I advise the witnesses that they are protected by absolute privilege in respect of the evidence they are to give this committee. If they are directed by the committee to cease giving evidence in relation to a particular matter and they continue to do so, they are entitled thereafter only to a 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 are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a Member of either House, a person outside the House or an official by name or in such a way as to make him or her identifiable. Members are reminded of the provisions of Standing Order 163 that a committee should also 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 policies. I welcome Mr. Brendan McDonagh, CEO of NAMA, and ask him to introduce his officials.
National Asset Management Agency: Financial Statements 2014
Mr. Brendan McDonagh
I wish the Chairman and Deputies a good morning. To my right is Mr. Frank Daly, chairman of NAMA, to his right is Mr. Michael Moriarty, head of asset recovery, to my left is Ms Aideen O'Reilly, head of legal, and to her left is Mr. Declan Reid from the Department of Finance.
They are all very welcome. Before I ask the Comptroller and Auditor General for his statement, I remind members, witnesses and those in the Visitors Gallery to please turn off their mobile phones.
Mr. Seamus McCarthy
The National Asset Management Agency is tasked under the National Asset Management Agency Act 2009 with acquiring loans from certain Irish financial institutions, protecting and enhancing the value of the assets that it has acquired and ultimately disposing of those assets or the underlying collateral in a timely manner. A key objective for NAMA in its management and ultimate disposal of the assets is to maximise the return to the State.
The financial statements for 2014 received a clear audit report, which issued on 29 April 2015. Without qualifying my audit opinion, I have drawn attention to note 2.1 in the financial statements. This describes NAMA’s main funding source, which is in the form of short-term borrowing, with a Government guarantee. The note explains the basis on which the board is satisfied that it was appropriate to prepare the financial statements on a going concern basis.
Some of the key financial highlights for 2014 are that NAMA generated a profit, after impairment, of €458 million; interest on loans recognised in the year amounted to €950 million; around €7.6 billion was raised in 2014 from asset sales, which were divided between sales of loan assets amounting to €3.4 billion and sales of underlying collateral amounting to €4.2 billion; the 2014 impairment charge was €137 million; the total accumulated impairment charge to end 2014 was €3.5 billion, reflecting the deterioration in NAMA’s expectation of total loan asset cashflows relative to the value of the remaining loans when they were taken on; the carrying value of loans and receivables at end 2014 was €16.9 billion, before impairment; and by end 2014, NAMA had redeemed €16.6 billion of its initial borrowing.
The largest single disposal of loan assets undertaken by NAMA since its establishment was in relation to a bundle of debtor connection portfolios disposed of in 2014. The disposal was code named Project Eagle, and involved the bundling of the loans of all 55 debtor connections based in Northern Ireland. The loans were secured by around 900 property assets and around 68% of the properties were located in Northern Ireland itself, 18% in the rest of Ireland, 12% in Great Britain and 2% elsewhere.
We have drawn up a figure, now on screen, to try to summarise the Project Eagle transaction. At the time the loan bundle was sold, the par value of the loans, which is the amount the borrowers collectively owed NAMA, amounted to a total of around €5.7 billion. The carrying value of the loans before impairment was just under €2.2 billion. The difference of €3.5 billion, or 61% of the par value, is accounted for mainly by the discount in the price paid by NAMA to the relevant banks when it acquired the loans in the bundle.
Much of the Project Eagle borrowing was in sterling and the sale was in sterling. All the values, as presented in the figures on screen, are in euros, which is how they are accounted for in the NAMA accounts. When the bundle of loans was sold, and after payment of disposal costs, NAMA received net proceeds from the sale amounting to just under €1.4 billion. As a result, the total loss on disposal was around €783 million. This was made up of impairment provisions previously booked amounting to €572 million that crystallised when the sale went through plus a further loss of €211 million incurred on disposal.
Under section 226 of the National Asset Management Agency Act, I am required every three years to carry out a review of the progress NAMA has made towards achieving its overall objectives. Members will recall that the first report related to the period up to the end of 2012, which the committee examined last May or so. The next report will cover NAMA’s progress up to the end of 2015. I reported in the first report on loan sales by NAMA up to the end of 2012. Our analysis indicated that those sales resulted in NAMA securing net proceeds of €1.4 billion. Unlike Project Eagle, those disposals, taken together, resulted in a gain for NAMA of around €112 million over and above the carrying value of the loans.
Members may recall that, in the report, I recommended the NAMA board set an overall target rate of return and targets for the overall rates of return on disposals and on property that NAMA decides to hold and-or invest in. These are the kinds of benchmarks commonly used by investors to guide investment and divestment decisions. However, NAMA disagreed on the relevance of such measures for its business, on the basis that they would act as an unnecessary constraint on its flexibility, given the imperative that it be open to commercially sensible disposal opportunities when they arise.
I previously indicated to the committee that, when preparing the next section 226 report, I intended to look in detail at a sample of NAMA disposals and a sample of properties held by it for investment. Given the scale of the loss incurred on the Project Eagle disposal, it was and remains my intention to examine that disposal further in the course of that work. As I mentioned here a couple of weeks ago, planning work on the section 226 examination has commenced.
I thank Mr. McCarthy. I now call Mr. Frank Daly to make his opening statement.
Mr. Frank Daly
I thank the chairman and wish him and the Deputies a good morning. The committee has invited us today to outline the background to the sale of the loans of Northern Ireland debtors, Project Eagle, and the process which was followed by NAMA in securing the sale. We welcome the opportunity to put the facts on the record, that is, the facts as they are known to us. In so far as there may have been some wrongdoing on the part of certain individuals at the periphery of the transaction in Northern Ireland - individuals who acted as advisers to potential purchasers - we are not in a position to comment as we have no knowledge of what may have taken place. The facts, as they pertain to those individuals and their activities, are a matter for authorities in Northern Ireland to establish. I note that in the past 24 hours, the PSNI has indicated it would be looking at that aspect of this issue.
However, in view of the very extensive commentary around this issue in recent days, which has conflated alleged wrongdoing involving individuals in Northern Ireland with the sale by NAMA of Project Eagle, I wish at the outset today to make four points very clear. The NAMA sale process for Project Eagle was robust, competitive, and competitive right to the end, and secured the best outcome for the Irish taxpayer. When NAMA became aware of a concern surrounding the participation of one of the bidders for Project Eagle, we immediately, and without hesitation, took steps to ensure that bidder withdrew from the process. The third point is that no pressure from any source, political or otherwise, influenced NAMA in regard to the decision to sell the loans of Northern Ireland debtors or the decision to accept the winning bid from Cerberus. The fourth point is that if a payment did find its way to an account in the Isle of Man, as has been alleged, then wherever such a payment came from, it most certainly did not come from NAMA or from proceeds due to NAMA under this sale. In fact, NAMA had no knowledge of this alleged payment to Mr. Coulter by Brown Rudnick until recent days when it was put into the public domain.
I will outline the sequence of events in this sale. As chairman both of the NAMA board and, since October 2011, the Northern Ireland advisory committee, I feel I am well placed to outline this sequence of events that led to the sale of the Project Eagle portfolio. We first became aware of investor interest in purchasing the portfolio after the Minister for Finance, Deputy Michael Noonan, passed to us a letter he had received from the Northern Ireland Minister for Finance and Personnel, Mr. Sammy Wilson, on 24 June 2013. Mr. Wilson enclosed a copy of a letter, of the same date, that he had received from a law firm, Brown Rudnick, in which Brown Rudnick indicated that clients of the company were interested in acquiring the Northern Ireland loan portfolio. In his reply on 25 July 2013, and after his Department had consulted with us, the Minister, Deputy Noonan, pointed out to Mr. Wilson that parties interested in acquiring NAMA loans or assets securing NAMA loans should make direct contact with NAMA. The Minister, Deputy Noonan, also drew attention to NAMA's policy that loan and asset sales should be openly marketed and he furthermore pointed out that NAMA did not favour granting exclusive access to any potential purchaser as that would militate against achieving optimal value for the assets concerned. I understand that the Department of Finance proposes to circulate copies of the Minister’s correspondence with Mr. Wilson.
In September 2013, Brown Rudnick made an unsolicited approach to NAMA and indicated that one of its clients, PIMCO, was interested in acquiring NAMA's Northern Ireland loan portfolio. In its subsequent engagement with NAMA, PIMCO indicated a preference for a closed transaction, which did not involve open marketing of the portfolio. The board agreed that senior NAMA staff should engage further with PIMCO but with a view ultimately to completing an openly marketed loan sale in line with board policy. On 4 December 2013, PIMCO submitted a bid expressed in terms of a price range with the final price to be determined after due diligence. PIMCO indicated that its preference remained that the sale would be a closed transaction.
At a meeting on 12 December 2013, the NAMA board decided that the portfolio should be openly marketed as part of a competitive process; the board also set a minimum price below which it would not be willing to proceed with a sale. This minimum price reflected NAMA's valuation of the underlying assets. At a further meeting on 8 January 2014, the board approved the appointment of Lazard to advise NAMA on the appropriate marketing approach and to oversee the sales process. It was envisaged that this would involve marketing to suitable targeted bidders who would have the financial wherewithal to submit credible bids on the portfolio. On 17 January 2014, NAMA received from the principal private secretary to the Northern Ireland First Minister a copy of a "letter of intent" relating to the proposed management of the Northern Ireland portfolio. The letter appeared to summarise an agreement between PIMCO and the Northern Ireland Executive and its purpose was to require the purchaser of the portfolio to enter into a memorandum of understanding with the government of Northern Ireland, confirming certain fundamental conditions relating to the future management of the portfolio. NAMA did not engage further in regard to the draft letter. I understand the draft letter of intent is also being released today.
On 10 March 2014, PIMCO informed NAMA that its compliance staff had discovered that PIMCO’s proposed fee arrangement with Brown Rudnick included also the payment of fees to Tughans, a Belfast law firm, and to a former external member of NAMA’s Northern Ireland advisory committee. PIMCO named that individual as Mr. Frank Cushnahan. Our understanding was that PIMCO and Brown Rudnick had been engaging since September 2013, and possibly earlier, but it appears that its compliance staff only became aware of the "fee-sharing" arrangement in early March 2014. It is not clear to us whether this late discovery arose because of internal communications issues within PIMCO or between PIMCO and Brown Rudnick.
A special meeting of the NAMA board was convened on 11 March 2014, the following day. The board viewed PIMCO's disclosure as a very serious development and it considered the most appropriate course of action. Whereas the former Northern Ireland advisory committee member was no longer a member of the committee at the time of the disclosure - he had resigned on 8 November 2013 - and never had access to confidential information, the board considered that the proposed fee arrangement could undermine the integrity of the sales process. The board decided that if PIMCO did not withdraw, NAMA could not permit it to remain in the sales process. On 12 March 2014, NAMA indicated its serious concerns to PIMCO about the proposed fee arrangement to the former member of the Northern Ireland advisory committee. On 13 March 2014, PIMCO informed NAMA that it would withdraw from the Project Eagle process. I understand that in recent days PIMCO has disputed the facts as outlined above and suggested that its withdrawal from the sales process was voluntary. I do not propose to enter into a debate with PIMCO as to the meaning of the word "voluntary". Suffice it to say that it was left in no doubt that if the withdrawal was not voluntary, it would have to be involuntary.
Lazard engaged with a total of nine potential purchasers, including PIMCO, during the first quarter of 2014 and, at the end of the process, the best bid from the two remaining bidders was received from Cerberus. I say in response to some insinuation in the past few days that the other remaining bid was not from PIMCO. The Cerberus bid was accepted by the board on 3 April and announced on 4 April 2014. The transaction was completed in June 2014.
For the avoidance of doubt, no fee payment was made by NAMA to Brown Rudnick. NAMA had very limited engagement with Tughans on this sale and did not instruct Tughans to advise it on any aspect of the sale. Fees totalling €7,839 were paid to Tughans as payment for delivery of title documents and assistance with due diligence queries. NAMA's legal adviser on Project Eagle was Hogan Lovells.
Cerberus has stated that it made a fee payment to Brown Rudnick and that Brown Rudnick advised that the fee would be shared with Tughans. Cerberus state that this was payment for strategic advice relating to the sales process and for work that Brown Rudnick and Tughans had already carried out on the portfolio. From NAMA's perspective, there would have been no reason to question why a purchaser of a loan portfolio would have been making payments to two law firms. What did concern us, based on PIMCO's disclosure, was the possibility that a payment would have been made to a former member of the Norther Ireland advisory committee. We sought and received written confirmation from Cerberus at the time that no fees were paid to any party with a connection to NAMA. Cerberus confirmed the position as follows:
We confirm that no fee, commission or other remuneration or payment is payable to any current or former member of the board of the National Asset Management Agency (NAMA), any current or former member of the executive of NAMA or any current or former member of an advisory committee of NAMA in connection with any aspect of our participation in the Project Eagle sales process.
I am confident that the NAMA board acted quickly and decisively and took every measure available to it to protect the integrity of the sales process as soon as the proposed fee arrangement came to light.
Tughans, in its recent statement, indicated "that a former partner diverted to an account of which he was the sole beneficiary professional fees due to the firm without the knowledge of the partners". Tughans also confirmed that the individual in question no longer works for the firm and that the company has "reported the circumstances of the departure of the former partner to the Law Society". These disclosures by Tughans are a matter for that company and they had no impact on the competitive sales process run on behalf of NAMA. If there are suggestions that there was wrongdoing by certain parties, it is a matter for the Northern Ireland authorities to investigate them. Given the facts as outlined above, it would be entirely wrong and dishonest to conflate NAMA's process with the unrelated Tughans issue.
I will outline the role played by the Northern Ireland advisory committee with regard to NAMA's activities in Northern Ireland. NAMA has four statutory committees – the audit committee, the credit committee, the finance and operating committee and the risk management committee - established under section 32 of the NAMA Act. Section 33 of the Act provides that the board may establish such advisory committees as it considers necessary or desirable to advise it in the performance of its functions.
The NAMA board established two such committees, the planning advisory committee and the Northern Ireland advisory committee, the NIAC. The latter was established in 2010 at the suggestion of the late Minister for Finance, Mr. Brian Lenihan. The Minister felt the committee would be useful in advising the board on the strategy for Northern Ireland assets. Following consultation with the Minister, who in turn I understand had consulted the Northern Ireland Executive, the NAMA board decided in May 2010 to appoint Mr. Brian Rowntree and Mr. Frank Cushnahan to the NIAC. From 2010 to 2011, the NIAC was chaired by Mr. Peter Stewart, who was a member of the board of NAMA. After Mr. Stewart's resignation from the board and from the NIAC in October 2011, I became chairman of the committee until its dissolution in September 2014.
I would like to clarify a few points regarding the role of the NIAC. Its role was to advise on the broad economic and social context in Northern Ireland in which NAMA was operating and on the overall state of the property market. The NIAC had no role in relation to NAMA debtors or the assets securing their loans. No discussion of particular debtors or particular assets was permitted at NIAC meetings. No specific information relating to debtors or assets was ever provided to external members of the NIAC and the NIAC had no decision-making powers. I am aware a former member of the NIAC, Mr. Brian Rowntree, has said in recent days that the NIAC was "kept in the dark" about the Project Eagle transaction. I agree. While the committee was informed at its meeting on 7 October 2013 that PIMCO had made an unsolicited approach to purchase the portfolio, it was made clear that key information and decisions relating to the portfolio were matters for the board of NAMA only. For the avoidance of any doubt, therefore, it is important to point out that external members of the NIAC did not have access to any information about the portfolio that would have been of value to a potential bidder. The board took the view for reasons that Mr. Brendan McDonagh will outline later that the best commercial option was to sell the portfolio on the basis that there was a limited prospect over a medium-term horizon of a significant improvement in values.
The sale of the Project Eagle portfolio received a broad welcome when it was first announced. The extent to which the sale has acted and may continue to act as a catalyst to stimulate activity in the Northern Ireland property market and in the economy more generally is to be welcomed. I am confident that the transaction will ultimately be seen as benefiting Northern Ireland and the taxpayers in the Republic. We have no difficulty in discussing NAMA's commercial rationale for the sale. All documents and records relating to the sale of Project Eagle were available to the Comptroller and Auditor General as part of his audit of the 2014 financial statements. We are aware that, as required by the NAMA Act, he is planning to initiate his second section 226 triennial review of NAMA, covering the 2012-15 period, over the coming months. The Comptroller and Auditor General has confirmed this plan this morning. He has also confirmed my assumption that this transaction will be one of those assessed as part of that review. On behalf of NAMA, I welcome the Comptroller and Auditor General's forthcoming review. I am confident it will show that we have acted commercially and properly. Regardless of the commercial aspects of this sale, we take great exception to any suggestion that anyone representing NAMA - a current or former board member, or a current or former member of staff - was engaged in wrongdoing. I reiterate that if there has been wrongdoing at the periphery of this transaction in Northern Ireland, it has nothing to do with NAMA. In the absence of any evidence to the contrary, it is wrong and dishonest to claim otherwise.
I have read my statement as it was submitted to the committee. Before I conclude, I wish to make three short points about the coverage of this issue over the past 24 hours. First, there is no PSNI investigation of the sale of these loans by NAMA. The PSNI is investigating activities relating to the purchase of these assets, rather than their sale. That is a critical distinction. Second, there is no truth in the suggestion that €7 million of the sales proceeds of this transaction ended up in an Isle of Man account. NAMA received the full proceeds from this sale. The origin of that €7 million is not NAMA. There has been no suggestion that NAMA is the origin. Many media outlets are continuing to make this error. Third, it has been mistakenly claimed in the media that NAMA sold assets that were valued or worth approximately €5 billion for approximately €1.5 billion. Again, this is simply wrong. It is a very serious error. NAMA sold the assets for exactly what they were worth and not a cent less. The assets may or may not have been worth more years earlier. We will go into that in more detail later. The fall in their value resulted from the property crash. They were not worth anything more than the price achieved by NAMA when it sold them for €1.5 billion. Such errors are damaging NAMA and are misleading. I just wanted to put that on the record at the end of my statement.
Mr. Reid has made these letters available.
Mr. Declan Reid
That is correct.
Can he just tell us what they are?
Mr. Declan Reid
These are the letters to which Mr. Daly has just referred in his opening statement. They were received by the Minister, Deputy Noonan, from the then Northern Ireland Minister for Finance and Personnel following a meeting they had. The letters indicate that Brown Rudnick had approached the then Minister, Sammy Wilson, to say that it had identified two potential purchasers for the Northern Ireland portfolio of NAMA, that the potential purchasers had expressed an interest to Brown Rudnick and that Mr. Wilson was passing that interest on to the Minister, Deputy Noonan.
Okay.
Mr. Declan Reid
In turn, the Minister, Deputy Noonan, passed that interest on through myself to NAMA. The committee will see the response that the Minister, Deputy Noonan, provided back to Mr. Wilson, expressing that this was an issue for NAMA. Two considerations that were present in the Brown Rudnick letter were specifically addressed in the response from the Minister, Deputy Noonan: first, that any process would have to be open and competitive; and second, that any matters regarding exclusivity could not be considered.
Okay. Mr. Daly mentioned a memorandum of understanding in his opening statement.
Mr. Frank Daly
Yes.
That is not here.
Mr. Frank Daly
That is the draft letter of intent.
