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COMMITTEE OF PUBLIC ACCOUNTS debate -
Thursday, 10 Nov 2016

Special Report No. 94 of the Comptroller and Auditor General: National Asset Management Agency Sale of Project Eagle (Resumed)

Today the committee will continue its examination of the Comptroller and Auditor General's special report No. 94 on the National Asset Management Agency, or NAMA as it is better known, and its sale of Project Eagle. Project Eagle was the code name given to the sale of NAMA's Northern Ireland loan portfolio. To date, we have met representatives of NAMA, the Minister for Finance, Deputy Michael Noonan, and Mr. Brian Rowntree, a former member of NAMA's Northern Ireland advisory committee, NIAC. We have also met three members of the current board and other senior NAMA officials. We will shortly be meeting officials from the Department of Finance who dealt with NAMA at the time of the sale of Project Eagle. However, as we have not really heard from the Comptroller and Auditor General since our first meeting, members have asked for Mr. McCarthy to provide a response to the evidence heard to date.

Before moving to the evidence from Mr. McCarthy and his response to questions from the committee, I draw attention to the fact that we wrote to PIMCO, inviting representatives to attend. We gave it a list of issues we wanted it to deal with. We received a reply from PIMCO indicating that because of various investigations it was not in a position to allow representatives to attend but it provided a comprehensive letter, comprising approximately four pages, responding to the specific queries we raised. In view of the fact that PIMCO was covered extensively in the Comptroller and Auditor General's report, as mentioned by the Comptroller and Auditor General here, and it has been discussed extensively by NAMA witnesses here in a public forum, it is important in the interest of balance in presenting the evidence in public that we read the PIMCO letter into the public record rather than just listing it as an item of correspondence. I propose to do this because it deals with some of the statements made by other people before us and there may be issues requiring further clarification after we consider the letter. It is important that it is put into the public domain at this stage. People might bear with me for a few minutes.

This is a letter from PIMCO, signed by Mr. Tom Rice, chief legal officer, EMEA, PIMCO Europe Limited. It is addressed to Mr. Kieran Lenihan, clerk to the Committee of Public Accounts, Leinster House, Dublin 2. It was sent by e-mail and post on 8 November 2016. It states:

Dear Mr. Lenihan,

Thank you for your letter of 17 October 2016 addressed to Mr. Douglas M. Hodge, CEO.

PIMCO recognises the importance of the Committee's function and wishes to be helpful in providing the Committee with an understanding of PIMCO's role in Project Eagle prior to the company's withdrawal from the pending transaction. We are, however, mindful of the ongoing NCA and U.S. investigations and for a number of reasons, including our desire to avoid taking any action which might prejudice those ongoing investigations, we respectfully decline your invitation for a representative to attend before the Committee. However, we note in your letter the Committee's areas of interest and we provide the following information which we hope is helpful.

We would note that whilst the correct legal entity that considered Project Eagle as a potential transaction was PIMCO's BRAVO II Fund, in this letter we generally refer, for simplicity and ease of reference, to PIMCO.

1. Origin of the PIMCO approach to NAMA

In April 2013, PIMCO was approached by Mr. Tuvi Keinan, a partner at the law firm Brown Rudnick who then introduced PIMCO to Mr. Ian Coulter of Tughans and Mr. Frank Cushnahan, with whom Brown Rudnick appeared to be working to identify potential purchasers for the NAMA Northern Irish loan portfolio (which later became known as Project Eagle). As we understood it, PIMCO was one of three firms who were approached at the time by these three parties.

PIMCO saw the transaction as one which may be of interest to its BRAVO II Fund, subject of course to further investment analysis and due diligence.

PIMCO was informed by these parties that the Northern Ireland Government wanted to ensure that there would not be a "fire sale" of Northern Irish homes and businesses once the portfolio was sold, but rather that a longer term approach, investing in and developing the assets, would be taken by any eventual purchaser. PIMCO was advised that the sale of the loan portfolio was a sensitive political matter and would have a major impact on the Northern Irish economy.

