact it is a loss to the taxpayer. However, we will not be told about the differing bids and so on and the reason a particular one was chosen. Mr. McDonagh said that in this instance Christie's was chosen because it had offered to waive the fee when in fact that is not the reason it was chosen.

Mr. Brendan McDonagh

It was one of the considerations.

Deputy Eoghan Murphy

Thank you. However, it was not stated earlier that it was one of the considerations, rather it was stated it was "the" consideration.

Mr. Brendan McDonagh

I did not tell the Deputy it was "the" consideration. There may have been some misunderstanding between us.

Deputy Eoghan Murphy

Fair enough.

Chairman

The Deputy's point is taken. Mr. McDonagh has said that in the context of transparency he will consider the points raised.

Deputy Eoghan Murphy

I am happy for Deputy Fleming to be allowed in now but would like to come back in again at a later stage.

Deputy Sean Fleming

I will be brief. I was going to raise with the witnesses the sale by NAMA of Irish paintings by auction held in England. On 12 October, I tabled a parliamentary question on this matter to the Department of Finance as people with an interest in this area believed that the commission on this sale would be given to a foreign company rather than an Irish company. I asked the Minister what VAT would accrue on the commission. If the auction were held in England it would result in a loss of VAT to the Irish Exchequer. The Minister replied saying that is accounted for where the goods are supplied for auction and as such no VAT is payable in Ireland. I am impressed to learn that no VAT will be payable by anyone because as stated here today, no commission will be charged.

While an issue has arisen in regard to the quality of information provided today, Mr. McDonagh has, in his response to Deputy Murphy, given me much more information in regard to the commission than I got in response to my question to the Minister. I have at least received a better answer from Mr. McDonagh than I did from the Minister.

How many receivers has NAMA appointed and with how many cases are they dealing? What is the value of the loans in that regard? How many liquidators has NAMA appointed and what is the value of loans covered? It is stated at the top of page 8 of the opening statement: "I would emphasise that we currently insist on a competitive process for any assets that are being sold by our debtors or by our receivers and will follow the same practice in the sale of our loan portfolios". This follows on from the point being made by Deputy Murphy. I understand there is a reluctance for reasons of commercial sensitivity to release the full details of every bidder. That is an issue which can be raised again.

I have been told that some properties in which NAMA has an interest are being sold with no public notification and no public advertisement. I would like that clarified. People have said that to me but I do not know whether it is true. In particular, we are talking about where some debtors are selling directly. NAMA is not doing the selling, nor is the receiver. People who owe NAMA money are selling some of their property, the proceeds of which are for NAMA. Again, the loans might not be fully repaid. Every loan and every development in which NAMA has an interest should be on the NAMA website, that is, the fact that a property on Main Street Clonakilty, Main Street Limerick or Main Street Dublin is for sale. Who bids or whatever is a separate issue but the public should know about assets in which the State has an interest.

Local authorities were mentioned. They cannot sell a property without the local authority members agreeing in public to the sale of an asset. The same applies to the HSE and many State organisations. Is every asset on NAMA's website publicly advertised because I have been told deals are being done by debtors and perhaps by receivers as well?

Mr. Brendan McDonagh

There is a lot of folklore that every single property being sold is somehow in NAMA. Many properties being sold are not in NAMA. In instances where sales have been recommended to us and where they do not meet what we think is the value expectation or where we do not believe they have been openly marketed, we have turned down a lot of them. We have said we are not happy about them and want them to be openly marketed. I can only recall perhaps one instance where a receiver did a sale to a special purchaser and the special purchaser paid twice the current value of the property because he had an adjoining farm. In that instance, if it had gone to the market, we would have got half what we ultimately achieved. We must release the security at the end of the day and we will not release it unless we are happy with the sales process and that it has achieved the right value and has been openly marketed. Generally, many sales we turn down are because they do not meet that criteria.

I understand there are 90 receivers. I will give the details when I write to the committee.

Deputy Sean Fleming

What is the value of the loans?

Mr. Brendan McDonagh

I will come back with the value of loans. I do not have that with me at the moment.

Deputy Sean Fleming

Would any of Mr. McDonagh's colleagues know the value of the loans?

Mr. Brendan McDonagh

Is that the value of loans in receivership?

Deputy Sean Fleming

Yes.

Mr. Brendan McDonagh

The colleagues who have that information are not with me today, so I will write back.

In terms of liquidators, I do not believe we have any instances where we have appointed a liquidator because, effectively, we are the secured creditor and we appoint a fixed charge over the asset.

Are there any liquidators in?

Ms Aideen O’Reilly

Not yet but there is one petition.