Can we have a copy of that?
Mr. Frank Daly
Yes, we can make a copy of that available to the committee.
It would be helpful for the meeting if we had a copy. Deputy Ross is the next speaker.
I think we need to get a statement from the chief executive, Mr. Brendan McDonagh, first.
I know. I was just indicating to Deputy McDonald that Deputy Ross will be called first.
Could we have approximately five minutes to read the correspondence before we go any further, or after Mr. McDonagh's statement?
Maybe we will hear Mr. McDonagh's statement next. I suppose it will clarify what we had and what had been given to us. I reiterate that a copy of the memorandum of understanding is not here. Perhaps it can be copied for the members. I would like to raise one other question for the purposes of clarification, seeing as we are sharing the documents. Are the minutes of meetings of the Northern Ireland council in relation to this whole sale available? Can they be made available?
Mr. Frank Daly
Is the Chairman seeking that they be made available to the committee?
Yes.
Mr. Frank Daly
We can certainly do so. We would be minded to do that if that is what the Chairman is asking us to do.
I think it would be helpful.
Mr. Frank Daly
There may be some references to particular debtors in it, although not very many. This would have nothing to do with Project Eagle, by the way.
We just want them for the purposes of this meeting.
Mr. Frank Daly
I want to be sure I am not breaching section 202 or section 90 of the Act.
Yes.
Mr. Frank Daly
We would certainly be prepared to make them available.
If Mr. Daly could provide that information-----
Mr. Frank Daly
There is five years of-----
It would be helpful to know who attended-----
Mr. Frank Daly
Yes.
-----and how this sale was managed, thought of or spoken about.
Mr. Frank Daly
In all of the meetings of the NIAC over five years - there would be four or five meetings a year - there was a reference to Project Eagle at just one meeting. I would have absolutely no problem in releasing that to the committee.
Okay.
Mr. Frank Daly
I refer to the meeting of 7 October 2013, at which I briefed the committee very generally on the fact that there had been an approach in relation to the Northern Ireland debtors and on the broad approach the board was taking. As far as I remember, that is the only reference to Eagle at any time in those minutes. I have already mentioned that another member of that committee feels he was "kept in the dark" in relation to Eagle. We can certainly release those.
It would be helpful if that could be done as soon as possible. Deputy McDonald wants to come in on this matter.
Is the document dated 17 January 2014 from the principal private secretary being copied?
Yes. I call on Mr. McDonagh to make his opening statement.
Mr. Brendan McDonagh
My chairman has provided the committee with a chronology of the sales process for Project Eagle. The board approved the sale because it took the view in early 2014 that it represented the best financial outcome for Irish taxpayers, taking a range of factors into account. The key point about the Eagle portfolio is the fact that five Irish banks advanced £4.5 billion to Northern Ireland-based debtors for property which subsequently lost over two thirds of its value.
Taking into account the Northern Ireland asset mix securing NAMA loans, we estimate that prices fell by over 50% from peak to the end of 2013. Lending by Irish banks to Northern Ireland debtors appears to have been particularly risky. Some 44% of the assets by number in the Eagle portfolio were land and development properties which were severely affected by the collapse in commercial and residential prices. Another 26% by number were residential assets. There was also a heavy concentration of lending secured by assets in regional UK which did not benefit from the strong recovery experienced in London after 2009. That element of the decline in asset values in Northern Ireland and regional locations in Britain which happened prior to November 2009 was reflected in the discounts applied when NAMA acquired the portfolio from the banks. The further decline in prices which took place after 2009, however, had to be absorbed by NAMA and, as was prudent, it took appropriate impairment provisions against the loans of Northern Ireland debtor connections which were fully reflected in each year’s audited financial statements by the Comptroller and Auditor General.
In accordance with international financial reporting standards, NAMA must recognise impairment in its financial statements, to the extent that it arises, in each accounting period. Cumulatively, the write-down against Northern Ireland debtor connections totalled €800 million between 2010 and 2014 and would mainly have reflected falling collateral values. The provisions were included in successive financial statements from 2010 onwards. They included a closing write-down of over €200 million which was recognised in the 2014 financial statements. Clearly, it was fully understood by the NAMA board and the executive that the impairment taken on this portfolio, while substantial, reflected poor lending decisions by the Irish banks in advancing £4.5 billion for the purchase of assets which were generally of mediocre or poor quality and which were seriously affected by the economic downturn primarily in Northern Ireland and regional UK.
In overall cash terms, taking into account disposal proceeds, non-disposal income, advances and the proceeds of the loan sale, the net cash loss to NAMA, in layman’s terms, on the Northern Ireland portfolio was about €280 million. In January 2014 the board approved the sale of the Northern Ireland portfolio by reference to a minimum sale price of £1.3 billion. This reflected our valuation of the underlying assets. For a range of reasons which I will outline, the board’s view was that NAMA could struggle to achieve this amount if we were to manage the loans over a seven-year period to 2020, bearing in mind the size of the Northern Ireland economy. The minimum sale price was adjusted to £1.24 billion by early April 2014 to reflect asset disposals which had taken place in the intervening period between the launch of the loan sale and the closing. The associated cash proceeds from these sales, however, were received by NAMA.
Lazard, appointed by NAMA in January 2014 to oversee and advise it on the loan sale, confirmed to the board that the sales and marketing process was appropriate, given the nature and scale of the transaction and given NAMA’s objective of maximising the recovery to Irish taxpayers. Lazard also stated in a closing transaction letter to the board that “sufficient competitive tension remained in the process” following the withdrawal of PIMCO and, having reviewed the remaining two bids, it recommended moving forward solely with Cerberus with a view to executing the loan sale agreement on agreed terms and at the agreed price.
In terms of the rationale for the sale, there were a number of reasons the board took the view that the sale of the portfolio represented the best commercial option for NAMA. From 2010 to 2013, there had been relatively few sales of properties in the Northern Ireland portfolio and there had been little or no investor interest in acquiring either Northern Ireland assets or the associated loans. The total volume of investment activity in Northern Ireland is estimated only to have been €75 million in 2012 and €175 million in 2013. Absorption capacity was a key strategic concern of the NAMA board, given that over 50% of the portfolio was based in Northern Ireland. The asset portfolio securing NAMA loans was very granular and had few major assets which might have been of interest to purchasers if we had decided to proceed to sell the assets on an asset by asset basis. That granularity is illustrated by the fact that, as of November 2013, only 2% of the properties had an acquisition value in excess of £20 million and many of these were in regional locations in the United Kingdom. Some 81% of the properties by number had an acquisition value of less than £2 million. Some 70% of the properties by number were categorised either as residential or land and development assets and the average acquisition value per asset in this group was about £800,000.
The appendix to the paper provides a breakdown by value of the portfolio as it was at the point of sale. As mentioned, most of the assets securing the portfolio declined substantially in value between our reference acquisition date in November 2009 and late 2013. It was clear that realising even the carrying value of a portfolio secured by so many small assets was going to be a long and difficult process. The medium-term outlook for the Northern Ireland economy was uncertain and it was clear to us, even if there was to be a sustained recovery in the years ahead, that the assets securing our loans would have been slow to benefit from such a recovery. In other words, in the event of a sustained recovery, the larger commercial income producing assets would be the first to gain and that it would be some time before the impact of recovery would percolate down to smaller assets. The Project Eagle portfolio included 36 smaller debtor connections that were managed by NAMA’s participating institutions. Many of these connections had little or no property management platform or capability and it was likely, in the board’s view, that the work-out process would be protracted and costly and that there was no certainty that it would have yielded a superior commercial outcome to the loan sale. A loan sale would eliminate the risks, uncertainties and costs associated with a protracted work-out of the Northern Ireland portfolio which had limited capacity to appreciate in value over a medium-term horizon.
The board and the executive also considered the impact of a potential Eagle sale on our ability to manage the rest of our portfolio. From a risk management perspective, the sale of the Eagle portfolio would help to de-risk the overall portfolio by removing a heavy concentration of assets in markets with significant liquidity challenges and where recovery was likely to lag behind other major markets. It would also free up our resources to focus more on the portfolio of assets in the Republic of Ireland and London where, in our view, asset management work and effort would yield better results.
For all these reasons, we made a decision that the best return we could generate from the portfolio would be from a loan sale. This assumed that we could achieve a price that matched our expectations as to what the portfolio should realise, based on the information available to us. As a commercial entity, decisions to sell or hold assets are ones we are required to make all the time. All of our decisions are based on the best available information at the time a decision is taken.
In terms of the loan sales process in general adopted by NAMA, the key consideration for NAMA in any loan sale process is that all interested parties are given the opportunity to bid and that all bidders are treated equally and fairly. We insist on the open marketing of loans through experienced loan sales advisers. We set clear ground rules at the start of each loan sale. Everybody knows the rules. We ensure all bidders are given access to the same information at the same time, including all loan agreements, security and title information, data tapes, lease information and tenancy schedules. We evaluate all bids on the same basis. We execute our loan sales to best practice international standards. This is recognised in the global loan sales market where NAMA enjoys a strong reputation for the quality of information provided in our data rooms and for the transparent and the professional manner in which all loan sale transactions have been completed to date.
To conclude, I reiterate a number of important points. The commercial decision taken by the NAMA board to dispose of the Northern Ireland loan portfolio was the correct one. The board took the view that this option would provide the best financial outcome for Irish taxpayers, taking into account the quality of assets in the portfolio, the lack of liquidity in the Northern Ireland property market, the availability of a number of investors to bid competitively on the size of the portfolio and NAMA’s need to focus on its assets in the Republic of Ireland and London, which were more likely to benefit from intensive asset management attention. The sale was conducted in line with best international practice and all bidders had access to the same detailed information on the portfolio. We took care at all stages to ensure the integrity of the sales process was fully protected and the NAMA board acted quickly and decisively as soon as the proposed fee arrangement to a former NIAC member came to light.
Lazard advised on and recommended the outcome of the Eagle sales process to the board. I am satisfied, from a commercial perspective, that the transaction would stand up to rigorous scrutiny by any independent assessor. I am also satisfied that there has been no wrongdoing on the part of any current or former member of the NAMA board or NAMA staff. It is entirely unfair that there has been an attempt to besmirch NAMA’s reputation on the basis of the alleged behaviour of certain individuals in Northern Ireland who were at the periphery of the transaction and advising potential purchasers, not NAMA.
I thank members for their attention. We can respond on any issue they may wish to address.
May we publish the statements?
Mr. Frank Daly
Yes.
May we have five minutes to read the papers?
Yes.
We will wait for members to conclude their consideration of the letters and the memorandum of understanding.
On the first point, that the third party release all corporate and personal guarantees as security, is there a list of who would benefit?
Mr. Frank Daly
I wish to be clear that the MOU has no status within NAMA and that we never took any action in regard to it. I am not sure what the purpose was in sending it to us.
Was Mr. Daly not curious about whom it might benefit?
Mr. Frank Daly
We knew that it would have benefited the debtors. When we looked at the MOU, or whatever it was, we would never ever have countenanced this as a condition of sale by NAMA of the Project Eagle or any other portfolio. One could understand what might be going on in using Northern Ireland businesses or supply chains-----
I can understand that, but it is a nice little arrangement, although I am not saying anything about NAMA.
Mr. Frank Daly
No. 1 would be a debtors' charter, which we would never have countenanced.
Mr. Daly has only given us the memorandum of understanding. Presumably, there was a letter attached to it.
Mr. Frank Daly
I attached a covering email. If the Deputy did not get it, it was simply an email-----
From whom?
Mr. Frank Daly
It was from somebody in the office of the First Minister and the Deputy First Minister in Northern Ireland, dated 17 January and sent to our head of asset recovery. It states: "I have been asked to forward you the attached MOU-----
I am sorry, but I cannot hear Mr. Daly.
Mr. Frank Daly
It reads, "I have been asked to forward you the attached MOU," the document the Deputy has. That is all it was.
By whom was it signed?
Mr. Frank Daly
It was signed by an individual in the office of the First Minister.
Who is that individual?
Mr. Frank Daly
He is a principal private secretary to the First Minister and if the Deputy wants me to name him, I can. It was signed by Mr. Jeremy Gardner.
To whom was it sent?
Mr. Frank Daly
It was sent to our head of asset recovery who at the time was Mr. Ronnie Hanna.
How did it start? "As requested-----
Mr. Frank Daly
No; it reads, "I have been asked to forward you....."
Mr. Declan Reid
I wish to clarify the matter for Deputy Mary Lou McDonald. The memorandum of understanding originated from a call between Ronnie Hanna, the Minister, Minister Robinson's office and me regarding the sales process. Minister Robinson indicated that he had concerns about how NAMA, or any owner of the Northern Ireland loans, would manage these loans in the interests of the Northern Ireland economy, which was understandable. He indicated that he would seek to put such a letter of intent, or MOU, in place with potential bidders. We advised him that it would be wise to send it to NAMA for its information and identified Ronnie as the appropriate person to send it to.
The first point made in the memorandum of understanding is that the third party should release all corporate and personal guarantees as security of borrowers and related parties. Out of curiosity I would have been inclined to look at who would benefit. I understand it was the borrowers, in the first instance, but was there any other reason? I may just be suspicious that this would have been the case because everyone was being released from their obligations. Was it put forward for any other reason and did NAMA examine why it was being suggested? Was it just an honest effort to free everyone or were there individuals who might benefit and would have been well placed insiders, as they are often described?
Mr. Declan Reid
From the discussions, my understanding of the intent of that was to allow the recovery on the loans to be reliant upon the security attaching to them as opposed to the personal guarantees to help promote activity and the resumption of activity in the Northern Ireland construction development sector over the medium term under the stewardship of any potential buyer.
Are members finished with the letters? I want to move to Deputy Ross.
I have one further query. Regarding the board meeting on 11 March when the board was informed of the PIMCO arrangement and it was agreed that PIMCO should withdraw from the sale due to the payment to a former member, are minutes of that meeting available?
We have asked for those.
Mr. Frank Daly
Yes. They can certainly be included with the minutes that I referred to earlier. We will make them available to the committee.
When might we get those?
Mr. Frank Daly
Tomorrow. Obviously, there was a series of board meetings during the period at which Project Eagle would have been discussed. It would be helpful to the committee if we were to provide it with the extracts from those relating to Project Eagle. I want to be sure that I am not inadvertently breaching sections 202 or 90, but we will do that very quickly.
I thank the witnesses for attending at such short notice. No one present is alleging what could be called wrongdoing in a criminal or other sense by NAMA. There is no attempt to pin that on NAMA. Anyone who has tried to do so is wrong. However, this may be the most extraordinary sequence of events in a deal that I have ever come across in a State body. Having read about the unorthodox approach to Mr. Sammy Wilson before the matter was passed on to the Minister for Finance, Deputy Noonan, who then passed it on to NAMA, and the other sequence of events that is peculiar all the way through, with Tughans and Brown Rudnick acting for both parties and the fact that NAMA discovered in the middle of the bidding process that there was a fundamental difficulty, I wonder why NAMA did not call off the sale.
Mr. Frank Daly
I agree with the Deputy. Some of this is extraordinary. From our point of view, the most important aspect is the action that we took as a consequence of those events. As to the Deputy's question on why we did not call off the sale, it is not that we did not discuss doing so. A number of factors were in place. Lazard was advising us on the sale process. Once PIMCO was out, that removed from the process the taint of the possibility of something being wrong - I must be careful - in respect of a former member of the Northern Ireland advisory committee, NIAC. That was our great concern.
Bidders were still in the process at that stage.
Two.
Mr. Frank Daly
No, not at that stage. There were two remaining, but there had been nine. That would not have been unusual. One might start with eight or nine bidders and whittle them down to the two or three who are really interested. At that stage, there were still two. We wanted Lazard to give us an assurance that there was still genuine competitive tension, which it did unequivocally. There was competitive tension, we were still of the view that we would get the best price possible and we went down that road. Cerberus emerged on top and we had a disappointed underbidder, which is always good to have in a process.
Who was the underbidder?
Mr. Frank Daly
Fortress Capital.
What is Fortress Capital and who acted for it?
Mr. Frank Daly
Mr. McDonagh will explain.
Mr. Brendan McDonagh
Fortress Capital is a major, and predominantly US, private equity fund. It is similar in scale to Cerberus, other loan sale buyers like Lone Star and Apollo Global Management and other major international funds.
Did it also use Tughans?
Mr. Brendan McDonagh
I have no idea as to whom Fortress Capital used as its adviser.
Sorry?
Mr. Brendan McDonagh
It never disclosed to us whom it used as its adviser.
Mr. McDonagh must have some idea because someone must have been dealing with its adviser.
Mr. Brendan McDonagh
No. Fortress Capital had access to the data room, and it accessed the room itself.
Mr. McDonagh does not know who it used as its adviser.
Mr. Brendan McDonagh
No.
But Fortress Capital was also from the US?
Mr. Brendan McDonagh
Yes.
Did NAMA believe it was peculiar that both bidders, PIMCO and Cerberus, were using Tughans and Brown Rudnick?
Mr. Frank Daly
As far as we are aware, Cerberus did not begin to use Brown Rudnick or Tughans until after PIMCO had pulled out. Its rationale, which it explained to us, was that Brown Rudnick and Tughans had done a great deal of due diligence work for PIMCO, so it made commercial sense for it to avail of that work. I do not know, but I presume that this may have been reflected in the price or cost that Cerberus eventually paid to Brown Rudnick.
There is another point about why we continued with the sale. We were still getting from Cerberus a figure that was in excess of our minimum price for Project Eagle. With Cerberus, there was competitive price tension even during the period after the deal was agreed and the money was paid when it was trying to knock us back for technical reasons, which we resisted. We got the full price.
There was another reason for continuing. If one went through a sales process in respect of what was, as Mr. McDonagh outlined, a troubled portfolio that was hard to shift, one might abort it at the last minute for genuine reasons, but one would not want to do so because whatever prospect there was of getting a good price for it would certainly lessen after taking it off the market and starting all over again, as people out there would know that one was having difficulties.
For clarity, will the witnesses take us through the process? Did NAMA end up with three bidders? Lazard started with nine and NAMA ended up with three.
Mr. Brendan McDonagh
Yes. In March 2014, three bidders were remaining.
Correct.
Mr. Frank Daly
Including PIMCO.
PIMCO then withdrew-----
Mr. Brendan McDonagh
Yes.
-----because of this extraordinary incident and NAMA was left with two. Had PIMCO made a bid at that stage?
Mr. Brendan McDonagh
No. PIMCO had-----
It had made an indicative bid.
Mr. Brendan McDonagh
It had made an indicative bid, which was a range value bid of £1.1 billion to £1.3 billion, subject to full due diligence. The closing date for bids was 1 April 2014.
PIMCO pulled out. One third of NAMA's bidders were gone.
Mr. Brendan McDonagh
Yes.
NAMA went ahead all the same.
Mr. Brendan McDonagh
But it is not-----
Even though three was the optimum number.
Mr. Brendan McDonagh
Three is the optimum number, but it is not unusual in loan or asset sales to fall to two bidders eventually.
Yes, but the third withdrew for unusual reasons,-----
Mr. Brendan McDonagh
The third-----
-----not commercial ones.
Mr. Brendan McDonagh
No, no.
Mr. Frank Daly
PIMCO was very interested in the portfolio.