PIMCO was told that the Northern Ireland Government wanted to seek to ensure that a reputable and responsible purchaser would be found, that would manage the assets in a sensitive way post-completion, and this was the basis for interested parties being invited to meet with Northern Ireland Government Ministers. This desire for a reputable longer term investor seemed to be a good fit for PIMCO, given its usual investment approach.

Following a meeting organised by the three parties with First Minister Peter Robinson and Minister for Finance, Mr. Sammy Wilson, which took place in May 2013, PIMCO was informed by Brown Rudnick that it was the Northern Irish Government's preferred purchaser for NAMA's Northern Irish loan portfolio.

As reflected in documents made public in the course of the Northern Irish parliamentary inquiry, we understand that Brown Rudnick wrote to Minister Wilson in June 2013, purporting to act on behalf of two 'clients' and advising that both may be interested in purchasing the portfolio. This letter stated that proceeding with one party on a limited exclusivity would ensure a focused, expedient process with guaranteed confidentiality, which Brown Rudnick saw as vital to the process. Minister Wilson then wrote to Minister Noonan enclosing that letter from Brown Rudnick.

That approach made to the Department of Finance by Brown Rudnick was made by Brown Rudnick acting in a deal-making capacity, having identified (seemingly more than one) potentially interested prospective buyers. At no stage in the Project Eagle process did PIMCO conclude an agreement to be advised or represented by any of the three parties mentioned earlier.

From public sources, we have now seen that Minister Noonan replied to Minister Wilson advising that parties with an interest in NAMA-held loans should make contact directly with NAMA and specifying that Brown Rudnick should enter a dialogue with NAMA so that any interest in the loan portfolio could be fully assessed. As noted in the recent Committee hearings, the Comptroller and Auditor General Report indicates that NAMA was made aware of this approach no later than early July 2013.

In September 2013, PIMCO sent a non-binding letter of interest to NAMA indicating an interest in purchasing the portfolio reflective of the approach suggested in the Brown Rudnick letter. Based on publicly available information at the time, PIMCO stated that it would be willing to submit an indicative total purchase price of €1.1 billion in cash for the portfolio.

It continues:

2. The basis for making the initial bid for the Northern Irish loan portfolio

Following receipt of the non-binding hitter of interest, NAMA entered a dialogue with PIMCO regarding the portfolio. In November 2013, NAMA opened a data room for PIMCO, and made documentation available relating to the assets comprising the loan portfolio.

With the assistance of property advisors, Cushman & Wakefield and New River Retail, PIMCO carried out preliminary due diligence on the assets comprising the portfolio. This due diligence was enabled by documentation provided by NAMA in the exclusive data room which included

- NAMA-commissioned valuation reports from 2009;

- up to date tenancy schedules in respect of the top 55 assets; and

- basic details such as addresses in respect of the remainder of the assets.

In December 2013, PIMCO sent a further non-binding letter of interest to NAMA. This letter of interest outlined the rationale behind the revised offer and set a range of £1.1bn to £1.3bn as the estimated purchase price that PIMCO would be willing to pay.

The following month, NAMA advised that it could not proceed with an exclusive process with PIMCO and proceeded to appoint Lazard to institute an open-tender.

3. The circumstances of PIMCO’s withdrawal from Project Eagle

In June 2013, PIMCO was approached by Brown Rudnick with a request for a proposed success fee. However, there was little progress in the potential transaction across the summer period and the proposal was not reviewed in detail until September 2013. The proposed success fee was initially expressed as a percentage of portfolio value and was within a typical range for a brokerage fee.

The Brown Rudnick proposal indicated that the success fee would be split equally three ways between Brown Rudnick and other parties, which led to enquiries by PIMCO as to whom the fee would be paid on to. PIMCO was advised by Brown Rudnick that the fee (later advised by Brown Rudnick to total €16 million) was to be paid to Brown Rudnick and then split in equal one-third shares between Brown Rudnick, Tughans and Mr. Cushnahan. PIMCO was later advised that Tughans’ one third share was to be paid to Mr. Coulter, personally, rather than to the law firm Tughans.