Deputy Sean Fleming

I can be of help to Mr. McDonagh. The National Asset Management Agency quarterly accounts for 31 March 2011 said that the number of receivers in regard to cases was 271 and that the value of the loans was €501 million. The nominal value of those loans was €1.662 billion but the NAMA value was €501 million. That was six or seven months ago.

Mr. Brendan McDonagh

I will give the Deputy information up to the end of September because that report to the end of September is with-----

Deputy Sean Fleming

We do not have the June figures yet, about which I am disappointed.

Mr. Brendan McDonagh

The June figures are with the Minister and he must bring them to the Government before we-----

Deputy Sean Fleming

When were they sent to the Minister?

Mr. Brendan McDonagh

They were sent on 30 September.

Deputy Sean Fleming

That is three months later.

Would Mr. McDonagh not accept the principle that every NAMA connected property for sale should be publicly advertised? The second half of the equation is how many bid and how many competing tenders. As a matter of principle, does Mr. McDonagh accept it would be good practice? NAMA is selling State assets, about which the public should know.

Mr. Brendan McDonagh

Where the debtor is in place, the debtor is selling the asset and not NAMA. We insist that it is advertised and openly marketed so that when the sale comes through-----

Deputy Sean Fleming

NAMA does not have the legal authority to enforce that in regard to a debtor.

Mr. Brendan McDonagh

No, because he is effectively the controller of the asset.

Deputy Sean Fleming

In other words, it is not within NAMA's control.

Will Mr. McDonagh give me the number and value of loans where interest is being rolled up or there is zero interest being charged? We asked about this roll-up of interest earlier. I will help Mr. McDonagh because I have NAMA's report before me. There is a loan payment status category 9. This is from the end of March report because, as we said, we have not received the more recent report. Category 9 is accounts not in arrears because arrears are capitalised, or rolled up as some people say, or the accounts have a zero interest rate applying. The figure for nominal loans is €2.218 billion and the NAMA value, less impairment of those loans, is €887 million. In line with our earlier conversation, at the end of March there were €887 million worth of loans where the interest was either rolled up or zero interest was being charged. Will Mr. McDonagh put that into the mix when he comes back to us?

Mr. Brendan McDonagh

Yes.

Deputy Eoghan Murphy

I appreciate the opportunity to make another point. I wanted to ask a couple of questions in regard to risk management and they tie-in, in some way, to the targets we have for reducing the NAMA debt, paying it down between now and 2019. Is there a risk management committee?

Mr. Brendan McDonagh

Yes.

Deputy Eoghan Murphy

How many times did it meet in 2011?

Mr. Brendan McDonagh

It generally meets bi-monthly but it can meet more often if there is an issue involved.

Deputy Eoghan Murphy

Does a member of the board chair that committee?

Mr. Brendan McDonagh

Yes, it is chaired by Dr. Steven Seelig.

Deputy Eoghan Murphy

I refer to upward only rent reviews for existing leases, the proposed legislation and the potential 20% hit for some of the properties in the portfolio. What is the committee doing in regard to the legislation?

Mr. Brendan McDonagh

In terms of-----

Deputy Eoghan Murphy

In terms of the possible change.

Mr. Brendan McDonagh

Not only the risk committee but the board is aware of the potential financial impact and we have written to the Minister with regard to the impact on the NAMA portfolio. A legislative change is driven by a Government decision and there is nothing we can do about it because it is an extraneous factor.

Deputy Eoghan Murphy

Was the propose of that letter to the Minister to recommend against bringing in that change?

Mr. Brendan McDonagh

No. It was to point out to him that if the Government is going to make the decision, there is likely to be a financial impact on the NAMA portfolio and it is our duty to refer to the possible financial impact.

Deputy Eoghan Murphy

Does that mean we would have to review these targets for paying down the debt?

Mr. Brendan McDonagh

If there was widescale change and one applied 20% in terms of the NAMA Irish assets, then it could potentially be a couple of billion euro. That is a couple of billion we would not be able to recover.

Deputy Eoghan Murphy

So we would not be able to meet these targets.

Mr. Brendan McDonagh

We would not be able to pay back all the NAMA debt. One might meet one's near term targets but when one has sold all the assets, there will be a difference between the amount of bonds outstanding and no assets left.

Deputy Eoghan Murphy

My understanding is that it would probably require a renegotiation with the troika.

Mr. Brendan McDonagh

At that stage, it depends on where Ireland is. If Ireland gets out of the troika programme by the end of 2013, which is the objective of Government, then, effectively, it will not involve the troika.

Deputy Eoghan Murphy

I am not a property expert but is there a way we could draft the legislation so that the large investment vehicle properties in the NAMA portfolio would not come under the removal of this upward only review for existing leases but that small businesses or shopowners would be included? I have been trying to think of how one could draft legislation in that regard.