Mr. Brendan McDonagh
Let us be very clear about this. PIMCO approached us on 10 March 2014. It told us that it was using Brown Rudnick as its adviser, that Brown Rudnick had a subcontractual arrangement with Tughans and Mr. Cushnahan and that it presumed we were aware of that. We said that we were not aware of it. For the record, we have no issue with Brown Rudnick or Tughans. They are reputable law firms. We had an issue with Mr. Cushnahan regarding the question of perception as much as anything.
PIMCO indicated to us that, now that it had made us aware of this, it would continue in the process. We said we would take this away and discuss it and we called a board meeting to discuss it. The board took the view that it was a very serious development, particularly due to the issue of the involvement of Mr. Cushnahan. We went back to PIMCO and informed it that the board viewed this as a very serious development and did not think it was tenable for PIMCO to remain in the process. In fairness, PIMCO gave us the information but the position was not tenable. PIMCO indicated it would think about this and the following day it stated that, having thought about the issue and taken on board the view of the NAMA board, it had decided to withdraw from the process. As Mr. Daly outlined in his statement, if PIMCO had not withdrawn from the process, we would have withdrawn it. Those are the facts.
In the middle of the biggest property portfolio deal NAMA had ever done, involving the whole Northern Ireland portfolio, there was a massive cock-up. One third of the bidders had gone and NAMA just ploughed ahead. Surely the solution would have been to ask Lazards to get another bidder because the process had been fractured and damaged by the withdrawal of the person in question. Is that not correct?
Mr. Brendan McDonagh
No, I do not accept that. We took advice from Lazards at the time and asked it whether, following the withdrawal of PIMCO, there was still sufficient competitive tension regarding who could buy the portfolio. Lazards advised us that there was sufficient competitive tension remaining and both Fortress Capital and Cerberus were very eager to acquire this portfolio and would bid competitively against each other.
It was not the optimum or best possible scenario for NAMA when one of the bidders had left the process, resulting in the disappearance of one of the pillars of the project.
Mr. Brendan McDonagh
At the start, there were only about eight or nine funds in the world that could write such a big cheque. All of these funds were approached to see if they were interested in the portfolio. The number was whittled down to three and one of these three parties withdrew, as happens quite regularly not only in NAMA sales, but in other bank sales. Sometimes it happens in major property sales that one interested party falls away for its own reasons. It is just that this was a very particular reason and one for which NAMA would not allow PIMCO to continue.
What was the difference between the two remaining bids?
Mr. Brendan McDonagh
The difference was-----
What were the two bids?
Mr. Brendan McDonagh
The final bid by Cerberus was £1.241 billion and the bid by Fortress was almost £1.1 billion.
If I could move on, did it seem peculiar to NAMA that Brown Rudnick and Tughans were apparently involved in both bids?
Mr. Frank Daly
It would not be totally unusual for that to happen. We certainly looked at the fact that Brown Rudnick and Tughans were, at that stage, coming in on behalf of Cerberus. However, it should be remembered that we did not have a problem with Brown Rudnick or Tughans as such. Our problem always was with the Northern Ireland Advisory Committee member or what was reported to us in relation to that NIAC member. I suppose we were concerned enough. It was really more a case of "to be sure, to be sure" that when it came to our attention that Brown Rudnick and Tughans were involved with Cerberus, we went back to Cerberus before its bid was considered or accepted and asked for an undertaking in relation to fees, which I outlined in my statement. As it is in my statement, I will not read it again. However, Cerberus gave us an unequivocal statement in writing to the fact that no fees were paid to any party with any connection to NAMA. That was really the issue for us, namely, that fees to any party with any connection to NAMA. Cerberus provided a very broad confirmation in relation to any board member, executive member or current or former member of the advisory committee.
While that may seem to be a very broad statement, our real target was to know whether there was any fee that in any way might be payable to Mr. Cushnahan at that time. One cannot go out and ask a particular question about a particular individual without giving oneself a level of exposure to something that NAMA would not want to get into. For this reason, we asked Cerberus for a very broad statement covering anybody connected with NAMA and it gave us that.
I accept that. What I am trying to ask is this. Here we have a massive global transaction, one of the biggest deals ever done in the world of property, I suspect, involving some 850 properties in a bulk sale, and, by complete coincidence, two of the principal bidders are using Brown Rudnick and, by an equally odd coincidence, they are both using Tughans in Belfast. Did NAMA's antennae not go up when both bidders landed in the same place? Were alarm bells not ringing about a conflict here?
Mr. Frank Daly
No, there was not a conflict in relation to Brown Rudnick or Tughans. That was not the issue for us. The issue for us was the former NIAC member or anybody else in that space. That was the confirmation we sought. The rationale for Cerberus involving Tughans, through Brown Rudnick, was that Tughans and Brown Rudnick had been doing a lot of work on this portfolio anyway when PIMCO was in the frame. Commercially, it made sense for Cerberus to use those firms, rather than starting back at square one. I am not making a judgment on whether this was a totally rational commercial decision but it did not seem unreasonable to us.
Was Tughans acting simultaneously for both bidders?
Mr. Frank Daly
No, I am not aware that it was. Tughans or Brown Rudnick was acting for Cerberus only after PIMCO withdrew.
Who was acting for Cerberus prior to that?
Mr. Frank Daly
Cerberus's prime legal advisers were Linklaters.
I will move on to Frank Cushnahan and the board. How is the board of the Northern Ireland advisory committee selected?
Mr. Frank Daly
We would need to go back to the beginnings of NAMA when there was significant sensitivity about the fact that the agency would be taking on or have control of a very significant portfolio of real estate in Northern Ireland. This was quite sensitive politically as is, I suppose, understandable in the context of North-South relations. At the time, the Minister for Finance, the late Deputy Brian Lenihan, came up with a neat solution that NAMA would be asked to form an advisory committee on Northern Ireland which would have a couple of representatives from Northern Ireland on it. As I understand it, the selection process was that the Minister or Department consulted the Northern Ireland Executive, in particular, Sammy Wilson, who was then the Minister for Finance and Personnel. The two names of Frank Cushnahan and Brian Rowntree were furnished to NAMA as a consequence of that consultation and the NAMA board then set up the committee and appointed these two individuals to it, together with several directors of the NAMA board because the Act requires that the majority of members of an advisory committee like the Northern Ireland committee or the planning committee be members of the board of NAMA. That was the origins of the committee and the two individuals were appointed for two years.
They were renewed in 2012 and Mr. Cushnahan resigned in November 2013. We dissolved the committee in September 2014 because there was no longer a need for it after Project Eagle and Mr. Rowntree's term ceased at that stage.
They were nominated by the Northern Ireland Minister.
Mr. Frank Daly
As I understand it-----
Mr. Daly should understand it.
Mr. Frank Daly
They were the names given to the Department and the Minister, Mr. Lenihan. It was an agreement between the two Ministers.
It was, basically, a political appointment.
Mr. Frank Daly
It was an appointment to take account of the sensitivity of the North-South stuff at that stage.
That is a political appointment, is it not?
Mr. Frank Daly
Yes. Even then and subsequently there was and has been a lot of agitation and the view has often been expressed in Northern Ireland that they should have had a representative on the main board of NAMA, but that did not happen.
Mr. Frank Cushnahan and Mr. Brian Rowntree were reappointed in 2012.
Mr. Frank Daly
Yes.
What procedures were gone through to reappoint them?
Mr. Frank Daly
I spoke to the Department, or the Minister, and said their two-year terms of office were due to expire. I presume there was an informal engagement with Northern Ireland, following which it was confirmed that there would be no objection to the two being reappointed. The NAMA board reappointed them on that basis.
I think they were appointed by the two Ministers. It is important to know that because they are very controversial people. Why did Mr. Frank Cushnahan resign?
Mr. Frank Daly
He told us he was resigning for personal reasons to reduce his work commitments.
Did Mr. Daly accept that?
Mr. Frank Daly
I did. He wrote to me. I will read his letter of resignation which was dated 7 November:
Dear Frank,
It is very much with regret that with effect from 8 November 2013 I tender my resignation as a member of the NAMA Northern Ireland advisory committee. As I have previously indicated to you, family priorities represent my principal reason for such initiative and, not least, I am not getting any younger. It has been an enormous privilege and honour to have been associated with NAMA and, more especially, to have enjoyed the companionship, friendship and, not least, the contribution made by all colleagues, past or present, during my time as a member. I wish you, the non-executives and, especially, the executive management the best wishes for the future.
The next time Mr. Daly heard about him was when he was getting an acquisition fee.
Mr. Frank Daly
The next thing I heard was PIMCO telling us he was to get a fee.
On what date did that occur and how long was it after his resignation?
Mr. Frank Daly
On 10 March.
For how long had he been working for PIMCO? What was his acquisition fee?
Mr. Frank Daly
We do not know that either. A subsequent piece of information indicated that there was a fee of £15 million which was to be split three ways among Brown Rudnick, the managing partner of Tughans and Mr. Frank Cushnahan.
Wow.
Mr. Frank Daly
That was after PIMCO had been exited by us.
A fee of £15 million.
Mr. Frank Daly
Yes.
When did Mr. Daly find that out?
Mr. Frank Daly
PIMCO told us.
It told NAMA at the time.
Mr. Frank Daly
No, it told us after the withdrawal. I agree with the Deputy that there is a "wow" factor to this, but it would not have mattered to us whether it was-----
It is just another startling fact in this process and suggests something very odd was going on. I would have thought the sequence and accumulation of events would have made you guys say, "This thing stinks. We had better start again." There was £15 million to be split and this individual would get a certain amount of it. Did the board discuss pulling the tender?
Mr. Frank Daly
We were appalled, but our real concern was the alleged involvement of a former member of the NIAC. Brown Rudnick was strategic adviser, while Tughans was engaged in due diligence and charged legal fees. Fees can be of that scale in such a project.
Was NAMA paying such fees? Obviously, it was not paying finders' fees. It did not pay fees on that scale to Hogan Lovells, did it?
Mr. Frank Daly
No. Hogan Lovells was our main legal adviser and its fees were €1.8 million.
Did Mr. Daly not think there was something a bit odd about this? There was an awful lot of money slushing around in the system. Did he not ask, "What are the guys who are doing the bidding up to?"
Mr. Frank Daly
I agree, it is an extraordinary amount of money, but the real issue for us was the possible involvement of a former member of the Northern Ireland advisory committee. We wanted to deal with that issue and get him out of the way. Any involvement with PIMCO after that was-----
Is there any possibility PIMCO could have been a stalking horse for anyone else and that that withdrawal convenienced another bidder?
Mr. Frank Daly
No.
Mr. Brendan McDonagh
No. Due diligence costs a lot of money when it involves any portfolio, certainly when it involves a portfolio of this size. It is not unusual for people bidding on portfolios to spend €1 million, €2 million or €3 million on due diligence. If they do not win the portfolio, they are disappointed because they have spent so much money. That happens in big asset and big portfolio sales.
Their withdrawal would, however, have convenienced other bidders. If one was another bidder in that situation and one of the biggest beasts in the world pulled out, one would be quite pleased.
Mr. Brendan McDonagh
Another big beast was left, though.
Mr. Frank Daly
Cerberus.
Mr. Brendan McDonagh
If one is selling a house and three bidders are trying to buy it, that is great as it pushes up the price. If one withdraws, there will be two bidders. There was nothing unusual in this and it happens the world over. Online news providers such as Costar have very good information on different sales in this area and one often sees, with the big portfolio sales of banks, that only two bidders remain at the end.
I will ask further about Mr. Cushnahan. He is a controversial character. Is that not correct? When NAMA appointed him, at least technically, was it aware that there had been a report of the Northern Ireland audit team covering some of his activities on the Northern Ireland Housing Executive?
Mr. Frank Daly
No. When we appointed him in 2010-----
It had not been issued by then. I am talking about the reappointment.
Mr. Frank Daly
I am coming to it. I knew nothing about Mr. Cushnahan. I never met him until the first meeting of the Northern Ireland advisory committee. There was nothing in that area in 2010. When he was reappointed in 2012, as I understand it, the report had not been issued.
Yes, it was issued after the reappointment, but it was absolutely damning of his activities. I think I am correct in saying some of it involved property transactions.
Mr. Frank Daly
As I understand it, it was a report on the Northern Ireland Housing Executive, of which Mr. Cushnahan had been a member at one stage. It would have been difficult for us to take action at that stage on foot of a report which was contested. I am not sure whether, to this day, final conclusions have been arrived at. I do not think we would have had grounds to do so.
Did anybody speak to him about it?
Mr. Frank Daly
No.
It was just ignored.
Mr. Frank Daly
Yes. One needs to be aware that the two members of the committee were mentioned in the report.
One of them resigned immediately from the Northern Ireland Housing Executive.
Mr. Frank Daly
He resigned as chairman of the Northern Ireland Housing Executive. The report was issued in mid-2013 and Mr. Cushnahan resigned in November 2013.
Despite that report it was thought he was a suitable member of the advisory board.
Mr. Frank Daly
I understand the origins of the Northern Ireland advisory committee. I understand the sensitivity in terms of North-South stuff because of NAMA having control of such a large portfolio there. Certainly, in my time as chairman and in all the time on the Northern Ireland advisory committee there was a sense that we were going to make absolutely sure, as the board of NAMA, that that committee talked only about strategic issues and did not get into any debtor activity or debtor information or insider information or anything like that.
What use would he have been to PIMCO then?
Mr. Frank Daly
I do not know. One needs to be careful here. Everything I am saying is on the basis of which PIMCO told us. PIMCO have not told us what use he would have been to them so I will not speculate on that.
How much of the £15 million was he getting?
Mr. Frank Daly
The indication from PIMCO was that it was to be split three ways.
So Mr. Daly thinks he was going to get £5 million. They were not paying that for a guy without any knowledge of what he was doing, were they?
Mr. Frank Daly
I have been at every meeting of that Northern Ireland committee since 2011 when I began to chair it and there has only ever been one very broad discussion in relation to Eagle and there was never a discussion about debtors because we made very sure there was none so I am very firm in my conviction that Mr. Cushnahan or Mr. Rowntree did not gain any confidential information or any useful insider information from being a member of that advisory committee.
What were they paying him £5 million for?
Mr. Frank Daly
I think-----
They would not pay it to Mr. Daly or me. Well, they might pay it to Mr. Daly, but not to me.
Mr. Frank Daly
I will not speculate on that. What are they paying him £5 million for? One would have to ask PIMCO. One would have to ask elsewhere about that.
It is mind boggling that they would go and ask a guy to act for them and pay him an acquisition fee of £5 million if he was just an ordinary Joe Soap off the street who did not know anything about the property portfolio. He had an office-----
Mr. Frank Daly
I do not disagree with the Deputy's theory but all I can say is that from his work with NAMA on the Northern Ireland advisory committee, he did not gain any inside knowledge of the portfolio. One must remember that we are talking about Northern Ireland and a relatively small business community where there is an awful lot of information out there about debtors, developers, properties, who is in NAMA, and who is not in NAMA. It did not come from NAMA but it is there.
Mr. Cushnahan had an office in Tughans, did he not?
Mr. Frank Daly
He did, yes. As I understand it, he had the use of an office in Tughans. That is what they said in their statement.
Did that worry Mr. Daly?
Mr. Frank Daly
No, it did not. If we knew then what we know now a lot of things would worry us but at that time it did not worry us, no.
But Mr. Daly knew that he had an office in Tughans at the time that the bidding was going on.
Mr. Frank Daly
Yes. At the time the bidding was going on?
Yes.
Mr. Frank Daly
Yes, he had the use of an office. That is what Tughans have said.
Did that not set alarm bells ringing again?
Mr. Frank Daly
No. We knew nothing at that stage about any fee payment or any alleged involvement by Frank Cushnahan in this process with PIMCO.
Yes, but there was a link.
Mr. Frank Daly
He was gone from the Northern Ireland advisory committee in November 2013. We first heard of any suggestion about his involvement with PIMCO in March 2014 when he had been gone for five months.
That was during the bidding process. The bidding process was under way when you heard about it.
Mr. Frank Daly
Yes.
That is what I am trying to say.
Mr. Frank Daly
That is why we got PIMCO to withdraw.
I know. I am not saying that NAMA acted dishonourably, I am saying that that was just another factor which should have made Mr. Daly realise that the whole process was flawed, that there was something wrong at every turn and something suspicious going on. At that stage I would have thought that Mr. Daly might have been worried about the price that NAMA was getting at the end because there was so much going on in the undergrowth and in the background that he did not know about.
Mr. Frank Daly
No, we did not-----
Let me ask this question. There were millions sloshing around the system. There was £15 million, one guy getting £5 million, there were all sorts of potential conflicts of interest happening here, there were political sensitivities, yet NAMA ploughed ahead and said, "Okay, we will take the Cerberus bid."
Mr. Frank Daly
We did not plough ahead. We went ahead after considering whether we were still getting the best price that was obtainable for the portfolio and whether there was still competitive tension. There were still two bidders in there - seven of them had dropped out. There was not huge interest, by the way, in this portfolio, I must say. I think almost any company that would have had the scale to deal with this and the financial backing to actually deliver on it was invited in. Of the nine who came into the process, most backed out. This was not something that a whole lot of people were interested in.
Mr. Brendan McDonagh
I would add to that that we were very clear at the start. We informed people, through Lazard, that there was a minimum reserve price of £1.3 billion. We know the cost of due diligence that firms would spend on it and we did not want people wasting their money bidding on a portfolio that they would not pay up for. At the start of the process in January, the reserve price was £1.3 billion; at the end of the process in April we achieved our £1.3 billion. There was no question that we did not get the price that we valued the portfolio at.
I want to go back to a point raised by Deputy Ross. NAMA was told by PIMCO about the £15 million?
Mr. Frank Daly
Yes.
When was it told that?
Mr. Brendan McDonagh
It was disclosed on a PIMCO call on 12 March 2014.
What date was this confidential memorandum?
Mr. Brendan McDonagh
That memorandum was distributed by the private secretary to the First Minister on 17 January 2014.
2014.
Mr. Brendan McDonagh
Yes.
NAMA had roughly 55 debtors in Northern Ireland. It was a very small business community - I am sure that a lot of information is shared and a lot of information would be known. NAMA had someone on the Northern Ireland advisory committee, which was well known and well placed within that jurisdiction. They also had two firms - Tughans, the local firm, and Brown and Rudnick. In January 2014, there was a suggestion in terms of the memorandum of understanding. I know that no one acted on it, that it was not from NAMA, that it was just a piece of paper that went to NAMA. Bearing in mind the size of the economy and the 55 debtors, I would imagine there was a lot known about everyone within that community and their indebtedness and so on. The Northern Ireland Executive, or someone from it, suggested this MOU and, without a shadow of a doubt, it protects the debtors and it is the best offer I have seen for debtors in which, for nil payment, they were released. That is being suggested on one side and we cannot ignore it because there is something going on up here that is unusual and it is certainly unusual that someone of that standing within Northern Ireland would suggest it. Then there is the involvement of the two firms. Now, in the correspondence that NAMA has given us this morning, the Brown and Rudnick correspondence of 24 June 2013, the letter from Brown and Rudnick to Mr. Wilson, which is marked "highly confidential", it states: "Two of our clients have each confirmed that they would, independently, be committed to a process of potential outright purchase of the NAMA Northern Irish Borrower Connections Loan Book."