PIMCO did not agree to this fee proposal. PIMCO also sought various confirmations from Brown Rudnick including, whether NAMA had been informed and had approved of Mr. Cushnahan's potential involvement in the proposed transaction. After PIMCO raised these concerns around this fee proposal, no further request was made to PIMCO, at that time, to agree any fee.

In February 2014, a new fee proposal was received by PIMCO from Brown Rudnick (under which the same parties were to benefit in a similar amount). At this point, it appeared to PIMCO that disclosures still had not been made by relevant parties to NAMA. Accordingly, PIMCO decided to contact NAMA directly and take it upon itself to disclose full details of the success fee arrangements that had been proposed by Brown Rudnick, including the amount and intended recipients. In particular, PIMCO sought clarification on NAMA’s awareness of Mr. Cushnahan’s role in Project Eagle.

March 2014 Withdrawal calls with NAMA

As the Committee has heard from various parties, PIMCO provided details of these matters to NAMA in a senes of calls in March 2014.

PIMCO has been disappointed that PIMCO’s withdrawal from Project Eagle has been repeatedly mischaracterised by NAMA. We would suggest that NAMA has conflated what may or may not have been discussed at the NAMA Board level (upon which we cannot comment), and the reality of the calls that PIMCO made to NAMA and PIMCO’s own decision to withdraw.

The reality of PIMCO’s decision to withdraw was reflected more accurately by Mr Stewart in his evidence to the Committee on 25 October 2016. PIMCO welcomes his confirmation that PIMCO withdrew from Project Eagle, and was not at any stage asked to leave the process by NAMA.

PIMCO is largely in agreement with the summarised call notes appended to the report of the Comptroller and Auditor General at Appendix E of the report entitled, "National Asset Management Agency’s sale of Project Eagle", dated August 2016, although certain points are clarified below.

It should be noted that the reference to "a success fee arrangement (being) in place between PIMCO and Brown Rudnick" noted in the report is inaccurate. Whilst an arrangement was proposed by Brown Rudnick, it was never agreed to by PIMCO.

As described in the notes, following a request by PIMCO for a call on 7 March 2014, PIMCO Legal spoke to NAMA on 10 March 2014 and informed NAMA about the proposed success fee arrangement. PIMCO wanted to understand whether, and ensure that, NAMA was aware of Mr. Cushnahan's role and the fee arrangement that had been proposed to PIMCO. PIMCO stated that it would not proceed unless and until it was clear to PIMCO that NAMA was aware of Mr. Cushnahan's role in Project Eagle (including his potential interest as a beneficiary of a fee arrangement as had been proposed to PIMCO). PIMCO described details of the fee that had been proposed and the reasons for its concerns.

The NAMA attendees confirmed that they were not aware of the proposal but enquired as to whether PIMCO would proceed in Project Eagle should Mr. Cushnahan’s involvement, or the fee proposal to PIMCO, be an issue for NAMA. PIMCO confirmed that it was not currently proceeding with the transaction and that any decision to proceed or not would be informed by NAMA's response. NAMA agreed to consider the matter further and revert to PIMCO.

We can confirm that in no way did PIMCO seek the acquiescence of NAMA to any fee arrangement, nor seek NAMA's agreement that any fee arrangement was appropriate. That is also clear from NAMA's own minutes of the calls and the evidence of Mr Stewart to the PAC, who confirmed that did not happen.

As the notes outline, NAMA contacted PIMCO the following day (11 March 2014) to advise that the NAMA Board considered the involvement of Mr. Cushnahan to be a very serious issue for NAMA. PIMCO agreed to revert to NAMA and on a further call, later that afternoon, PIMCO informed NAMA of its disappointment that disclosures had not been made by the relevant parties to NAMA. PIMCO informed NAMA that it did not want to be part of any process where there was any suggestion of impropriety and was willing to withdraw.