Mr. Brendan McDonagh

The report in the newspapers recently, which I am sure the Deputy saw, said that it would be based on a proven inability to pay and that if one was a big multinational, it would be very difficult to prove inability to pay. That would benefit smaller bodies with trading difficulties. It is up to the Government as to what way that will be dealt with. There might be a sensible way to go about it.

Deputy Eoghan Murphy

If it were to go that way it would be preferable from NAMA's perspective.

Mr. Brendan McDonagh

The Government will make that decision. My personal view is that would not be unreasonable.

Deputy Eoghan Murphy

Continuing with risk management, the current proposal is to change bankruptcy laws and reduce the term to five years. My understanding is that will be enacted next year. How does that affect NAMA with regard to the number of debtors being dealt with?

Mr. Brendan McDonagh

At present a number of debtors are probably looking at overseas bankruptcy laws and considering moving their centre of main interest to the UK and trying to get out in 12 or 18 months. That is not easy to prove either and it is not as straightforward as people think. Currently somebody is facing bankruptcy for a minimum of 12 years, so moving it to five years would be sensible for the economy in the overall national context.

Deputy Eoghan Murphy

I agree that the term should be shorter. My point relates to the debtors who are here and either not dealing with NAMA or reluctantly engaging. Once the term is changed to five years, possibly next year, by 2017 those people could be back in business, although NAMA would still be in operation and taking the hit for the taxpayer.

Mr. Brendan McDonagh

There will not be too many debtors waiting until 2017 for a decision to deal with us. Most of the decisions on the debtors will be made by the end of this year and early next year. There will be a decision on which to work with and by 2017 there will not be much difference.

Deputy Eoghan Murphy

So a change in the bankruptcy laws is not being taken into NAMA's calculations.

Mr. Brendan McDonagh

Not at present but we will operate the process on the way things are. If people next year decide that with new bankruptcy laws they will declare themselves bankrupt, they may be out of commission for five years rather than 12 years. People make that assessment based on where they are in life. If a person is 40 it might be worth going bankrupt as that person could get back in business by the time he or she is 50. If a person is 50 and facing bankruptcy, there might be a different perspective. Many of these people would admit to over-borrowing but that does not necessarily mean they are bad people. These people may be entrepreneurial in nature and come back. The bankruptcy laws are a call for the Government but on a personal level, I believe they should be examined.

Deputy Eoghan Murphy

I agree and believe the term should be shorter than five years. Is it correct that NAMA is dealing with approximately 180 debtors?

Mr. Brendan McDonagh

The top 188 debtors would make up close to €62 billion par debt.

Deputy Eoghan Murphy

NAMA would know these people, their age profile and circumstances.

Mr. Brendan McDonagh

Yes.

Deputy Eoghan Murphy

Would it not be prudent to look at them now and try to identify those who may be at risk of declaring bankruptcy under the new bankruptcy laws next year? Any impact on the NAMA business plan would be indicated.

Mr. Brendan McDonagh

The reality is that those people have made assessments and we have already examined whether debtors want to co-operate with us. Most people want to co-operate and have a future for all sorts of reasons. They believe they can reinvent themselves and create a life. They want to work out the assets. Others do not care and would think that they borrowed money and it is gone. Receivers would be appointed in that case. We would make that assessment, as would others, but much will come down to individuals deciding that there is nothing in it.

Deputy Eoghan Murphy

It is not something the risk committee is considering.

Mr. Brendan McDonagh

No. All we can deal with is the current position of a debtor. It is more appropriate for the credit committee which is looking at the cases and assessing whether the debtor will use credit appropriately.

Deputy Eoghan Murphy

My last point stays on the risk issue. There is movement by Lloyds and RBS to offload Irish assets quite quickly. How much is involved in this in terms of the combined loan books?

Mr. Brendan McDonagh

One can consider the public information that is available. With Lloyds there is €30 billion par and the last figures I have indicate that it has taken approximately 56% provisions, which is like the NAMA discount. Effectively, it has approximately €15 billion of assets. My understanding of its accounts is that its portfolio of €30 billion par breaks down to €10 billion in construction and development loans, like the NAMA portfolio, a third is residential mortgage debt, and another third is SME-type lending, much of which is related to the hotel sector where there is quite significant exposure. With RBS I have heard rumours - although nothing officially - that the deleveraging target is approximately €15 billion par, and assuming a 50% write-down, that is approximately €7.5 billion. There are others operating in the market. ACC and Danske Bank are there with a couple of billion euro in their portfolios. We should not forget that Anglo Irish Bank is deleveraging the Irish market at the same time. The deleveraging market is very competitive.

Deputy Eoghan Murphy

If the banks in Europe are capitalised, some of the terms may mean they would have to get rid of assets in Ireland as well. We do not know what will happen. My concern is that the market will be completely flooded. Taken together, the loan book of those banks, before they make their own write-downs, would be greater than that of NAMA. How do we compete with that and not realise a further drop in the value of Irish assets here?