At that stage, in June 2013, Brown Rudnick was indicating clearly there were two clients. They had two clients, but thereafter, when PIMCO withdrew in March 2014, it appears the information on the £15 million became clear to you.
To go back to the point made by Deputy Ross, it seems to me it is quite possible a company was used as a stalking horse and that then the final bidder was there to come in to make the final bid and close the deal. It seems the information was certainly being shared all around the place with connections in Northern Ireland and that not only was this deal compromised, but there was even an extension of the deal that would accommodate debtors. I must agree that bearing all of this in mind, the intelligence from the front up there would surely have told you there was something odd, to say the least, about the deal and that something should have been done by NAMA to restructure the process and its approach to that deal. Perhaps the decision made on that restructuring would have been not to sell in a single property portfolio but to break it down to attract a wider range of bidders. NAMA should at least have reported to someone the information that was in the public domain from 2013.
It appears to me that somebody was setting up the purchase. That is what comes across in the correspondence and in the confidential MOU and it is what seems to come across in the context of the use of Brown Rudnick and Tughans and the involvement of the individual you have just mentioned. What does NAMA have to say to that, even in the context of the perception. Can you deal with it that way?
Mr. Brendan McDonagh
It is not unusual that firms such as Brown Rudnick would go out and seek deals and try to get in a position to be able to promote that deal to third parties and get a fee. That happens quite regularly. Therefore, when Brown Rudnick went out and tried to "source the deal", its fee was only going to be paid if the portfolio was sold. From our point of view, we want to sell the portfolio for the best price we can get for it. We were very clear from the outset that we wanted £1.3 billion for the portfolio, as that is what we valued the underlying portfolio at, and we got £1.3 billion for it.
A large portfolio can be broken into small or large parts, but as I outlined in my statement today, this was a very granular, quite poor portfolio in that there was a large number of small value assets, over 50% of it in Northern Ireland and 33% of it in regional United Kingdom areas. We would be a long time working through that portfolio trying to realise each individual asset, because there is not huge demand for granular portfolios like that. As can be seen from the case of other banks that are selling granular portfolios, there is a certain type of private equity buyer who buys that sort of portfolio. PIMCO, obviously, expressed an interest in the portfolio, Cerberus expressed an interest in it and Fortress expressed an interest in it. They are the type of buyers who buy these granular portfolios.
Therefore, for such a big deal ticket or big cheque, of £1.3 billion, there are not too many people out there who can do that who are interested in this type of portfolio. We researched this and discussed it with our loan supervisor, Lazard. We are satisfied there was competitive tension up to the very end of the process. This is a big portfolio. We did everything right. We did not accommodate any interference or involvement of Mr. Cushnahan. We sought confirmations from Cerberus and it has confirmed to the media that it sought confirmations from both Tughans and Brown Rudnick. It is not unusual that companies like Brown Rudnick would go around the place, in terms of people or companies that would approach NAMA or other financial institutions, saying they might have somebody who would be interested in a portfolio and asking whether we had a portfolio that had these characteristics coming to the market.
From our point of view, we must make sure we run a fair process. We ran a very fair process, with a data room which controlled access to the data, controlled information in that data room, with information provided at the same time to all bidders. We achieved the price we aimed for in January 2014 when the deal closed in April 2014.
Does Mr. McDonagh feel NAMA might have been set up in any way?
Mr. Brendan McDonagh
No.
This information was out there and these firms were out there. I understand they are reputable firms and understand the reason they, including Brown Rudnick, are in the market in terms of sourcing interest and getting value from their involvement and so on. However, when we piece together the correspondence NAMA provided to us this morning, the memorandum of understanding, the fact there were 55 debtors and that it is a small market, this would seem to me to have been the wrong approach, based on the information NAMA gleaned as it went through the process.
On 10 March 2014, when it became known to NAMA that this £15 million was to be split three ways, according to PIMCO, surely this should have set alarm bells ringing. There were other instances that should have set alarm bells ringing before that - going back to 2014 in that letter, going back to Mr. Cushnahan and his termination or resignation from the council and other issues I will come to later. In my opinion, this should have been a huge concern for NAMA at the time and it should have stood back and questioned the process again. That is the point I am making.
In response to my questions, NAMA is outlining the involvement of Brown Rudnick, but I am going beyond that to the knowledge in the local economy and among debtors, the knowledge between Brown Rudnick, Tughans and Mr. Cushnahan and the other interests that were there. It just does not stack up.
I want to come to the big picture about why NAMA decided to sell the portfolio in one lot shortly, because we have not really dealt with that issue but it is where the taxpayer lost out. However, I wish to clarify some issues first.
PIMCO made the disclosure to NAMA, and it has made the point that it came to NAMA first. However, NAMA made the point that if PIMCO did not leave voluntarily, it would have left involuntarily. PIMCO made the disclosure initially about the potential conflict of interest issue. Is that correct?
Mr. Frank Daly
That is correct.
Were Tughans advising PIMCO?
Mr. Brendan McDonagh
They were advising Brown Rudnick. Brown Rudnick had sub-contracted to Tughans.
Who were working for PIMCO. Were they working for Cerberus?
Mr. Brendan McDonagh
Not at that time.
How do you mean "not at that time"?
Mr. Brendan McDonagh
We understood from Cerberus that it only engaged Brown Rudnick after PIMCO withdrew.
Can your repeat that, because people were talking?
Mr. Brendan McDonagh
Cerberus advised us that it only engaged Brown Rudnick and Tughans after PIMCO withdrew.
Who was advising Cerberus up to then?
Mr. Brendan McDonagh
Linklaters and A&L Goodbody.
Why did Cerberus change legal advisers?
Mr. Brendan McDonagh
It took them on as additional strategic advisers.
Why would they have done that?
Mr. Brendan McDonagh
They told us because we asked them. If it helps I might just read some correspondence that-----
Was Mr. McDonagh satisfied that it was a valid reason?
Mr. Brendan McDonagh
Yes. I can give the Deputy the reason that Cerberus gave why they took them on.
Mr. McDonagh might summarise it in his own words.
Mr. Brendan McDonagh
I will just try to paraphrase this. As one of their many advisers, they retained the law firm, Brown Rudnick, as strategic advisers for the process to advise on the bid structure and on doing business in Northern Ireland because they have both experience working with NAMA and in real estate and in restructuring activities in Northern Ireland.
So there is a conflict of interest between Mr. Cushnahan and Tughans. They were involved with PIMCO. Is that correct?
Mr. Brendan McDonagh
No. There was no conflict of interest between Tughans and NAMA. The conflict of interest was the-----
I said between Mr. Cushnahan and Tughans.
Mr. Brendan McDonagh
No. The issue from our point of view is that there is a perception that because Mr. Cushnahan served on the Northern Ireland Advisory Committee, he was being paid a fee as part of this process.
He was also involved in Tughans.
Mr. Brendan McDonagh
Yes, he was.
NAMA removed PIMCO from the process by and large and then it dealt with Cerberus which re-engaged Tughans, the company that NAMA was concerned that Frank Cushnahan-----
Mr. Brendan McDonagh
We were never concerned with Tughans. Let us be clear about that. Tughans is the third biggest law firm in Northern Ireland. There are other law firms in Northern Ireland as well, but they were a reputable law firm in Northern Ireland. We had no concern about Brown Rudnick. It is a very strong international law firm. What we were always concerned about was the involvement of Mr. Cushnahan.
In Mr. Daly's opening statement he said that the board meeting on 11 March 2014 "considered that the proposed fee arrangement could undermine the integrity of the sales process". It did undermine the integrity of the sale process, but NAMA proceeded. From what I have seen so far, that was the time to stop the process. NAMA started with nine interested parties and seven walked away.
Mr. Brendan McDonagh
Six had walked away at that stage.
I will come to the valid reasons. Perhaps the job lot NAMA was selling was too big. That is the fundamental problem with everything here. The big issue NAMA has to answer is why it put all that. I know it has a reason which we will tease out.
Six walked away and we were down to three. One had a conflict of interest and then NAMA was down to two. How could it be as competitive with two as with many more? Having just two is not a highly competitive situation. It begs the question from our point of view about what was the amount it got. The answer is approximately €1.4 billion.
Mr. Brendan McDonagh
It was £1.3 billion.
What was the amount offered by the under-bidder?
Mr. Brendan McDonagh
The other bidder was close to £1.1 billion.
Why did they come into that if NAMA had told them it had a reserve higher than that?
Mr. Brendan McDonagh
It was because they were trying to buy the portfolio for less than our reserve value.
We have established that NAMA put a reserve on this at-----
Mr. Brendan McDonagh
At £1.3 billion.
It had only one offer on the table above that.
Mr. Brendan McDonagh
Yes.
Mr. McDonagh is now telling us that NAMA was in a competitive bidding situation. I ask him to think of those three points. NAMA had a reserve. It had only one offer above its minimum reserve and he is coming in here to tell us on behalf of the taxpayer that this was a competitive bidding situation. Who were they bidding competitively against above NAMA's reserve price? They were bidding against nobody.
Mr. Brendan McDonagh
But Deputy-----
Mr. McDonagh gets the gist.
Mr. Brendan McDonagh
Absolutely.
There was only one bid above the reserve and he is trying to tell us that it was competitive.
Mr. Brendan McDonagh
Yes.
I do not consider one person coming to the table with a bid above NAMA's reserve as competitive. NAMA should have collapsed the situation. Did Mr. McDonagh tell the board that NAMA had only one offer above its reserve price?
Mr. Brendan McDonagh
Yes.
Is that his definition of competitive bidding?
Mr. Brendan McDonagh
To be clear here, we put a reserve price on the portfolio as our estimation of the value of the portfolio. It is like selling a car or selling a house. There is no guarantee that the buyer thinks it is worth the same to them as the value that one puts on it oneself. We were very satisfied that £1.3 billion represented the value of the portfolio, given the nature of the portfolio both in asset time and in geographic terms. If we had been bid less than £1.3 billion, we would not have sold the portfolio.
However, NAMA had only one offer above that-----
Mr. Brendan McDonagh
Yes.
-----and Mr. McDonagh is telling me that was a competitive situation. I hope the Comptroller and Auditor General will look at NAMA's process.
Mr. Frank Daly
We had one offer above that at the end of a process in which nine started.
Why did all the others all drop out? Was the project too big? We are back to this issue. Was this NAMA's biggest job lot to date?
Mr. Frank Daly
No. The people who were invited into this process were deliberately people who would have the scale and the finances to deal with this. They looked at the portfolio and for various reasons we would not be totally privy to they did not proceed. It could have been the reserve price or the nature of the portfolio. It could have been this-----
Mr. Brendan McDonagh
Concentration.
Mr. Frank Daly
----- concentration in Northern Ireland and regional UK. It was, and we have described it as, a mediocre portfolio. They decided to withdraw in a competitive process. Right at the end we still had two bidders. Right at the end, too, we were advised by an independent merchant bank-----
However, NAMA had only one bidder it would accept. It was not going to accept below its reserve price, as Mr. McDonagh just said. So NAMA had only one bidder.
Mr. Brendan McDonagh
The board is very clear about this. If we were offered £1.25 billion for the portfolio, then the board would probably not have accepted that and said we would just have to try to do it a different way. However, we were offered what we set as a minimum.
Mr. Frank Daly
We were always convinced, in response to the Deputy's other point as to why we did not break it up and sell it asset by asset------
We will come to that.
Mr. Frank Daly
We were always convinced, having done the analysis, that this would not have yielded anything like £1.3 billion to us. That is why we set the reserve price at that.
Had NAMA carried out an assessment of the Northern Ireland economy in relation to the sale of the loans?
Mr. Frank Daly
Did we take into account what?
Much of what the witnesses have said here today is based on NAMA's assessment of the Northern Ireland economy and how it thought the potential for the loans and the property market would go. Did NAMA carry out an assessment of the Northern Ireland economy in relation to the sale of these loans?
Mr. Frank Daly
In relation to setting the reserve price of £1.3 billion, the analysis of that would have been an asset-by-asset analysis of what we were likely to achieve and what the value of these assets was.
What did NAMA use to benchmark that?
Mr. Frank Daly
In that mix one takes into account everything, including the prospects in the Northern Ireland economy.
Exactly. So what assessment did NAMA carry out of the Northern Ireland economy in relation to this sale because it was benchmarking individual properties against how it thought the economy in Northern Ireland was going to work?
In hindsight, did NAMA get it right a year later? That is also important.
Just on that-----
Mr. Frank Daly
In hindsight-----
Mr. Daly has told us about NAMA's assessment of the economy. He has told us that the price was based on its assessment of the Northern Ireland economy. Did NAMA carry out an assessment? We are talking about billions of euro here. A couple of hundred thousand euro would have given NAMA some economic assessment of the growth. Did NAMA carry out an assessment?
Mr. Frank Daly
Based on our-----
NAMA was going into a different market and selling what had a book value of €5.7 billion. We will not walk away from the book value of €5.7 billion that the taxpayer was on the hook for originally. Not all of it was on Mr. Daly's watch. Some of it was written off before it came to NAMA and I will come to that in a minute. If NAMA were selling property in Chicago, surely it would do some assessment of the economy in Chicago. What assessment did NAMA do of the economy in Northern Ireland to allow it reach the conclusion it reached? Did it do a back-of-the-envelope job?
Mr. Frank Daly
No, it was not a back-of-the-envelope job. It would have been an assessment of the market. These assets were not just in Northern Ireland. Many of them were in the regional UK. We do continual assessments of the prospects in those markets. We take that into account in looking at the prospects for realisation of value in those assets. We go through the same process every year at the other side of it when we are doing impairment exercises.
Am I right in saying-----
Mr. Frank Daly
Figures have been bandied about in the last couple of weeks. On Deputy John Deasy's point about whether we got it right, I have seen figures indicating that the Northern Ireland economy has grown by 20%. I do not know where that figure came from because I have not seen any indices that indicate this. In fact, in 2014 the commercial real estate market in Northern Ireland grew by 1.4%, not 20% or anything like it.
Are we right in saying NAMA did not carry out an assessment of the Northern Ireland economy? I am trying to get Mr. Daly to say either it did or it did not.
Mr. Frank Daly
NAMA is not the ESRI. What we do in relation to a portfolio or an asset we are thinking of selling is carry out an assessment based on our view of the market for these assets. That is a much more productive exercise than taking broad economic forecasts which, as the Deputy knows as well as I do, are mostly way off the mark.
A key element of the opening statement was that there was no political pressure. I looked at the information presented to the committee. A letter arrived from the Northern Ireland Finance Minister to the Minister for Finance and was sent on to NAMA and suddenly it was selling the whole thing as one job lot. Had that letter not arrived through the political process, would NAMA have moved at the time to sell the whole thing? Did this encourage NAMA? There was a political catalyst for the process and, as such, NAMA cannot really state there was no political involvement. It does not stack up. NAMA has showed us two letters.
On the actual sale, there was a memorandum between the Northern Ireland authority and potential purchasers on a memorandum of understanding of how it would work. If that was to happen here where NAMA was selling a portfolio and there was to be a memorandum between the Department of Finance and potential purchasers of a loan book, it would be called political interference in the process. Was NAMA happy that it was trying to make a sale to the only body offering more than the reserve price, while politicians in Northern Ireland wanted an agreement and understanding with the company? If that was to happen here, would it not be considered political interference? While NAMA did not involve itself, surely it should have told somebody it was not appropriate to meddle with those to whom NAMA was trying to sell assets.
Mr. Frank Daly
We gave it no credence whatsoever.
Was NAMA happy that it was in place?
Mr. Frank Daly
Let me come to the Deputy's broad question on political involvement or pressure. The process did start with an indication to the Minister that there was someone interested in buying the Northern Ireland portfolio.
Thanks.
Mr. Frank Daly
No, hold on. The Minister quite properly said, "This is a matter for NAMA." That was the substance of his reply to Minister Wilson. Subsequently, there was an approach from Brown Rudnick indicating an interest in our portfolio. We receive expressions of interest in particular portfolios from time to time. Let us be clear about what was running through the Brown Rudnick-PIMCO approach - "We want a closed sale. We do not want you to put it on the market." We took a very strong view from day one that it did not matter what PIMCO or anybody else wanted, this was going to be an open sale. We looked at the approach from PIMCO and, as we would with any other approach for a portfolio, asked if this was a possibility and an opportunity for a portfolio that we regarded as really challenging and troubled and that we figured we would still be struggling to dispose of in 2020. We received an approach and the price was something that interested us, but we were not sure whether it was the right one. We said we would look at it, engage with PIMCO to see what it might be offering, make our own analysis of the portfolio, decide our minimum reserve price and openly market the portfolio, which is what we did right through the process.
There was political interest. It would be naive of me to come here and say there was not. Of course, there was. There has always been a strong political interest in the North-South dimension here. There was political interest, but I can tell the Deputy that whatever the interest was, North or South, it never influenced us in the decision to put the portfolio on the market in the first place - that was based purely on our commercial assessment that this could represent a good outcome for the taxpayer - nor was there - I need to say this, notwithstanding the fact that the Deputy is not suggesting it - any interference, pressure or anything else in relation to the decision in the end to accept the highest and winning bid from Cerberus.
In relation to the confidential memorandum, I do not know what it is. NAMA would never in its wildest dreams have contemplated putting something like that in as a condition of sale of any asset or portfolio.
Let me read a reply from the Minister for Finance to a parliamentary question this week on 7 July. I am sure Mr. Daly will be aware of it as my colleague Deputy Brendan Smith put a few of these questions specifically on the memorandum. The Minister said in the Dáil:
I understand that the purpose of establishing such letters of intent by the Northern Ireland Executive was to help protect and promote the recovery of the Northern Ireland property market and broader economy in the context of the potential concentrated ownership of property across that economy.
The Northern Ireland Executive was keen to have an understanding with the purchaser in relation to the broader economy. While NAMA was not invovled, it is somebody trying to interfere with its purchaser. NAMA should have asked the Northern Ireland body to let it do its job. Would NAMA have liked if it was selling a portfolio, some of which happened to be IDA Ireland sites, and IDA Ireland was trying to have a memorandum of understanding with the potential purchaser, while NAMA was trying to negotiate on the open market? Can the witnesses see that it was not good to have this happening in the background? Did it not raise questions?
Mr. Frank Daly
What was going on in the background did not influence NAMA one way or the other. We received this memorandum and decided we would not engage with it but ignore it. There are several conditions in it that would have been unacceptable to us and, in fact, were quite offensive in terms of the way we dealt with debtors and assets. Governments will always try to get the best deal. In the recent Aer Lingus sale the Government worked very hard to get the best possible deal for the Irish taxpayer from IAG. Is it surprising that-----
The Government was the shareholder.
Mr. Frank Daly
Was it surprising that the Northern Ireland Executive would try to do something like that with PIMCO?
It was a third party in the transaction. The Government was not a third party in Aer Lingus. I get Mr. Daly's point, but his comparison is not valid. The Northern Ireland Assembly was a third party.
Mr. Frank Daly
I am just making the point in relation to the way a government will legitimately, I think, try to work with somebody who owns or controls an asset or portfolio that is a very significant part of the economy, which is what our portfolio in Northern Ireland was.