Whilst it is for NAMA to explain the reasons for the questions asked of PIMCO on the call (and we note Mr Stewart sought to address this topic in his evidence to the Committee), PIMCO can confirm that on that call we were asked by NAMA if we had considered "other options", such as proceeding without the three parties, and we were asked to consider, before closing any doors, whether every option was being considered. PIMCO agreed to give the matter final consideration and to revert again.

On 12 March, PIMCO advised NAMA that it had no option but to withdraw from Project Eagle. NAMA expressed its disappointment but accepted the decision.

PIMCO confirmed its decision to withdraw in writing on 13 March 2014.

We hope the above is helpful and provides some additional clarity for the Committee.

Yours sincerely,

Tom Rice

Chief Legal Officer, EMEA

PIMCO Europe Ltd

We will publish the letter.

On the follow up from a number of organisations, this is the most important piece of correspondence we have received. It is illuminating and joins up many dots. It clearly contradicts evidence we were given from NAMA. That is very worrying, as it casts doubt on much of what was said to us in the evidence presented by NAMA in respect of what happened when it was made aware of the success or fixer fees. It also vindicates what was in the Comptroller and Auditor General's report. It appears that PIMCO is almost in full agreement with the Comptroller and Auditor General's interpretation of the conference call notes. We need to get NAMA legal representatives back before the committee as soon as possible because this is a clear contradiction of what was said.

In fact, what PIMCO is doing is accepting what NAMA's legal people put together in terms of the notes following the conference call. That is the issue here. Their notes - and the appendices based on them - are what the Comptroller and Auditor General based his assumptions on. However, when they came before the committee they tried to put a different interpretation on them. That interpretation is sharply contradicted by what is contained in the correspondence. The position needs to be clarified.

We also need to know whether NAMA was informed of all of this at the time. In other words, when NAMA was first approached by PIMCO, was it given this information in the letter with which we have been presented in terms of April 2013 as a timeline, the fact that a number of parties were involved, including Mr. Cushnahan? This is a serious issue because it raises questions as to the action it took or did not take - or the action it should have taken - in light of the information it was given. It tried to present that this was all retrospective or new information which was brought into the public domain and that it was not aware of it. If the information in this letter was presented to NAMA at that time, that puts a completely different complexion on what NAMA did or did not do. There are also questions about whether the NAMA board was given the full information. Serious questions arise.

There is a question for the Comptroller and Auditor General in regard to it also because he has dealt with this matter in his report. He mentioned the association of Mr. Cushnahan with a number of debtors that comprised 50% of the NAMA loan book. One of the Comptroller and Auditor General's observations is that PIMCO had an advantage over other bidders. Given what this letter states, the fact that we now know Mr. Cushnahan was one of those who was part of bringing the information to PIMCO and that an opportunity had arisen - and in light of the fact that we know he would have had some knowledge but that he had an association with debtors - in the Comptroller and Auditor General's opinion, what advantage would this have given PIMCO over, for example, Fortress or other bidders?

We will put the questions to the Comptroller and Auditor General. Obviously, we will write to NAMA for a detailed paragraph-by-paragraph response. We will not all ask the questions that need to be asked because it will have to respond paragraph by paragraph. I want to move on. Can we move on or does the Deputy want to raise anything else? We will ask the Comptroller and Auditor General to respond when we come to his section. I will take questions from Deputies MacSharry, Madigan and McDonald. We have a letter and we know we have to seek a detailed response. I call Deputy MacSharry.