Mr. Brendan McDonagh

That is something we constantly think about. We are watching what they do and they watch us. We are trying to be first up and best dressed, doing what we can to sell our portfolio. Ireland is a small market and when there is no lending and companies are withdrawing from the market, it is very difficult. The risk is to the down side.

Deputy Eoghan Murphy

They are managing these assets by putting together geographical portfolio deals. They are managing to sell what they view as assets which are underperforming in Ireland. They are being packaged with other elements. That is working but we are not doing it.

Mr. Brendan McDonagh

We are watching what they are doing in the market. They are not doing as much as the Deputy thinks.

Deputy Eoghan Murphy

My understanding is they are about to do much.

Mr. Brendan McDonagh

Information in the public domain indicates that Lloyds will go into a joint venture with Green Property on a €1 billion portfolio. We believe that is an income-producing portfolio. Lloyds believes that by using Green Property and asset managing the portfolio, it would realise greater value than if it was sold on the market. As I mentioned earlier, we are watching what RBS is doing in the UK with Project Isobel, which is worth £1.4 billion par. It is being sold for £1 billion, offering 60% debt and having to retain £250 million of the £400 million equity. Buyers are making assessments and £1 billion for that portfolio may not be the true value of the underlying assets. There may be more price adjustments. It is a very competitive market and I assure the Deputy we are doing whatever we can to realise as much of a portfolio as is possible at the best price we can.

Mr. John Buckley

The first special report on NAMA was concerned with the acquisition of assets process. The next one we are contemplating will focus on the work-out arrangements and progress to date.

Deputy Sean Fleming raised some issues with regard to accounting. There was a certain amount of puzzlement about how interest is accounted for. I signalled in the opening remarks that the receipt of loan interest reported might not occur for a number of years because of the nature of the effective interest rate. The method calculates interest evenly over the life of a loan regardless of when the cash is received. What the Deputy was comparing were two separate matters, the cash flow on one hand and this rather autopilot way of calculating interest that is required by the standards.

To deal with the Deputy's concerns, one or two suggestions might be in order. One would be to enhance the cash flow statements to distinguish matters such as pre-acquisition flows from current flows and capital flows, if that is possible, or, alternatively, to put a note to the accounts, which would be a basic receipts and payments account, which would give basic cash movements distinguishing between capital and current flows in the year. That would be quite possible and would be an enhancement to the accounts.

The other matter about which the Deputy was puzzled was the difference between nominal flows and the figures reported in the accounts. It may be useful to enhance the accounts by having a note which would set out the nominal movements. This is quite possible to do and we will enter into some dialogue with the organisation. Ultimately, the Department of Finance sets the format of accounts and it would be involved in any discussion of that nature. Such notes would help the reader to have a deeper understanding of what is being reported and the distinction between cash movements and accrual-based accounting.

Deputy Sean Fleming

I seek clarification from the Comptroller and Auditor General to an earlier point I made. He is essentially saying the interest being accrued in the accounts is based on the annual portion of the estimated interest that will accrue over the life of the loan, which is equivalent to close to the current value of the loan, not the original nominal value of the loan, while what is being received is a different story.

Mr. John Buckley

It is essentially that.

Deputy Sean Fleming

That was the point I was making. There is an interest accrual in the accounts not matching the interest being received in the year in question. There is always a figure outstanding at the year end and this figure could accumulate. If there is no cash flow from some of these loans for a few years yet, the interest will accrue in the accounts and it looks as if it is receivable but the amount not being paid over will be building up.

Mr. John Buckley

That is a reasonable way of putting it. There is a very loose coupling between the interest that is reported and the cash received. That derives from the fact that NAMA must follow international financial reporting standards.

Deputy Sean Fleming

I agree with that.

Mr. John Buckley

The Deputy and I were probably trained as accountants in the days when income recognition was-----

Deputy Sean Fleming

I am not that old.

Mr. John Buckley

I was trained at that time. At the time income recognition was based on two tests, that is, has the money been earned and is it reasonably certain of collection? They were the two tests we would apply anywhere we went. We are now moving into a world where economists are interfering with accounting standards and we have a different method of accounting that we have to comply with. The point I am making is that it does not stop us from having an IFRS plus; in other words, that we would add information that makes it easier for the lay person, and even old accountants like me, to understand.

Chairman

I thank Mr. Buckley for that. I thank the witnesses for attending.

Will the committee agree to note the 2010 Annual Report and Financial Statements of NAMA? Is that agreed? Agreed.

The witnesses withdrew.

The committee adjourned at 3.15 p.m. until 10 a.m. on Thursday, 10 November 2011.