A lot of what has been said in the statements here has been to the effect that it was a messy bit of a portfolio, including lots of little properties around the place in Northern Ireland. It was suggested, "It will be a lot of trouble to manage them; let us get rid of them, even if we have to take a loss," to allow NAMA to concentrate on its core activity in dealing with the rest of its portfolio. That has come through from what has been said. The expressions "easier to manage" and "concentrate our resources" were used. It was kind of said it had nuisance value and was trouble and that NAMA wanted to try to get rid of it. That came through in both opening statements. However, only 50% of the property was in Northern Ireland. Did NAMA not consider splitting it between the properties in Northern Ireland and those in regional England? I note that 6% of it was elsewhere in the rest of the world and that there was a little bit of it in Dublin and some in commuter belts and urban centres. Of the portfolio, 3% was in the Republic of Ireland and 4% in London. I understand what Mr. Daly says about the Northern Ireland economy, but was any consideration given to splitting some of the portfolio on a geographical basis based on the underlying assets? The prospects for growth in London, Dublin and the rest of the Republic of Ireland might have been higher than in Northern Ireland. Was it the largest job lot sale to that point?
Mr. Frank Daly
So far.
I know that it had a carrying value of €2.2 billion. What was the value of the previous largest job lot sale prior to this?
Mr. Frank Daly
Our biggest was a portfolio of €1.9 billion.
Was that book value or carrying value?
Mr. Brendan McDonagh
Par value was €1.9 billion.
What was the book value? This is €5.7 billion, nearly three times bigger than any portfolio NAMA sold before.
Mr. Brendan McDonagh
Yes.
Does Mr. McDonagh understand the problem we have? NAMA was selling groups of assets, or groups of loans, at a particular value, and all of a sudden the Northern Ireland portfolio, a sale that is three times bigger in terms of book value, is put all in one. It is an enormous jump. People have difficulty - I have difficulty with how NAMA put the whole thing in one. It had not done anything like this, of this scale, in any other region.
Normally, when an organisation comes before the committee, figures are quoted by its representatives and by the Comptroller and Auditor General, and they tend to be fairly similar. I have never seen a conflict like that between the figures presented in Mr. McCarthy's opening statement and those the witnesses read out to us. If anything is to be achieved by this committee, we must resolve this conflict satisfactorily.
The Comptroller and Auditor General started off by saying that we all know the book value of these loans was €5.7 billion. NAMA took them in at €2.2 billion. Is that correct? It was a discount of over 60%. According to the Comptroller and Auditor General's figures, €2.2 billion was the carrying value when NAMA came in. In his opening statement, Mr. McCarthy said that the proceeds were about €1.4 billion and there was a loss in NAMA's handling this portfolio of approximately €800 million. He said €211 million of it was made up on the loss at the time of the sale and €572 million with previous provisions NAMA had made against this. The actual loss by NAMA on the discounted value it took in, according to the Comptroller and Auditor General - his figures are up on the screen - was €783 million. He started at the €5.7 billion, where I started. Without getting into a big debate, because my time is tight, am I not right? That is the figure he gave.
However, Mr. McDonagh then tells me - I am quoting from his opening statement - "In overall cash terms, taking into account disposal proceeds, non-disposal income, advances and the proceeds of the loan sale, the net cash loss to NAMA, in layman’s terms, on the NI debtor portfolio was about €280 million." That was NAMA's loss at the point of sale. Mr. McDonagh will have to clarify that statement, and both of those figures are going to have to be reconciled. How can the Comptroller and Auditor General say that NAMA lost €783 million on this portfolio in its time, while Mr. McDonagh can come in and say that in layman's terms - whatever that means - it was €280 million? Whose figure is right? I know who is right.
Mr. Brendan McDonagh
Excuse me?
I want Mr. McDonagh and Mr. McCarthy to tell me which of them is right.
Mr. Brendan McDonagh
Deputy, there is no difference between what-----
No difference between €280 million and----
Mr. Brendan McDonagh
The Deputy asked me a question. He might allow me to answer.
No. Chairman, I have to stop here. We are not going to have an accountancy trick. The witnesses are talking to an accountant.
Mr. Frank Daly
Deputy Fleming knows those tricks.
Yes, and Mr. McDonagh is not going to tell the people of Ireland there is no difference between a loss of €280 million and a loss of €783 million. There is a mass of difference. I know he is going to explain it based on previous provision. It is still a loss in NAMA's time which he did not put in his submission.
Mr. Brendan McDonagh
We did. In my statement, I said: "Cumulatively, the write-downs taken against Northern Ireland debtor connections totalled €800 million between 2010 and 2014." As the Deputy will appreciate - I remember we had a technical discussion about this during my first appearance in respect of NAMA accounts back in 2010 - international financial reporting standards, IFRS, force us to approve an effective interest rate, EIR, at the acquisition date of the portfolio. Effectively, that is a non-cash accrual, whether we are actually getting the cash or not. When I looked at the €280 million with my chief financial officer, we looked at it in terms of the cash we paid for the portfolio - the cash received to date. Nobody really understands IFRS except accountants. We examined the cash loss for NAMA, taking the ins and outs, and it was €280 million. Those figures will be made available to the Comptroller and Auditor General.
Can the Comptroller and Auditor General comment on his chart, which says the actual loss was €783 million?
Mr. Seamus McCarthy
I suppose I am taking an economic perspective on this. This is a set of assets that were acquired. The par value is the estimate in respect of what the debtors owe. The carrying value before impairment - obviously, there is a lapse of time from the original acquisition - is, broadly speaking, the carrying value that was estimated. There had been impairment, which in my view was reflecting the deterioration in the asset in the intervening period, as Mr. McDonagh has said. Even then, when they marketed the thing, they found they did not get the price and had to incur a further loss. There were also costs incurred on the settlement, and those are reflected in the loss as well.
The same problem is happening at the banking inquiry in terms of how the value of loans is estimated and all that. In simple English - layman's English - Mr. McCarthy is saying the carrying value when NAMA got this portfolio was €2.169 billion-----
Mr. Seamus McCarthy
Of the assets, as sold at that time.
And that they were sold at €1.385 billion, and that is a difference of-----
Mr. Seamus McCarthy
The net proceeds were €1.385 billion, so costs would have been taken out as well. There were costs incurred by NAMA in respect of the sale.
The difference is €0.783 billion.
Chairman, we have been here for two and a quarter hours. We have only got until 1 p.m. Only two people have asked questions so far and there are probably four or five people waiting. There needs to be some kind of splitting of time.
Deputy Fleming is now finished. Deputies Deasy, O'Donovan, Costello, Perry and then McDonald are next.
If I may follow on, Mr. McDonagh came here in May of last year and said the net loss involved with this was €200 million. In his statement he has now upped that net loss to NAMA to €280 million. Can he explain that? What it just not clear to him a year ago?
Mr. Brendan McDonagh
At the time I was here to talk about the 2013 accounts, and I was asked about Project Eagle at the end of the meeting. Doing the calculations in my head, I estimated the figure at around €200 million. Now I am saying it is €280 million if we look at it in cash terms. I was doing the calculations in my head and that was the best I could do at the time.
Some might say that was a pretty big gap. I accept Mr. McDonagh's answer. That is fine.
Mr. Brendan McDonagh
That was my bona fide answer at the time because I did not have the information in front of me. I was trying to work it out arithmetically in my head.
I wish to pick up on a similar point to that which Deputy Fleming raised - namely, the divergence between materials from the Comptroller and Auditor General and the materials NAMA has given us. For example, the Comptroller and Auditor General talked about where the properties are geographically and said that 68% of the properties were located in Northern Ireland. In Mr. McDonagh's statement, however, and the asset analysis at the end of it, that figure had gone down to 50%.
Mr. Brendan McDonagh
Yes.
Where is the---?
Mr. Brendan McDonagh
In terms of what the Comptroller and Auditor General might have been talking about, his figure might have been based on the number of properties, or was it 68% at inception? These are the figures we had to break out at disposal.
Mr. Seamus McCarthy
It was the number of properties.
Mr. Brendan McDonagh
Whereas I am actually talking about value.
Mr. McDonagh is talking about value and Mr. McCarthy is talking about numbers. Okay.
I am more concerned about the €280 million that was lost, and ultimately the cost to the taxpayer, than I am about the process. I would like to dwell on that for a moment. Mr. Daly gave reasons as to why he felt it was probably the right thing to do when it came to the disposal of this loan book. Considering the resources in NAMA, it would make it easier to deal with other things and other properties as a result. Considering the amounts we are talking about here and the size of this loan book, I would question that. Surely the only major consideration should have been what we get for this and whether the timing was right to sell.
That is the issue for me, not whether we can actually free up some of the resources in the organisation to deal with something else. This was the biggest portfolio that had ever been sold by NAMA and surely that was the main or only consideration by the board. I know it debated it long and hard.
If we take a look at appreciation or depreciation in the commercial, retail and even residential markets throughout the geographical locations, Mr. Daly stated some of the comments on Northern Ireland in particular are outlandish. Somebody spoke about a 20% boost in the commercial sector in Northern Ireland. However, it did grow a small bit in 2014 and it stopped. Mr. Daly spoke about getting rid of this loan book in a lagging market. He felt NAMA would get the best price for this entire loan book at that time. Everything is very easy in hindsight and everyone is an expert when it comes to property values after the fact. Everyone is an expert in this country these days. One must ask the question, considering where the markets have gone in the UK, and even in Northern Ireland and the Republic, and the Comptroller and Auditor Channel quoted the figure of 18% that were numbers of properties-----
Mr. Seamus McCarthy
Numbers of properties in the Republic.
Even if we take the residential market, in the year previous to April 2015 it grew by 15%. I know about commercial property, but even in Northern Ireland in the past year, going back to April 2014, the figure seems to be approximately 9%. It was 8.8%. It was the highest growing region in the United Kingdom, with England at 5% and Scotland at 2.2%.
Mr. Frank Daly
Residential?
Yes, and less so in commercial but there was an upswing. The loan book was sold at the point the market turned. Somebody could analyse this based on figures and growth in the year beyond when the decision had been made by the board, and this is the key point for me.
We have spoken about this three or four times since 2012 when the two witnesses have come before the committee. We have spoken about NAMA's analysis when it came to the disposal of properties and whether we should sit on them. That is the key issue. When I look at this I must say I would second guess it to a certain extent. I understand it is always easy with the figures after the fact, but do the witnesses have any responses to this with regard to their timing after the fact? Somebody could take a good look at this and say NAMA probably should have sat on it for a bit longer. Who is advising NAMA on the markets? I know it was a board decision and the witnesses spoke about it being long and hard. I will not sit here and say if it were me I would have waited, but somebody must ask the question considering the amounts.
Mr. Brendan McDonagh
With regard to buy value in the Republic of Ireland, there was a huge recovery last year of which we were part, and we are benefitting from it, thankfully, but only 4% of the portfolio was in Ireland, with 1% in Dublin and 3% in the rest of Ireland. Any uplift will be marginal. A total of 50% buy value is in Northern Ireland. It is very location specific. Stuff around Belfast might do well but other stuff might not. The entire portfolio was heavily concentrated in retail. Almost 50% of the portfolio is related to retail in Northern Ireland and the north-eastern UK. When is the right time to sell and what is the best price we can get is a conundrum the whole time for the board. We look at this very closely. Part of the board's work is to do sectoral analysis by geography on each of the markets we are in, and part of this consideration was a separate sectoral paper which took input from various sources and external research specifically on Northern Ireland. We have been operating in this market since 2010. It was not improving and, to be honest, it was getting worse. The portfolio was really granular and it was going to take us a very long time to realise the portfolio. We looked at the cashflows all the way out to 2020 and we conducted a net present value analysis of them-----
Is Mr. McDonagh happy now that was the right decision?
Mr. Brendan McDonagh
Yes.
It is a hypothetical question, but what would Mr. McDonagh sell it for now considering how the markets have actually-----
Mr. Brendan McDonagh
I do not believe we would sell it for much more than €1.3 billion today.
Not much more.
Mr. Brendan McDonagh
No.
Would NAMA get more for it than it would have got a year ago?
Mr. Brendan McDonagh
Given the type of portfolio it was, it would be very difficult to get more. That is my personal view.
This is important. Mr. Daly dealt with the misinformation and disinformation in the media with regard to the €5.7 billion. It is important these errors are corrected. If this is clarified, we are back to the €1.6 billion paid for acquiring these loans in the first place and the €280 million that was ultimately lost. All I am saying at this point is the taxpayer will want to know whether this was the best deal at the time. I believe that is the priority for the taxpayers when they look at this entire saga. What will interest them is whether NAMA is making the correct decisions on the disposal of these properties, in this case a massive loan book.
Mr. Brendan McDonagh
That is very understandable.
Mr. Frank Daly
That is the core question. I still believe that at the time we sold the portfolio it was the best achievable price. If I were to be asked whether we would get slightly better if we put it on the market now, I do not know. We might or we might not. We have struggled sometimes, for example, with some of the other regional areas that are not recovering. Deputy Deasy spoke about residential growth in Northern Ireland, but residential was only 6% of this portfolio.
I understand. I was using it as an example, but it did show an indicator with regard to the markets generally.
Mr. Frank Daly
It did, but as I said earlier we take account of market indicators. It is not just on our own analysis. One of the things we do, and what we did with Northern Ireland, was to get in experts from the property sector there and from the public sector to talk to us. We do this all the time. We do not just rely on our own analysis. Sometimes we need to discount some of the stuff we get from these property experts-----
That is fair enough.
Mr. Frank Daly
-----because it is self-serving. It is back to the conundrum for NAMA of when to sell and to hold in a general sense. If we had absolute certainty that we would get more for our portfolio this year, next year or the year after, we might make different decisions. All we can do at the moment is conduct an analysis, come up with a reserve price which is the minimum value we think any asset or portfolio is worth and never sell below that.
I am trying to figure out whether NAMA's analysis has been good. That is fair enough. We are dealing with taxpayers' money and it is fair game to ask the witnesses about their analysis and whether it was correct at the time. I need to get a specific answer and the committee has only an hour left.
Mr. Frank Daly
We are quite happy. If the Controller and Auditor General does a section-----
A large chunk of this - 33% - was in the UK. With regard to these types of properties and geographical locations, give me an idea as to how much the market there has gone down or up. It comprises a fair chunk of this. Can Mr. Daly answer that? Does NAMA analyse this after the fact? It should do so to see whether the analysis made in the first place was correct.
Mr. Frank Daly
Mr. McDonagh might answer that. To go back to Deputy Fleming, he asked why we did not bundle the London assets. There are very few London assets in the portfolio and London is a market that has done well. NAMA has done very well out of it.
Mr. Brendan McDonagh
We do a strategic sectoral review of each market in which we still have assets-----
In which NAMA still has assets, but not in which it had assets.
Mr. Brendan McDonagh
Yes. We still have assets in Northern Ireland related to Republic of Ireland debtors.
It would not be exactly the same-----
Mr. Brendan McDonagh
No, but we still do a strategy review as to how to sell these assets because we still-----
I am not talking about a strategy review about how they will be sold. I am talking about an after-the-fact review as to whether NAMA got its analysis right in the first place.
Mr. Brendan McDonagh
I can see where the Deputy is going, but we must make a decision at a point in time based on the best information we have available to us-----
Hang on-----
Mr. Brendan McDonagh
-----and stand over it.
I am questioning NAMA's methodology and its collection of data and decision-making with regard to analysing the data when it comes to a portfolio of properties.
That is what I am asking and it is a fair point.
Mr. Brendan McDonagh
It is a fair point.
So once NAMA has sold at a net loss of €280 million, it does not take a look at where the market has gone since and whether its methodology is correct.
Mr. Brendan McDonagh
We are looking at portfolios and assets the whole time and we are trying to figure out the best price we can achieve for those assets. We sell the assets and we must live with that decision. There will always be people second guessing us. They have been second guessing us from day one.
Fair enough.
Mr. Brendan McDonagh
We must stand over that. As Accounting Officer, and in respect of Mr. Daly on behalf of the board, we say it is a big decision and ask whether we are comfortable that we have all the information and that we are making the right decision knowing full well that in the future, someone will come back and say it was the worst decision we made. Nobody ever comes back to us and says it was the best decision we made.
If I-----
Mr. Frank Daly
We know full well that if one looked back in a year or in five years' time, the core ingredient will be what the Irish property market did in the mean time. If the Deputy can identify somebody for me who can absolutely forecast that and the way it is going, not in hindsight-----
By the time NAMA made the decision and when it came to selling this loan book - I was having a pint in Dungarvan - it would be fairly well known-----
Mr. Frank Daly
It might be a better place to discuss this.
Perhaps in Abbeyside.
Mr. Frank Daly
Exactly.
At the time, there was a pretty firm realisation that the markets had turned - certainly in the Republic of Ireland and England. That did not just apply to residential property. Basically, people would know that. In respect of selling something like this, somebody might second guess NAMA and say that perhaps it should wait because everything had turned with regard to property prices, certainly when it came to residential property. Commercial values in Dublin at that time were going way up as well. That was the firm opinion back then when the board made the decision to dispose of this loan book. I suppose I am second guessing whether or not NAMA should have sat on this. I do not have the values. One would need to take it property by property, find out how much somebody would pay for it today, add it up and then analyse whether or not one's methodology was correct.
Mr. Frank Daly
That is a very valid point because one would need to look at a very mixed portfolio like Northern Ireland where indices in the broad sense might not exist and if they did, they might not reflect the reality of some of the assets that were in that. We are in a continuum. If we go back to NAMA at the beginning and all of the objectives and the wish list people had for it, one was that we would stimulate the property market in Ireland. One certainly cannot do that by sitting on every asset one has and hoping that in ten years the market will have begun to move without any intervention from NAMA. NAMA's sales in the market are in themselves a stimulant. I believe that the entry of a huge fund like Cerberus into the Northern Ireland market has probably created a stimulus. It is very hard to take that into account when back in April 2014, NAMA made that decision. We can debate this wherever the Deputy likes but to say the market had turned might be a bit strong. If the Deputy said that the market was turning, I would not disagree with him but I do not want to be Jesuitical about it.
I have a question for the Comptroller and Auditor General concerning what has been said and reported in the media over the past couple of weeks. I will not attempt to involve him in any kind of political opinion. I know he said three or four weeks ago that he is planning to do the review. He has prepared and planned for that and it was in his schedule. From what NAMA has said document-wise and what the Comptroller and Auditor General has seen so far within the committee, are there issues that are of concern to him? A Member of this House has intimated that the Office of the Comptroller and Auditor General does not have the capacity to deal with this as well as the gardaí and the Committee of Public Accounts. I do not know which higher investigative power should be doing it if these three bodies do not do it. Has the Comptroller and Auditor General any concerns about what he has seen and heard in written form?
Mr. Seamus McCarthy
Even from last year, the scale of the loss on those loans did cause me to think that this needs to be looked at further by us. I made that decision last year. It would have been in the course of the audit of the financial statements for 2014, again further confirmation that we need to look at this. It would be around the value that was achieved in the sale.
That is what I am getting at.
Mr. Seamus McCarthy
There is further information that has come into the public domain. It includes matters in Northern Ireland and matters between private individuals that are not subject to audit by me. I cannot investigate them.