I will not be repetitive other than to say that I very much agree with Deputy Cullinane. To me, this letter is potentially explosive. One aspect that jumps out at me is that in a sales process of 2013-2014, NAMA was providing valuations for 2009. We had certain discussions with Ministers and others about the fact that valuations were not sought. From my own knowledge, having been an auctioneer, if NAMA was selling a house for €100,000 in Kiltimagh, three valuations would have been sought. There was significant movement in property values after 2009, which would have been at the absolute depths of the crash, versus 2013-2014, when there would have been a very established trend in all three locations in which the properties were located, namely, the UK, Northern Ireland and the South. We certainly were selling ourselves short. That is one part of it. In terms of the Northern Ireland Government, another part of it is that - with respect to, say, a person living in the North of Ireland - it might have been a very patriotic attempt to withdraw its property industry from what may have been perceived by it to be a process of throwing certain developers in the South under the bus of certain developers in the South. That is worth considering in the context of the approach taken by NAMA regarding the overall economic impact on this country of its actions. The third aspect is the role of Mr. Cushnahan and the fee element, which was simply incredible.

Suffice to say, I agree with Deputy MacSharry. I think this is potentially very explosive. There is a question of fabrication here, and who is telling the truth and who is not. It is quite shocking to read this letter. I would be looking for a detailed response from NAMA and also to bring its representatives - particularly Mr. Stewart, who has already given some evidence on this issue - before us for further discussions. I would also be interested in hearing what the Comptroller and Auditor General has to say about it.

I call Deputy McDonald to be followed by Deputy Catherine Murphy.

A number of issues arise. First, this letter is a game-changer. It sets out a number of troubling facts but, as troubling as they are, they clarify what were gaps in the sequence of events and our understanding of what happened and why. It now seems that Project Eagle was conceived of not by PIMCO, as NAMA had asserted, but by Brown Rudnick, along with Tughans and Mr. Frank Cushnahan. Obviously, this needs serious investigation, as the Chairman said. We need to seek the assistance of Mr. Tuvi Keinan of Brown Rudnick. I want to make the committee aware that I had occasion to correspond with Mr. Keinan in July 2015. At that stage, his professional résumé at Brown Rudnick boasted sourcing and executing an off-market discounted UK loan portfolio sale from NAMA, Ireland's national bad bank, 2011. I was alarmed to read that. I corresponded with the committee at the time and with NAMA, which came back and said that, as far as it was aware, Mr. Keinan had worked for Morgan Stanley, which had been a successful bidder in a previous transaction, but it very much distanced itself from any knowledge of Mr. Keinan and now, lo and behold, his name appears here. It is not only that we need to hear from Brown Rudnick, we also need to invite Mr. Keinan to come before us because he is specifically cited in the correspondence.

In the context of the issue on which we pressed NAMA at all levels - the board, the chief executive officer and the chairman - regarding its contention that PIMCO had connived to remain within the process and had sought its acquiescence, this letter flatly contradicts that position. That position was defended by board members in fairly trenchant terms. Those board members need to return and give an explanation.

The most troubling aspect of all is that the matter relating to April 2013 appeared in the Comptroller and Auditor General's report because it is detailed in contemporaneous notes of telephone calls and also is referred to in the board minutes. What I want to know is has NAMA been less than truthful with this committee? Has it been less than fulsome in terms of the information it has given as to who knew what and when? We need to get to the bottom of that matter.

Mr. Rice, who has written to us from PIMCO, was party to those telephone conversations in respect of the fixer's or success fee. It is extremely important that we hear from Mr. Ronnie Hanna who was a key player, a key conduit for the board and who spoke on behalf of the board on these matters. It is essential that we seek to have him come before the committee.

We focused very much on Mr. Cushnahan in respect of the fixer's or success fee and the inappropriateness of this payment. This letter points to a much deeper problem in respect of Mr. Cushnahan. It is not just that he was in line for a fee, it is that he was at the heart of matters from the very beginning and right through to the execution of this sales process. It seems from this letter that NAMA was aware of that, namely, that he was not a bit player or somebody who was on the side and due to receive a fee, but rather a mover and shaker in the whole process. Very careful language is used in this letter in order to make that point clear.

They referred to Mr. Cushnahan's role and the potential for the fee. It is important, as we examine matters, that we understand the importance of all of that.