We are separating that. NAMA has done that and that is fair enough.
Mr. Seamus McCarthy
A number of the questions that have been asked this morning reflect the kind of concerns we would look to address in the course of any examination of any disposal, be it this one or other disposals of loans or property. We have sought additional assistance regarding whether the questions we are asking are reasonable and the conclusions we would draw stand up. In effect, the property market and the development market are peculiar. It is not like any other sale, procurement or tendering process. We are aware from auditing NAMA over the years that there are these kinds of peculiarities, practices and customs. The hope would be that a properly functioning market will generate good and reasonable value at a point in time. This must be tested.
Can I pick up from where Deputy Deasy left off? Has the Comptroller and Auditor General received any complaints from Members of the Oireachtas regarding the allegations made on the floor of the Dáil last week?
Mr. Seamus McCarthy
No.
Has he received any correspondence from any Members of the Oireachtas regarding this issue?
Mr. Seamus McCarthy
No.
What is Mr. Daly's reaction to what was said in the Dáil last week regarding NAMA's handling of this?
Mr. Frank Daly
I would be disturbed by what was said in the Dáil and subsequently about any conflation of NAMA's sale of Project Eagle with what has been put into the public domain in respect of the diversion of a substantial amount of money to an account in the Isle of Man, which a firm in Northern Ireland called Tughans has acknowledged was diverted and put into an account in the name of its former managing partner and which it has retrieved. All of that is outside NAMA. All of that related to the purchasing side of this and certainly not the selling side, so I have been disturbed by the way that has been conflated. As I said at the beginning of this meeting, wherever that £7 million came from, it did not come from NAMA and it did not come, in any way, from the proceeds of this sale that should have been due to NAMA. I am firmly of that view.
If a firm of solicitors in Northern Ireland suddenly finds that a fee - a very substantial fee in this case - has apparently been diverted to an account in the name of one individual from that firm and the fact that it managed to get it back seems to indicate that it was not right in the first place, it should be investigated by the Law Society of Northern Ireland in respect of the individual and presumably the firm of solicitors. The PSNI indicated yesterday that it will look at that.
NAMA certainly welcomes that, but NAMA is very firmly of the view that this transaction did not relate to NAMA or certainly no source of funding or anything like that related to NAMA. In fact, we knew nothing about it until it appeared in the media some time ago. By the way, we have been engaging on this. We have not been hiding any of this because BBC Northern Ireland has been asking us questions about this, sometimes not specific questions but-----
Has the investigation into the law practice at the centre of this and has the Law Society of Northern Ireland approached NAMA?
Mr. Frank Daly
No. We have had no contact from anybody in Tughans or Northern Ireland on the matter.
Could I just ask about how the overall situation-----
Mr. Frank Daly
I am sorry. Could I just correct that? We did get a letter yesterday from the Northern Ireland finance committee asking us if we would appear up there to talk about all of this.
Will NAMA go?
Mr. Frank Daly
No.
Why not?
Mr. Frank Daly
Our view is that we are accountable to this committee. We will come in here and put everything on the table. I presume the transcript of anything here is available to the Northern Ireland finance committee and, in so far as we can help it in any other way, we will certainly do that.
The NIAC is now defunct and the sale had a potential impact on the economy of Northern Ireland. Does Mr. Daly understand where the committee is coming from in terms of trying to see why the committee members might want NAMA to go before them?
Mr. Frank Daly
I can understand that, but the reality is-----
Does Mr. Daly accept that it would be a reasonable request for the committee to ask NAMA to go before it?
Mr. Frank Daly
I think our accountability is in this jurisdiction. We are a State body down here and we account to this committee and to the Joint Committee on Finance, Public Expenditure and Reform and other committees of this House. That is the appropriate place to go. I do not think there is anything they would ask us that this committee presumably will not ask us. It is on the record and I am sure the committee can read the transcript the same as anybody else.
I will come back to that in a moment.
Mr. Frank Daly
If the committee wants us to talk about this so-called transaction into the Isle of Man, we have nothing to say because we know nothing about it.
I accept that. I will come back to this in a moment, but I wish to focus on how such a refusal would be perceived. I accept the statements of Mr. Daly and Mr. McDonagh, but as previous speakers indicated, in particular Deputy Deasy, I believe the loss of €280 million is something on which the taxpayer would expect us to drill down. I wish to focus on how the matter has been handled, in particular in the fall-out in the past week. Does NAMA accept that there could be a better way of dealing with the issue in terms of the public perception of how it is carrying out its work? The allegation that has been made is that NAMA is almost akin to a secret society with a secret handshake and that nobody knows what is going on inside it. I accept the Comptroller and Auditor General has permanent staff in NAMA. I also accept that NAMA's work has almost come to a conclusion. Has NAMA learned anything from its experience in Northern Ireland? Will NAMA change anything in its approach to the disposal of the remainder of its assets because of the way the issue under discussion has been handled?
Mr. Frank Daly
I see Deputy O’Donovan’s point, but I will not rehearse for the committee answers I have given several times before about the formal accountability of NAMA to this House and to this committee, and through our annual reports, quarterly reports and to the Comptroller and Auditor General. That is all on the record.
NAMA has been controversial since the beginning and once the name "NAMA" appears anywhere in connection with a story, it gets the headlines. One of the most effective ways of dealing with very controversial issues for us in the past has been with this committee. Coming in is not always comfortable but that is what we are doing today. I can understand the public might be exercised about NAMA's sales process and whether it got value for money. We have explained the process in absolute detail. We have said why we think we got value for money and that we got the right price. The Comptroller and Auditor General is now going to look at that aspect of it in his triennial review. It goes without saying that every document and piece of analysis will be made available to him. That is all we can do. The conflation in recent days and weeks about this payment in Northern Ireland from a company based in Northern Ireland to an individual in Northern Ireland is not something of which NAMA has any knowledge and with which it has any involvement. There is nothing we can do except keep explaining that. One of the points I made in my earlier statement is that I think that point is not getting across.
I accept that, but to return to the Northern Ireland finance committee’s request and the Brown Rudnick letter to the then Minister of Finance and Personnel in Northern Ireland, on the bottom of page 2 the partner who signed off on the letter said: “On a personal note and by way of further background, I personally had responsibility and initiated the very first loan portfolio sale that NAMA completed (in 2012 to Morgan Stanley)”. He wrote that letter to the then Northern Ireland Minister of Finance and Personnel, who on foot of it subsequently contacted the Department here. Does Mr. Daly accept that based on that intervention the Northern Ireland Assembly has questions to pose both to the former Minister of Finance and Personnel and to NAMA in this regard?
Mr. Frank Daly
That letter was not written to us for a start.
I know but it is part of the package.
Mr. Frank Daly
It is part of the narrative but the best placed person to answer that is really the-----
Does Mr. Daly accept that the Northern Ireland finance committee has a role in relation to this overall package?
Mr. Frank Daly
It has an interest in the loan sale process, and all of that, including, if one likes, the preliminaries of these letters and this engagement, but I think-----
Would it not be in the interests of the process for Mr. Daly to engage with the committee?
Mr. Frank Daly
I am quite happy to do that, and we have engaged today with the Committee of Public Accounts on the letters but in terms of the jurisdiction and our accountability, which is to this committee, this is the appropriate place to do it.
Could I ask Mr. Reid a question? He referred earlier to the correspondence. I am not sure whether that was before or after the phone call to which he referred.
Mr. Declan Reid
What I was referring to earlier was the passing on of the letter of the intent which followed a conversation between the Minister for Finance and the First Minister of Northern Ireland.
Was that the only piece of correspondence that had been received from the First Minister of Northern on the matter?
Mr. Declan Reid
No. I suppose Deputies are aware there is a running engagement between our Minister and the Northern Ireland Executive on a vast variety of cross-Border issues, in particular financial issues. As our banking system was recovering, issues such as the Irish banks’ commitment to the North, the closure of IBRC’s offices in the North and other issues including NAMA's management of its Northern Ireland portfolio would have featured in those conversations. This communication, which was received from the Minister, Mr. Wilson, would have originated from one of those type of conversations.
Were any preferences expressed in terms of how the portfolio should be dealt with?
Mr. Declan Reid
In the conversations in which I have been involved in connection with the Northern Ireland Executive, the Minister for Finance has always stressed that any process undertaken by NAMA would be a matter for the NAMA board-----
No, was any preference expressed by the then Northern Ireland Minister of Finance and Personnel as to how the matter should be dealt with or as to who should be preferred, for instance?
Mr. Declan Reid
In terms of a potential bidder, no. The only preferences that were expressed were with respect to the items the committee has seen in the letter of intent around the impact of the management of the portfolio by NAMA or a potential purchaser on the economy of Northern Ireland.
I accept that, because in the third paragraph of the letter that was received by the Department of Finance from the then Northern Ireland Minister of Finance and Personnel, Mr. Wilson, he said “Subsequent to those discussions, I have received the enclosed letter from Brown Rudnick, who will be known to NAMA. They were instrumental in introducing me to two potential investors in the NAMA loan book.” Do we know who they were?
Mr. Declan Reid
I do not know.
Is that the only correspondence that was received by the Department of Finance here from Mr. Wilson in relation to this matter, or were there follow-up conversations from him?
Mr. Declan Reid
I suppose the last correspondence regarding this introduction would have been the letter back to Mr. Wilson from the Minister, Deputy Noonan, essentially indicating that it had been passed across to NAMA and that Brown Rudnick should be encouraged to engage with NAMA.
Could I ask Mr. Daly whether NAMA received any correspondence or representations from the Northern Ireland Department of Finance and Personnel on the matter?
Mr. Frank Daly
Does Deputy O’Donovan mean in relation to the whole sale?
In relation to what Mr. Reid said where the letter dated 24 June 2013 was subsequently replied to on 25 July 2013 where this jurisdiction's Minister for Finance referred it on to NAMA.
Did NAMA receive any further correspondence from the Department of Finance and Personnel in Northern Ireland?
Mr. Frank Daly
No, not that I am aware of. There would have been meetings. I do not want to mislead the Deputy. The Northern Ireland advisory committee sometimes met in Dublin and sometimes in Belfast.
It did not discuss specific debtors.
Mr. Frank Daly
No, but sometimes on the periphery of those meetings I would meet the Minister for Finance and Personnel in Northern Ireland. There was never any expression of preference for any purchaser in regard to that issue. The thrust of much of the conversation would have been, to use a colloquialism, to not put a "for sale" sign on Northern Ireland.
I accept that.
Mr. Frank Daly
The impression was not to be that it was being auctioned off. There would have been a preference for a closed sale, something that would not have put a "for sale" flag on Northern Ireland through an agency in Dublin.
So there was no specific correspondence from him.
Mr. Frank Daly
No, and there is no record of any correspondence. I would have met the Minister for Finance and Personnel.
Mr. Declan Reid
The Minister would have continued his regular engagements with Ministers in the Northern Ireland Executive as part of a broader process and Project Eagle updates would have been discussed.
We do not know, with regard to his letter in respect of the two potential investors, if either was the successful party at the end of the day.
Mr. Brendan McDonagh
We understand that one of those parties was definitely PIMCO. We do not know the other.
One of the parties was PIMCO.
Mr. Brendan McDonagh
We do not know the second party.
Was it ever attempted to find out the other party?
Mr. Brendan McDonagh
No.
Why not?
Mr. Brendan McDonagh
We only became aware of this letter between the Ministers yesterday. We had no reason to be aware of it.
Does the witness accept now that it would be in everybody's interest to find out the other party?
Mr. Brendan McDonagh
Yes, although we only became aware of this letter yesterday.
Does the witness accept now that it would be in everybody's interest to find it out?
Mr. Brendan McDonagh
We could ask Brown Rudnick but the company may or may not tell us. We never had a relationship with Brown Rudnick.
I know that. We also know a letter was received. The company was instrumental in introducing NAMA to two potential investors interested in the NAMA loan book.
Mr. Brendan McDonagh
Yes, but NAMA was not aware of the letter until yesterday.
I am not suggesting that it was. I want to find out if there were further representations made by the Department of Finance and Personnel and the former Minister, Mr. Sammy Wilson, about these two parties and whether they were successful.
Mr. Frank Daly
Not to us.
Mr. Brendan McDonagh
Not that we are aware of.
Mr. Seamus McCarthy
I will speak to a point made by Deputy Patrick O'Donovan about having staff permanently in NAMA. I do not have staff permanently in NAMA. The staff are there for large parts of the year to carry out financial audit work. Typically, they would be there between approximately September and May and they would not be there over the summer months. As I said, they would be engaged in financial audit work directed towards giving an opinion as to whether the financial statements give a true and fair view. We only get information for the purposes of the audit. In case anybody is under a misapprehension, we do not walk around NAMA and just look into whatever files we want; this is specific information requested for particular audit purposes. We are not involved in any way in the decision-making process-----
I know that.
Mr. Seamus McCarthy
-----and we do not give prior approval or have any engagement like that when decisions are being made. Decisions are made by NAMA and we look at them in retrospect.
If the Comptroller and Auditor General received a complaint from a Member of the Oireachtas, is he satisfied that he has the necessary resources and expertise to investigate it?
Mr. Seamus McCarthy
Yes, absolutely. As well as our own staff, who have considerable experience in NAMA, we have a budget to hire people if we need specific technical assistance with a particular project.
I welcome Mr. Daly and his team and Mr. Reid from the Department of Finance. Who came up with the name, Project Eagle? Where did it come from?
Mr. Frank Daly
I am not sure but all our portfolio sales-----
Surely the board at some stage-----
Mr. Frank Daly
I remember asking at one stage who comes up with these bright ideas. There is a process of discussion, I gather.
Mr. Brendan McDonagh
Effectively, the executive comes up with the name of a portfolio. Our biggest issue is there are so many portfolios on the market by different finance institutions and we have to try to get a name that captures the attention of the market.
What was this capturing? Was it connecting American bidders with the eagle?
Mr. Brendan McDonagh
No.
Was it that this was such a soaring portfolio of €5.7 billion in Northern Ireland?
Mr. Brendan McDonagh
There was no big discussion about it. It was proposed by one of the members of the team and there was no objection from the board. There is no big thought in the name but much thought goes into the process of getting the data together and preparing the portfolio. It is just a matter of trying to get a name that is not used in the market.
One would think that somebody would remember the genius who thought of the name.
Mr. Brendan McDonagh
To be honest, it was probably the former head of asset recovery who came up with the name, as far as I recall. It means nothing in terms of our operations.
If there is a smoking gun in this matter, it has to be in the gestation of how this came about in the first instance. The two letters are very interesting. The first came to the Minister for Finance, Deputy Michael Noonan, from Mr. Sammy Wilson, the Northern Ireland finance Minister. The statement, as stated by Deputy O'Donovan, read, "Subsequent to those discussions, I have received the enclosed letter from Brown Rudnick, who will be known to NAMA. They were instrumental in introducing me to two potential investors in the NAMA loan book." I thought Mr. McDonagh said that NAMA had no relationship with Brown Rudnick.
Mr. Brendan McDonagh
No.
How would they be known to NAMA?
Mr. Brendan McDonagh
The only person known to NAMA was this individual who signed the letter on behalf of Brown Rudnick called Mr. Tuvi Keinan. He worked for Morgan Stanley and what he said in his letter is true in that he dealt with us with one of our first loan sales back in 2012 with Morgan Stanley. It is not unusual for people passing through different professional organisations to make out that they are more involved with NAMA than they are. We get this the whole time, as they are trying to sell a product or service.
So what he stated in the letter is not quite true.
Mr. Brendan McDonagh
No, I would not regard it as true.
He was trying to impress. The letter to Mr. Wilson is quite comprehensive and much work was done at the time. In the first three paragraphs he is very clear that he seems to understand exactly what is going on in NAMA. He indicates "We understand and respect that a transaction with Northern Irish real estate concentration would have a fundamental impact" and refers to "loans with a concentration of property located in Northern Ireland". He also points out that it is understood there are other loans relating to the United Kingdom and references a significant majority of the total value of the loan. Much background work seems to have been done but how could all of that have been done if there had been no contact with NAMA?
Mr. Brendan McDonagh
I can only speculate. Tughans would have acted as solicitors for many of the Northern Ireland NAMA debtors.
They were dealing with Tughans at the time.
Mr. Brendan McDonagh
I presume so. I can only speculate.
He further states "Two of our clients have each confirmed they would independently be committed to a process" and he opts very quickly for one of those clients. The rest of the presentation is really about getting an exclusive deal for one of the clients. I presume this is PIMCO. He has two clients but he is not really representing one client. He is seeking to get a preferred status for the other client.
Is there not something strange about that?
Mr. Brendan McDonagh
It is not strange for people to try to hawk their services around, to try to get themselves into a position that they can be a middleman in terms of trying to buy and sell assets, or buy and sell loans. It is quite common, in the market, that people try to get what is called a promote fee for finding a transaction. Whether he had a second client or not, we will never know. As I said, I only became aware of this letter yesterday. Again, given what he said in the rest of the letter, he might be trying to put it out there that he had a bigger portfolio of clients than he actually had. I do not know, Deputy.
He also goes on to say: "We believe that one in particular is highly committed and will be well known to NAMA as a highly competent and financially credible asset manager." NAMA already knew about PIMCO and knew who they were. I want to know in what capacity.
Mr. Brendan McDonagh
Absolutely, Deputy. PIMCO is one of the biggest global fund managers in the world. I think it has about $200 billion worth of assets under management. We would have met PIMCO, a few times, at the start of NAMA and then they seemed to disappear but they seemed to re-emerge as part of this, subsequently.
Did NAMA suspect anything at that point in time, perhaps when he went on say that "the integrity of the transaction is our main concern"? That is an interesting comment to make by someone who is trying to sell to one particular partner. He says there are two but then he concentrates on one and then he talks about the integrity of the transaction as being "our main concern." He continues: "Preceding with one party on a limited exclusivity will ensure a focused expedient process with guaranteed confidentiality which we would see as absolutely vital for such a process."
Mr. Brendan McDonagh
Yes.
This man, who represents two clients, is giving the two fingers to a second client and saying, we want an exclusive deal with our preferred client and this is it.
Mr. Brendan McDonagh
That is what they tried, Deputy, and that is what NAMA did not agree to. We did not agree to it. We said that we had to openly market this portfolio.
Mr. Frank Daly
He is not just giving the two fingers to his other client. He is giving the two fingers to any concept of an open market process which-----
He wants do a sweetheart deal.
Mr. Frank Daly
Yes.
Mr. Brendan McDonagh
Yes.
That is really what his letter is about.
Mr. Frank Daly
He got nowhere.
Mr. Brendan McDonagh
He got nowhere with the letter.
I recognise that fact. The Minister for Finance, in his reply, said the way NAMA operates is very much to its credit. He said: "I am advised by NAMA that granting exclusive access to one potential purchaser is not an approach they favour as it militates against achieving optimal value for the assets concerned."
Clearly, it seems that this is the man or company who generated the entire process - the Brown Rudnick company - and that they did this in a somewhat underhand fashion without necessarily anybody else being interested in it, at the time, and not having a second client. Clearly, this was the base they were operating on. At that point in time, Cerberus was not on the horizon and NAMA has no-----
Mr. Brendan McDonagh
Not back at the end of 2013.
They came into it when NAMA announced the process.
Mr. Brendan McDonagh
When we appointed Lazard, then Lazard approached the nine biggest funds in the world - the guys who would have fire power and capital to be able to buy a portfolio like this.
Can NAMA give us a breakdown of who they were? Were they all American?
Mr. Brendan McDonagh
Yes, they were generally all American. Please give me a moment and I shall get the names of the people, if I can find the correspondence. They were: Blackstone, Starwood, Apollo, PIMCO, Oaktree, Cerberus, Lone Star, Goldman Sachs and Fortress.
They are all major global players.
Mr. Brendan McDonagh
They are household names in the international capital world.
Six pulled out without making it formal.
Mr. Brendan McDonagh
Yes, they looked at it. Some of them pulled out straightaway and said it was not for them. Some of them had a look at the dataroom and said we understand the concentration of assets, and the granular nature of assets, and said we are not going to spend any money on due diligence and this just is not for us because they have funds that they are investing to get a return. Three remained in the final month of the bid process. There was a three-month bid process from January to the end of March. Up until 10 March there were three bidders actively looking at the portfolio - Cerberus, PIMCO and Fortress.
Is it not strange that it was at that point in time that PIMCO decided, pretty much at the 11th hour - this was 10 March and the deal was done eventually on 1 April - to tell NAMA that there was an irregularity in regard to the association with Mr. Cushnahan?
Mr. Brendan McDonagh
We understand, again just based on what PIMCO told us, that this transaction was being run by its front office team, in terms of trying to buy the portfolio. I presume that, as part of their credit approval for making a bid, they have to go through an internal process involving their compliance department. PIMCO's own compliance team or the compliance department discovered, probably through their checks and balances, that there was going to be a fee payable to third parties. Fees payable to third party by private equity funds are not unusual at all.
Why should it come from a standard audit?
Mr. Brendan McDonagh
No. It is part of most investment committee or credit committee approvals. They look for sign off from various departments and their function. There is sign off by the people promoting the deal, who are the front office people. Then they look for sign off probably from their legal department. These funds probably look for a sign off from their compliance department. We understand that it went to a compliance department, then the compliance department raised - because they do their research - a flag that one of the parties involved, one of the parties getting the fees, could have potential issues for them because they recognise-----
Because of the conflict.
Mr. Brendan McDonagh
Because they recognised that Frank Cushnahan was associated with NAMA.
It was not because of the fund.
Mr. Brendan McDonagh
No.
It was not because of the money.
Mr. Brendan McDonagh
No.
It had nothing got to do with that.
Mr. Brendan McDonagh
I suspect, Deputy, that if there was no mention of Mr. Cushnahan it would have got by and the compliance department would not have had any issue with it.
It would have been fine. Immediately-----
Mr. Brendan McDonagh
They rang NAMA. They contacted NAMA and said we are paying a success fee to Brown Rudnick but we have subcontracted to Tughans and also involved in that is Mr. Cushnahan. First of all, they said we presume you are aware of it which we were not.
They knew the role that Mr. Cushnahan had.
Mr. Brendan McDonagh
Yes.
They knew that he was on the-----
Mr. Brendan McDonagh
Yes, they had done their research. In fairness, that is how the compliance department should have functioned. They had done their research properly and they acted properly. Let us be clear about that.
No, I mean they knew the role Mr. Cushnahan-----
Mr. Brendan McDonagh
Yes, they had researched it.
----and his conflict.
Mr. Brendan McDonagh
Yes.
It was not that NAMA had pointed it out at the time.
Mr. Brendan McDonagh
No, they knew that of Mr. Cushnahan, clearly. When they do their research into people they all, as American funds, are caught under the Foreign Corrupt Practices Act. They have to do certain internal checks and sign off on that. They obviously twigged that Mr. Cushnahan was part of the process. They suggested that to us and we said we did not know about it. They asked what is NAMA's view on this and we said we need to take it away. We called a board meeting and the board, as I said, took a very dim view of this.
I remind the Deputy that he is almost out of time.
Why, at that point in time, did NAMA not approach the other two bidders and clarify the situation? Why did NAMA wait until the deal was done with Cerberus before NAMA asked them for a statement?
Mr. Brendan McDonagh
The deal was not done with Cerberus. The bids were received on 1 April, Deputy. When the bids were received, before they would be considered by the board, whether to accept or reject, we started asking, on the basis that we had a recommendation from Lazard that the best all-round bid, in commercial terms, was Cerberus. We decided that we needed to get confirmation from Cerberus on whether there were any fees payable to third parties and whether they were acting within all appropriate laws.
Mr. Frank Daly
If it had been Fortress we would have done exactly the same.
Mr. Brendan McDonagh
Yes.
Was it done before NAMA signed up?
Mr. Brendan McDonagh
Yes. The board would not make a decision without having this confirmation.
I have one last question about the timing of the sale, the losses on the sale and whether a specific benchmark should have been adhered to. Was this not NAMA's biggest loss out of all its transactions to date?
Mr. Brendan McDonagh
It was our biggest loss on loan sales.
NAMA has made substantial profits overall but this deal kicked against the tide. NAMA was established in 2010 and when this sale was made in 2014, the market was still weak in Northern Ireland but NAMA was receiving rental income of between €50 million and €60 per annum. Why did it not maintain that rental income stream given that the market was at bargain basement levels?
Mr. Brendan McDonagh
Rental income was heading towards an expiry date because leases expire over time and the question arises of whether they can be renewed at the same rents. Almost 20% of the portfolio comprised lands from which we had no income. We had a challenged portfolio with small value assets requiring considerable work. We had also engaged with debtors over four years in an attempt to maximise the recovery on the portfolio but the situation was not improving.
Mr. Frank Daly
There is also an overarching issue that is wider than Northern Ireland. We get rental income in other portfolios but our objective is to repay our debts. The only way we can possibly do that is by selling assets. Simply sitting on assets and taking the rental income would never reduce our debt or allow us to fund the construction of 4,500 homes by the end of next year and provide almost 2,000 houses for social housing purposes. We would not have been able to invest in the docklands if we had not generated income from asset disposals. Rental income would never be sufficient.
Deputy Costello referred to Project Eagle. In the US, when a big pay day arrives they say that the eagle has landed. From the point of view of Cerberus, the eagle certainly landed.
I ask Mr. McDonagh to outline the due diligence carried out in advance of the sale. It appears that Lazards was appointed at a late stage. The letter to the Northern Ireland Minister, Mr. Wilson, from Brown Rudnick states that the firm took comfort from the fact that NAMA had completed the necessary due diligence in respect of all loan transactions and could guarantee the validity and enforceability of the security and that over the previous years it had undertaken a significant investment in tidying up the security package. Given the scale of the deal, it is surprising that the letter also states that the firm planned to commence a four week long due diligence process. Who carried out the first due diligence for NAMA?
Mr. Brendan McDonagh
When we acquired the portfolio, we got business plans from all the debtors, as is well documented from our previous appearances before the committee. Over the preceding four years, if gaps of security or a lack of cross-collatorisation emerged during our engagement with debtors, we would have remedied the issue. That is part of the normal operations of NAMA as part of our efforts to maximise cost recovery. We were not aware that Tughans was involved with Brown Rudnick at that stage but Tughans would have been aware that we were engaged in remediation of securities in respect of Northern Ireland debtors and the portfolio of assets. I am sure every legal firm in Ireland or Northern Ireland would be fully aware that we are actively involved in managing portfolios.
There were more than 850 different properties in the portfolio and 50% of the land banks are in Northern Ireland. Is the due diligence documentation in the public domain?
Mr. Brendan McDonagh
When we began operating, we put all of the security and documentation into a controlled data room, including all of the title and security documents and loan documentation. That data room is covered by sections 202 and 99 of the National Asset Management Agency Act as it pertains to contractual documentation.
How was the firm aware of this information?
Mr. Brendan McDonagh
As I explained to the Deputy, it used Tughans as a subcontractor. Any major law firm would be aware that it held that documentation.
Mr. Frank Daly
I think the point it was making was not so much that it was aware of the details of the due diligence as it was aware of NAMA's rigorous approach to due diligence and that what would be presented if it engaged in a purchase would be high quality and reliable.
I am not referring to integrity or quality. The letter stated that the firm took great comfort that NAMA has ensured the necessary due diligence in respect of all loans and assets. Lazards was appointed in January and the sale concluded in March.
Mr. Brendan McDonagh
It is on record that when we acquired the loans from the banks, they had to provide detailed due diligence, including security and title reports. Everybody in the market is aware of that. This was a sales man putting forward his best foot by claiming to have an intimate knowledge of the portfolio. I assure the Deputy that he did not get that knowledge from NAMA.
If one purchases a job lot of properties, it can be more convenient than dealing with each individual title or security. The original loan value was £4.5 billion. What was the initial reason for acquiring the assets cheaply in the first place? How many due diligence exercises were carried out on them?
Mr. Brendan McDonagh
There was due diligence at the time of acquisition between NAMA and the banks from which we acquired the loans. Subsequently, as part of our engagement with debtors over the subsequent four years, we sought to remedy any gaps in security or title that we might have inherited. All of that documentation is in NAMA's possession and stored in our data room, with controlled access overseen by Lazards. People can only access the data room after signing confidentiality agreements.
How many of the nine bidders viewed this documentation?
Mr. Brendan McDonagh
The data room is managed in a way that would have permitted them to view a certain amount of documentation depending on how long they remain in the process. If they signed a non-disclosure agreement, they would be allowed to view data we put into the data room.
Did the two final bidders see the entire documentation?
Mr. Brendan McDonagh
Three final bidders would have seen all the documents in the data room, namely, PIMCO, Cerberus and Fortis.
Did Mr. Cushnahan see the documentation?
Mr. Brendan McDonagh
No.
He was involved with Tughans.
Mr. Brendan McDonagh
If he was in the background working with Tughans, he might have seen the documentation but that was between Tughans and Brown Rudnick. We were unaware of the matter.
I ask Mr. McDonagh to clarify the €50 million agreed in fees. What was the split?
Mr. Brendan McDonagh
PIMCO advised us that it was going to pay a success fee of €15 million to Brown Rudnick.
Brown Rudnick was going to share that success fee with Tughans and with Mr. Cushnahan. There was £15 million and we understood there was £5 million each.
What is the story on that at the moment?
Mr. Brendan Mc Donagh
PIMCO withdrew and did not pay Brown Rudnick. We understand that the company engaged Brown Rudnick and paid a fee. I understand the company has made a statement to the effect that Brown Rudnick shared that fee with Tughans. It is speculated that the fee given to Tughans was up to £7 million and that this was the money that was diverted.
Was it not surprising, then, that NAMA was notified about Mr. Cushnahan's involvement from one of the builders? Being a vulture capitalist group, they would be well aware of the risk involved. Was it not a case of taking themselves out of the sale?
Mr. Brendan Mc Donagh
We were very concerned about Mr. Cushnahan being in any way involved in the sale after we found out.
Would Mr. McDonagh not agree that the potential purchaser would be aware of that as well?
Mr. Frank Daly
I do not think there is any indication that the involvement of those in PIMCO indicated that they were trying to pull themselves out of the sale. In fact, the whole tenor of their approach on this issue around Frank Cushnahan was to stay involved.
Is Mr. Daly not surprised at the nature of the sale? What was the advantage to them in telling NAMA that?
Mr. Frank Daly
As my colleague explained, there is quite a lot of due diligence, compliance and legal activity in any of these big funds. We believe that when that was happening, whether it was in PIMCO's legal department or the compliance department, someone there spotted the involvement of Mr. Cushnahan. Someone raised a red flag, decided that it could be an issue for NAMA and decided to ask NAMA about it. The whole tenor of the approach and the reaction was that PIMCO did not want to exit the sale. The firm very much wanted to stay involved.
In the case of these venture capitalist companies, is there not a great deal of what I will not call insider dealing but I will call co-operation? They know exactly what is going on.
Mr. Frank Daly
I think there is far more competition than there is co-operation in that whole area.
Let us consider the portfolio of properties, the types of loan and the likes of securities. Let us consider the Northern Ireland market vis-à-vis the market in Ireland, the level of foreign direct investment and the potential for retail. Much of it is retail-based here and in Northern Ireland. There are hotels as well. In 2014 there was an uptake in that market and in leisure activity, as well as in urban renewal and house regeneration. The United Kingdom market was rather buoyant because the country was coming into an election period as well.
Mr. Frank Daly
There was very little hotel and leisure in that portfolio; the figure was approximately 7%. In fact, the hotel sector in Northern Ireland, even around the time of Project Eagle, was rather challenged. One of the biggest or most public enforcement actions by NAMA related to a very prominent business there.
Is there a profile of the properties involved? Mr. Daly has referred to due diligence. It seems to be a caveat term that covers everything when it is in storage. Is there a view of the type of property at issue? Are they hotels or properties? Where are these properties? It is something of a myth if we are talking about a portfolio of properties. Are they in Belfast or Enniskillen? What are we talking about? Whereabouts in London are they? Is there a list of them?
Mr. Brendan Mc Donagh
They were spread across Northern Ireland. Obviously we have to reset this. Anyway, I imagine that as part of the information we can supply to the committee or to the Comptroller and Auditor General we can break it out geographically and we would not be breaching anyone's confidentiality.
We will accept a list when it arrives.
I gather that 48% of the properties were in Belfast, if I am not mistaken. Does that ring a bell?
Mr. Frank Daly
Yes.
Mr. Brendan Mc Donagh
There was a high concentration towards east Ulster.
We have limited time so we will have to keep questions and answers rather focused and sharp. Can Mr. Cushnahan clarify for me at what stage he became aware - Mr. Daly, I should say-----
Mr. Frank Daly
Please, Deputy. There is enough conflation with them as it is.
That is a step too far. I will grant Mr. Daly that much. When did Mr. Daly become aware that Mr. Cushnahan had a self-contained office in Tughans Solicitors?
Mr. Frank Daly
I do not know whether it was a self-contained office, but I know he had access to-----
I need the date from Mr. Daly. When did he become aware of it?
Mr. Frank Daly
I think I became aware of it at some stage. In the beginning, when we went to Northern Ireland, Brian Rowntree was the head of the Northern Ireland executive. He provided an office for us to meet in the Northern Ireland executive office. He resigned from that role, but I am unsure of that date. We went to Belfast for a subsequent meeting, which was held in a hotel. Then Mr. Cushnahan said to us that he could get us a meeting room in Tughans next time around for our meeting, if that suited us. I will say up front that if we had known then what we know now-----
I am not inviting Mr. Daly to do that, not least because our time is so limited.
Mr. Frank Daly
In September 2013 he said that for our next meeting there was a room in Tughans if we wanted it. We had two meetings in a conference room.
Is Mr. Daly saying to the committee and putting it on the record that he had no clue Mr. Cushnahan had this relationship or shared accommodation with Tughans Solicitors until September 2013, and that it came to his attention only at that point?
Mr. Frank Daly
No. I do not think I said I knew nothing about Mr. Cushnahan having some relationship with Tughans. I am saying-----
When did Mr. Daly know that?
Mr. Frank Daly
I became aware that he had an office in Tughans in September 2013.
When did Mr. Daly become aware of the relationship between Mr. Cushnahan and Tughans?
Mr. Frank Daly
Is Deputy McDonald referring to the general relationship?
Mr. Frank Daly
I do not even know that I was aware of a relationship. It would have been generally known at the time, perhaps, that Mr. Cushnahan had a relationship with Tughans, in that, as Tughans has recently said publicly, he was a referrer of business. I could not say when I became aware of that.
Mr. Daly and NAMA had a general knowledge that there was a relationship between Mr. Cushnahan and Tughans. Is that correct?
Mr. Frank Daly
He probably mentioned it, or someone mentioned it, or something like that.
That is a little vague, but we can take it as read.
Mr. Frank Daly
I am sorry. I do not intend to be vague, but it is beyond my recollection.
We have the extraordinary situation then that Mr. Cushnahan, one of the NAMA people on the board in the North - Mr. Daly is the chairman and he is in charge - has this relationship and shared accommodation with Tughans Solicitors, which, in turn, has a relationship with Brown Rudnick. In case Mr. Daly does not know it, let me break it to him that there is a belief that Mr. Cushnahan was providing advice, direction and information, perhaps, in respect of matters pertaining to NAMA, and that he may have been doing so from that premises. I am sure Mr. Daly has seen or heard that much at this stage.
Mr. Frank Daly
No. I have no information on that. To whom? Whom was he providing it to?
To a number of parties, one presumes. We have the extraordinary situation - Mr. Daly has confirmed it today - that Tughans had this relationship with Mr. Cushnahan and, in turn, with Brown Rudnick, which was acting on behalf of potential bidders and purchasers. Mr. Daly said in his evidence earlier that Tughans also acted on behalf of a number of debtors. Is that not quite some web?
Mr. Frank Daly
It is a small economy or system.
I know that. Is that not quite some web?
Mr. Frank Daly
Tughans is the third largest commercial law firm in Northern Ireland. It was on the NAMA panel, having openly tendered for it in 2010. I cannot remember how many were involved in the panel.
It would have been quite surprising if they had not been engaged by NAMA on some cases. I was never aware of Mr. Cushnahan's close connection to Tughans until this matter emerged in March 2014 when PIMCO told us about the sharing of the fee.
None the less, Mr. Daly has told me he became aware of the shared accommodation in September 2013, having had a generalised sense of a relationship between Frank Cushnahan and Tughans. He remains on the board of NAMA until November 2013. He exits stage left, and the following month NAMA is approached by Brown Rudnick. It is all very tightly sequenced, is it not?
Mr. Frank Daly
Yes.
The issue of Brown Rudnick and the two clients has been explored, one being PIMCO - we do not know who the second is. That is not known to Mr. Daly. Can Mr. Reid say is it known to the Department?
Mr. Declan Reid
We would not have known the first either until it was confirmed later in the process.
It becomes known to NAMA fairly snappily who the first client is because the direct approach is made. In a remarkable sequence, this letter demonstrates that in June 2013 it is the view of Brown Rudnick and its clients that it should be a job lot, or single sale, and the board of NAMA signs off on that approach by January 2014.
Mr. Frank Daly
We never signed off on a single or closed sale approach. Never.
I am talking about a job lot - a single lot - not a closed sale. The bundling up of these-----
Mr. Frank Daly
We began to explore the possibility of an open market sale of the full Northern Ireland portfolio, once we became aware that at least one fund was interested in it.
NAMA finally lands on that approach and that decision, if I heard Mr. Daly correctly, in January 2014. Is that correct?
Mr. Frank Daly
Yes.
Then the issue of the problematic or irregular payment emerges. We now know that was £15 million and that there was to be a three-way cut on it.
In this document, Mr. Daly states that on 10 March he received a telephone call. Will Mr. Daly confirm that I am getting this right?
Mr. Frank Daly
That is correct.
In fact, it is on 12 March that Mr. Daly gets the detail of the payment. Was that by way of another phone call or was it in a meeting?
Mr. Frank Daly
It was a phone call.
Who from PIMCO told him this?
Ms Aideen O'Reilly
There were two in-house counsel on the call and their external counsel.
At this stage did Mr. Daly inform the Minister for Finance, Deputy Noonan, of this turn of events?
Mr. Frank Daly
I informed him.