I will not go back over a lot of the territory, except to agree with a number of points. Mr. Keinan, in relation to Brown Rudnick, is a critically important person in all of this, as is Mr. Ronnie Hanna. What it tends to suggest to me is the inconsistency of information that has been given by NAMA and what prompted the whole process in the first place, and obviously, Brown Rudnick is key to that.

There is one issue. There is an inconsistency in this letter and I would like to ask PIMCO to go back over it. It is that PIMCO said the fixer's fee, or whatever terminology they used-----

Broker's fee.

-----was never agreed to by it. There is also the issue of whether there were other options or whether it considered all other options. It had not made a commitment, so why would it not have considered other options? I would like that particular aspect to be fleshed out a little more by the company.

There have been a few senior analysis pieces done recently in national newspapers on the work of this committee, in this respect berating members, including the Chairman, for some of the approaches and on their questioning of NAMA officials and other senior witnesses. When NAMA officials have attended these meetings, they has been quite strong in attacking back, in particular, in terms of PIMCO, as Deputy McDonald has said, suggesting that it contrived to stay in the game, and yet this piece of documentation clearly shows that PIMCO went out of its way to try to be honest with the whole process. The credibility of all the statements by NAMA gets put on the table, and as we have seen in recent days with the US election, credibility is something that can be hard fought and easily lost. Given the aggressive nature of how NAMA has chosen to deal with this committee, its credibility gets brought into question. The core of this key piece of evidence in regard to PIMCO is that there is a clear assertion now that NAMA has been dishonest with this committee. The chief legal officer of PIMCO has not taken the decision lightly to write to this committee and state clearly that there is a very wide divergence between how it approached this matter, that it was honest from the get-go, and the evidence that has been produced by NAMA to say to the contrary that PIMCO contrived merely to try to stay in the game and acquire this property. Therefore, the credibility of everything that has been put before us in terms of how we are assessing this gets brought into question.

I understand Deputy Cassells' point but we have to allow NAMA the opportunity to respond to this as well because we are not a court. I accept the chief executive officer put his name to this. NAMA has also given its submissions here. We need to be careful that we do not have people proven guilty until it is done.

I was not doing so. I am making the point that there is quite a divergence, not a small one, between both sets of the accounts that have been brought before us. That naturally calls into question what has been said to us.

While I appreciate that, both sides are vociferous in what they are saying. We have to establish who is telling the truth, and that has not been established as yet.

The attitude and the tone of some of the witnesses who have come here has not helped the case. As I said, the work of members of this committee has now also been called into question in the context of robust questions being asked when the suggestion is perhaps we should be coming in here with cotton wool and cuddling some of the witnesses.

My party cannot be accused of that. There is an important point to be made as well that should not be lost on us in this response where it says that when this project was conceived - we now know it was not conceived by PIMCO and it was conceived by all these players, that is, Mr. Coulter, Tughans, Mr. Frank Cushnahan and Brown Rudnick - it was not specifically in relation to PIMCO and that there were at least three bidders. That raises questions, because one of the narratives from NAMA was that once PIMCO and Cushnahan were out of the game, or once PIMCO was gone at least, that was the end of the matter. That is not the case. We need to know who these three bidders were. That is very important. Who were these other players who were in the game? Only Brown Rudnick can answer that question, but it is an important question nonetheless.

There is reference to the information that was given to PIMCO by these players. It is important to remind ourselves that this information was given by Mr. Cushnahan when he was a member of the Northern Ireland advisory committee of NAMA in April 2013. The information was of a very sensitive nature and he would have had it only because he was a member. That is how explosive this response is.

There are a lot of follow-up questions, but I reiterate it was not only PIMCO which was being approached by these fixers, players or whatever one wants to call them. They were approaching a number of others. It just happened to be that PIMCO then made the approach to NAMA.