The Minister was aware on 12 March that it was-----
Mr. Frank Daly
It was on 13 March that I would have informed the Minister.
Thank you.
Mr. Frank Daly
I would have informed him of the background and that PIMCO had withdrawn, and that if it had not withdrawn we were going to exit it.
He was informed of the nature of the payment and its scale - that it was £15 million to be divided in these proportions.
Mr. Frank Daly
Yes.
Presumably the Minister was alarmed at that turn of events.
Mr. Frank Daly
He was very concerned and agreed with our approach and decision to exit PIMCO.
At no stage did he have a conversation with Mr. Daly about suspending the entire sales process, given this irregularity.
Mr. Frank Daly
No.
So we then move on and a new situation emerges. The extraordinary thing here is that the only change of actor in the final leg of this process is the purchaser. It moves from PIMCO to Cerberus, but our friends in Brown Rudnick and Tughans Solicitors are still involved.
Mr. Frank Daly
There is another actor who has exited the stage at this point, Frank Cushnahan, who was the one of real concern to us.
We might come to that in a moment. Mr. Daly said earlier that he had informal meetings on the fringes of his board meetings in the North. Was he aware on 25 March 2014 of a meeting between Peter Robinson, Dan Quayle from Cerberus, Ian Coulter, a managing partner of Tughans Solicitors, and Simon Hamilton, who was the finance Minister subsequent to Sammy Wilson?
Mr. Frank Daly
No. I was not aware of the meeting itself and did not become aware of it until now. I was aware that Cerberus had stated at some stage that when it was moving into new territories, as it were, it always engaged with the political system. I am not surprised about the meeting, but I certainly was not aware of it.
Mr. Daly was not aware of that meeting.
Mr. Frank Daly
No.
Did he meet with any persons from Cerberus or with Mr. Quayle at any stage outside that?
Mr. Frank Daly
No. I never met with Mr. Quayle, but I met with John Snow, who is the chairman of Cerberus, at the end of this process, after Cerberus had been accepted as the preferred bidder.
In the sequence of events, that meeting happens on 25 March. It was a private meeting and there are no official papers in the Northern system to account for it. A short number of days later, on 1 April, NAMA settles on Cerberus as the successful purchaser.
Mr. Frank Daly
Yes. I think it was on 3 April that we had a board decision in respect of Cerberus. For the avoidance of doubt, that board decision was made in the absence of any knowledge of the meeting the Deputy referred to.
On 4 April, the decision goes public. At this juncture, Peter Robinson says he spoke the previous night to the chairman of NAMA, Frank Daly, so Mr. Daly did speak to him then, and the former US Vice President, Dan Quayle, of Cerberus Capital, and on the basis of these conversations he said he believed this deal was excellent news for the Northern economy. Lots of people would take issue with that, but that was his view. Is Mr. Daly concerned, given what I have outlined to him, that a meeting such as the one I described had happened between Cerberus and senior political figures just days in advance of the final NAMA decision?
Mr. Frank Daly
To be clear and to correct myself slightly, I am reminded that we did have a courtesy call with John Snow in March 2014.
On what date?
Mr. Frank Daly
I do not know the date.
The date might be important.
Mr. Frank Daly
We can certainly get the date.
Please do.
Mr. Frank Daly
It was a courtesy call, which quite often happens. That is not unusual for the chairs of big funds such as this one.
To answer the Deputy’s other question, on the night of 3 April, after the board had made the decision to sell the Northern Ireland portfolio to Cerberus, I rang the finance Minister in Northern Ireland, Simon Hamilton, to tell him, out of courtesy. He asked me to ring the First Minister, Peter Robinson, out of courtesy, which I did that night. I informed him that the board had approved the sale to Cerberus.
It was just a courtesy call, which I thought was appropriate, given the-----
Mr. Daly said he checked with Cerberus between the board making the decision and the decision going public, that all proper procedures had been followed and that there was no glitch or suggestion of additional payments to anybody connected with NAMA.
Mr. Frank Daly
Yes. The text of the written response we received from Cerberus is in my opening statement.
Mr. Daly has read it into the record, and I thank him. Did it not raise concerns with Mr. Daly that he was dealing with the same parties, as I have set out?
Mr. Frank Daly
No, our main concern throughout it was the Frank Cushnahan element. He was a former member of the Northern Ireland advisory committee. That was the issue for NAMA, for reasons we both discussed earlier.
While it was the trigger issue, is there not a deeper issue and a more ongoing difficulty with the NAMA processes and, perhaps, Mr. Daly's oversight of it? Aside from the particulars of this payment, there was an ongoing relationship between Mr. Cushnahan and Tughans solicitors, which, in turn, had a relationship with Brown Rudnick, which, according to its documentation, had previous relationships with NAMA. Tughans, which was dealing with debtors, also had a relationship with counsel for purchases and bidders. It is disingenuous of Mr. Daly to reduce it down in the way he is attempting.
Mr. Frank Daly
Our relationship was with Brown Rudnick, which subcontracted work to Tughans. That was Brown Rudnick's business. Our major concern, right to the end, was to ensure there was no taint regarding the involvement of Mr. Cushnahan. We sought this assurance from Cerberus, which it gave, as it confirms, having also consulted with Brown Rudnick, which consulted with Tughans. They were two commercial firms. Again, I reiterate that our concern was Mr. Cushnahan. Firms such as Cerberus, Brown Rudnick or even Tughans do not lightly give undertakings such as they gave to us.
Perhaps I have mentioned that Ian Coulter, the managing partner of Tughans, attended the private meeting of 25 March.
Mr. Frank Daly
I have no idea. I did not know about the meeting.
Mr. Daly knows about it now. I am bringing it to his attention in order to illustrate how incestuous all of it was and the web that has been created between the same players in a small system with a tiny professional population. The net result and the concern for people trying to make sense of it and the taxpayer is that in the first scenario, there was an attempt at payola, NAMA got wind of it and was concerned, not concerned enough to suspend the thing but enough to show PIMCO the road.
Mr. Frank Daly
I was concerned enough to stop the payola, as the Deputy calls it.
Absolutely, given that it appears it was the intention. In the second scenario, although Mr. Daly had removed the purchaser and the identity had changed, the same case of characters was involved in the final decision, including legal counsel, and the whole thing stinks to high heaven.
Mr. Frank Daly
It was the decision of Cerberus to engage Brown Rudnick. We had no relationship with Brown Rudnick or Tughans but with Cerberus. Our concern, and the concern that people should and do have, is whether we got the best value for the Northern Ireland portfolio at the time, and I honestly believe we did. I will not go into it; we have rehearsed it here extensively. The bid from Cerberus was the highest bid. It met our reserve price. We took every step we could to ensure there was no involvement of anybody from NAMA in the background with any sort of fee or payment. We have it in writing.
This ignores the fact, which is subject to investigation, that at the end of the second scenario, £7 million is resting in an account for which we are not in a position to account.
Mr. Frank Daly
NAMA knows nothing about it.
I do not accept Mr. Daly's assertion that it is of no concern to NAMA. It revolves around the sale of a portfolio for which Mr. Daly was responsible. While he cannot control the actions of third parties, he has a duty of care, given that it is on his watch, to know exactly what is happening and ensure nothing improper occurs, in so far as he can.
Mr. Frank Daly
We took every step we could to ensure that there was nothing improper on the NAMA side. Deputy McDonald said I was not concerned that there was the payment the second time around. Of course I am concerned about it. However, it did not emanate from NAMA and has nothing directly to do with NAMA's process in selling Project Eagle. Would I love to see it-----
It has everything to do with the conduct and interactions of transactions such as this. Perhaps this is the nub of the problem more generally. It has everything to do with the networks of persons, professional, political and otherwise, in and around the transactions. If it demonstrates anything, it is how problematic the very closed nature of NAMA is. How are we to know? We know about this instance. We know this turn of events, perhaps because of the scale of it. If Mr. Daly regards that there is nothing to see here, the end justifies the means and NAMA has nothing to answer for, and if this is standard practice for NAMA, it is very shocking.
Mr. Frank Daly
This is very unfair. There are no other cases that we are aware of. We have come in here and been as open as we possibly could about this. We have explained in detail what we did and how we tried to fireproof the sale, and we stand over it. If the Deputy is talking about the recently reported issue of a payment being made into an Isle of Man account, I would love it to be investigated and I am delighted that the PSNI is investigating it. I am very confident-----
Excuse me. Mr. Daly knew about the £15 million, which PIMCO informed him about. Given that PIMCO knew about it, we can be sure Brown Rudnick also knew about it. Presumably the parties who were party to the £15 million knew about it. Mr. Daly dealt with the situation, to his own way of thinking, adequately. However, in the name of God, when round two came around and the same firms and personalities were on the scene, who presumably knew about the £15 million, it did not sound an alarm bell in Mr. Daly's head. If he was not prepared to suspend the sale the first time around, and if he did not call a halt the second time around with the same cast of personalities, I do not know what kind of fireproofing or good practice it is.
Mr. Frank Daly
I cannot presume what anybody except NAMA knew in the case. Let us not mix the two up. The PIMCO bid was got rid of. No payment, that we are aware of, was ever made in the case. On the issue of what Cerberus, Brown Rudnick or Tughans did regarding the second one, they are third parties and I cannot control what they did, nor could I be expected to. I can only talk about the NAMA process and our being concerned and asking Cerberus for undertakings, which it gave and which I do not believe it would have given lightly.
Except that they were the same third parties who had been involved in round one and it was the same law firm, Tughans, that Mr. Daly knew in a general and a specific sense, given that a member of the NAMA board in the North had a very direct and close relationship with it. That is the difficulty for Mr. Daly whose attempts to push it away from himself and NAMA fall down on that simple reality.
Mr. Frank Daly
Because they were third parties, we had no contractual relationship ever with Brown Rudnick or Tughans in relation to Project Eagle. Our contractual relationship was with Cerberus and we were sufficiently concerned to ask it to confirm the fee payment.
Okay.
Mr. Frank Daly
At the end of the day it was back to the value for the sale. Did we get value? I believe we did.
I do not accept the ends justify the means line of thinking of Mr. Daly. The processes in how all of this was done are absolutely essential in terms of people having confidence and demonstrably protecting the public interest. In this scenario Mr. Daly failed to do that.
Mr. Frank Daly
No.
I believe Mr. Daly was mistaken, in the first instance, not to suspend the sales process and very wrong in the second not to have alarm bells, just like Big Ben, ringing in his head to say, "Hold on a second - this is a huge transaction; these are huge write-downs of public moneys and so on." Not to have pulled back from it amounted to very bad judgment on his part.
Mr. Frank Daly
I absolutely believe the real public interest test for us in the sale of the portfolio was whether we got value for money and the best achievable price at the time. I absolutely believe we did.
As I am conscious of the time, I want to raise two questions.
The witnesses have to attend another meeting.
Mr. Reid has explained in some detail the memorandum of understanding. I appreciate that there was a conversation between the Minister for Finance and the First Minister and, presumably, the Northern Finance Minister.
Mr. Declan Reid
We advised that it would be appropriate for it to be forwarded to Ronnie Hanna in NAMA, not the Minister.
I thank Mr. Reid. Mr. Daly described it as a protection for debtors, like a debtor's charter, a kind of opt out clause for all. So that the committee knows, it was not a document of the executive. In fact, at a Westminster committee hearing, when Cerberus was questioned, there was reference to the absence of a memorandum of understanding. It was a discussion point. It is intriguing that something that had no official status wound up with NAMA, solicited or unsolicited, as the case may be-----
Mr. Frank Daly
Absolutely unsolicited.
I thank Mr. Daly for the clarification. It seems it was on the back of conversations between Ministers, North and South. That is something we should want to get to the bottom of. On Project Jewel, is that what NAMA is calling the sale of Joe O'Reilly's portfolio which includes the national monument sites on Moore Street?
Mr. Brendan McDonagh
Project Jewel includes Chartered Land loans.
Who is the lead bidder?
Mr. Brendan McDonagh
There is no lead bidder; it has just been launched on the market.
Is there truth in the word that Cerberus is expressing an interest in it?
Mr. Brendan McDonagh
I am not aware that it has expressed an interest.
Project Jewel is a very substantial portfolio with which NAMA is dealing. Am I correct in saying this?
Mr. Brendan McDonagh
It is a large portfolio.
To the tune of what figure?
Mr. Brendan McDonagh
About €2.4 billion.
It includes very sensitive, historic and important national sites which are valuable.
Mr. Brendan McDonagh
The site on Moore Street is being bought by the OPW on behalf of the Government.
Yes, a limited portion of what is-----
Mr. Brendan McDonagh
It is a Government decision.
I appreciate that. Can Mr. McDonagh tell me how anybody who has watched these proceedings could have any confidence whatsoever that there has been fair, appropriate and proper dealing on the particular portfolio? Can he understand how people are extremely anxious given what happened with Project Eagle and the prospects for Project Jewel?
Mr. Brendan McDonagh
I do not agree with the Deputy's proposition. We run a very fair, straightforward and transparent loan sale process with a data room and full access for all parties who sign up to non-disclosure agreements. There are likely to be multiple bidders for the particular portfolio. There is nothing that I would take from the Deputy's suggestion that it is in any way tainted.
I have to say, respectfully, that that beggars belief and that there is not much-----
Mr. Brendan Mc Donagh
I respect the Deputy's view, but-----
I respect Mr. McDonagh's, but there are much deeper issues that, unfortunately, we do not have the time or the scope today to investigate.
We are pressed for time and I will not delay the witnesses beyond a couple of minutes.
In relation to Cerberus confirming to Mr. McDonagh that no fee commission was paid, who certified this?
Mr. Brendan McDonagh
On behalf of Cerberus, it was its senior managing director, I think.
Ms Aideen O'Reilly
It was confirmed by its general counsel.
It was confirmed by whom?
Ms Aideen O'Reilly
By its general counsel.
Mr. Brendan McDonagh
Its legal counsel.
But who confirmed it for it?
Mr. Brendan McDonagh
It advised us under the Foreign Corrupt Practices Act and had sought confirmation from Brown Rudnick and Tughans.
Who signed off in the case of Tughans?
Mr. Brendan McDonagh
I do not know because that is a matter between Cerberus and Tughans.
Okay; we do not know that.
Mr. Brendan McDonagh
I do not know.
I have to ask these questions in relation to public comment, the first of which is to the Comptroller and Auditor General. Reference was made to the fact that the Comptroller and Auditor General did not have the wherewithal, as it was described, to deal with NAMA and this issue. Can he confirm for the committee that that is the case? I think he has done so already.
Mr. Seamus McCarthy
I am satisfied that I do have the resources and the powers to examine NAMA's role, apart from examining any other aspect of the matter about which the committee has a concern.
Second, mention was made of about 13 cases being investigated by the Garda in relation to NAMA. Is that correct?
Mr. Brendan McDonagh
That was the figure provided by the Minister for Justice and Equality in reply to a parliamentary question. We are not aware of these 13 cases, but if the Minister for Justice and Equality says the Garda has told her that complaints have been made, complaints have been made.
Mr. McDonagh is not aware of them.
Mr. Brendan McDonagh
No.
They are complaints rather than-----
Mr. Brendan McDonagh
As we understand it, 13 complaints have been lodged with the Garda. Perhaps, Ms Aideen O'Reilly, since she liaises with the Garda-----
Ms Aideen O'Reilly
I do not know how many complaints the Garda may be investigating. All I can say is that whenever we are asked to provide information, we do so.
Does Ms O'Reilly know whether the investigations are at an advanced stage?
Ms Aideen O'Reilly
No.
Mr. Brendan McDonagh
The Garda will not tell us.
It will not tell NAMA. Has Mr. McDonagh disciplined many staff within his organisation in relation to, as is classified, insider dealing or leaking of information or accepting-----
Mr. Brendan McDonagh
There are two cases on which we have gone public and which we have referred to the Garda.
Do they relate to information being given? Do they relate to any other issue for staff in terms of receiving presents in recognition of their work?
Mr. Brendan McDonagh
In our view, they relate to confidentiality breaches under the NAMA Act. That is why we have referred them to the Garda.
Therefore, they are referred to the Garda.
Mr. Brendan McDonagh
Yes, two former employees.
I return to what Deputy Mary Lou McDonald said. Having listened to what has been said here, I firmly believe the process should have been abandoned. There is no doubt in my mind about this, although one may say it is with the benefit of hindsight.
Bearing in mind what has been said in relation to the small economy, the small number of players, the information being shared, the memorandum of understanding and the political system, it does stink a bit. I am deeply concerned about it. I know the Comptroller and Auditor General is about to undertake, or is in the process of undertaking, an investigation or an analysis of some of the sales within NAMA, and the sooner this comes into the public domain, the better. It was ill-judged not to have abandoned the process. Some way has to be found to co-operate with the investigation in Northern Ireland and to link what happened in the South with what seems to be the construction of a web and the same players, as outlined by Deputy McDonald. It has to happen.
We had an example of this when the Committee of Public Accounts met its counterparts in Northern Ireland. It would serve NAMA and it would serve the system well if there were collaboration and co-operation all round and to have a full-scale investigation with all parties concerned brought to the table. There is no other way out of this because out of this hearing today, we have to decide what we do with the information. It is inconclusive because the other players are not here with us, and it is disturbing because of the knowledge that was held by individuals, in particular the PIMCO revelation about the £15 million.
Is the Chairman asking for an investigation on top of what the Comptroller and Auditor General is going to look at?
No, the Comptroller and Auditor General will look at the analysis within NAMA. Beyond that, and because there are other players outside of this jurisdiction, it is difficult to deal with it. A mechanism should be found to deal with it in an all island way, where agencies on both sides of the Border co-operate to present to the public a fuller picture of what happened.
How will that work?
I do not know, Deputy Deasy, but I believe that NAMA should be concerned about clearing its name and about the discussions at this committee this morning. If there was wrongdoing, it should be identified, uncovered and explained. When one has the Isle of Man and the numbers of companies involved, and when it is explained as it was explained to this committee, the story worsens. The plot thickens and we have not come to the end of it. PIMCO disclosed the £15 million to NAMA and one has to ask how a firm the size of PIMCO cannot miss the £7 million. It is not answered and it cannot be answered here. We owe it to the political system and the administration to get to the end of this. It is disturbing for the memorandum of understanding to appear and for it not to have official backing in terms of its origins. It is disturbing also that it was suggested that there would be a nil balance for the 55 debtors. Who did this benefit and what was it about? Where is the £7 million and where is it going to go now? These are the questions that must be answered.
I know the Comptroller and Auditor General will do an investigation into this and it might shine more light on the processes and procedures within NAMA itself. It may benefit NAMA and our understanding of what went on. This is an unfinished piece of work that can only be concluded by some agency straddling both jurisdictions to bring it to a head. I understand the difficulties for NAMA personnel appearing before the committee in Northern Ireland, and the witnesses present said that they would not appear. The PSNI might expedite a thorough investigation which, depending on the outcome, could be dealt with more appropriately at a committee and the information could be put out there. It is striking, Mr. Reid, that the committee got the release of these letters and the memorandum of understanding this morning. Alarm bells should have been ringing loud and clear a long time ago once you had sight of the letters and the correspondence. That is my view.
We will conclude our business for today but it is very much an unfinished piece of work. I thank the witnesses who I understand are attending elsewhere. I appreciate their attendance here.