We are going to conclude on this particular issue. The request so far is to write to Brown Rudnick and Mr. Tuvi Keinan. That is two requests. A request has been made publicly and it has been agreed to invite Mr. Ronnie Hanna to attend. That is three. We will write back to PIMCO to seek clarification on the success fee and the other options issue, as Deputy Catherine Murphy said, and when we write to Brown Rudnick, we might ask for the information on the three bidders.

Has the Comptroller and Auditor General any comment?

I am coming to the Comptroller and Auditor General. He is the next speaker.

I propose that the letter be specific. I put it into the public record today because NAMA's evidence has been on the public record. We will write back to NAMA and ask it whether it agrees with the contents of each paragraph. Where it comes to a paragraph on which it disagrees, I want NAMA to explain where it disagrees because at the end of our work we will have this on the record and if we want to use this letter, we want to know what parts of it, if any, are contested, and we will adjudicate on that then at the end of the day.

I propose we send this letter to the Office of the Director-General of the National Crime Agency in London with which we were in contact in respect of inviting witnesses from Northern Ireland. The letter from Mr. Ray McComb to the committee stated that if the committee wishes to share any information it considers relevant to that agency's investigation, which it calls Operation Pumpless, into this issue, the director general's investigators would be keen to be furnished with it through the appropriate channels. In case they find something like that helpful to their investigation, I propose we send a copy of that PIMCO letter to the National Crime Agency as well. Can we conclude on this?

The suggestion was made by Deputy Cullinane that we need to hear from NAMA legal and also from the board members who were so vociferous and voluminous: Mr. McEnery, Mr.-----

Mr. Stewart, Mr. Soffe.

In fairness to Mr. Stewart, PIMCO quote him a couple of times.

It is his boss who we need to hear.

I want to say this in order that members will remember. Mr. Alan Stewart is a senior divisional solicitor with NAMA and he was before the committee recently.

It is his senior who we need to hear.

While we are on the issue of witnesses, will we come back under any other business? We have invited just about everyone but we have failed to invite Fortress. Maybe we might come back to that at the end.

In light of the fact that we want to follow up information, we wrote to Fortress recently because it was the only bidder left standing with Cerberus. We have written to Fortress asking a couple of issues, namely, how Fortress became aware of sale of Project Eagle, how Fortress became involved in the process, the basis on which Fortress made its bid, its rationale for making a bid before the known reserve price, and any other matter that might be of interest to the committee on the sale of Project Eagle. We have written to Fortress on that basis and we have suggested that we may issue an invitation.

I was not in a position to do so without the committee's go-ahead. I know we are making a bit of work but we will have to condense the information.

It completes the circle.

We have to complete it. Fortress was the only bidder at the table at the end of the process other than the successful bidder. We need to hear from them. We have written to them in recent times.

Does the Chairman not think that we should call Tom Rice before the committee to give his views on this letter?

Maybe the Deputy missed the very beginning of the meeting.

She had to go to the Dáil Chamber.

I read the letter into the public record. Mr. Rice stated that because of the National Crime Agency investigation, as well as investigations in the US, and to avoid taking any action which might prejudice the investigation, he had to respectfully decline the invitation to send a representative of PIMCO to the committee. However, he gave a very comprehensive reply to the letter.

I appreciate that.

However, he has declined.

We must be very careful. I am not taking sides at all here, but looking at it very objectively, NAMA has come before the committee and given evidence, and we have a letter from Tom Rice. He states he will not give evidence on very serious assertions he put in his letter. If he cannot make it to this committee room, somebody else should be in his stead because he has put his name to this letter. Of course, we do not cross-examine people as such as we are not a court, but he must be in a position to give oral evidence to back up what he states in this letter. It is very dangerous for this committee to accept evidence or submissions from NAMA, which takes the trouble to come in and talk to us, but yet the committee is not getting anything from Tom Rice. What can we do about that?

In the interest of fairness, we read the letter into the record. I have not accepted or rejected a single sentence of it. I said we will write to NAMA and ask them paragraph by paragraph to agree or disagree with the letter. We might find 90% of it is agreed by both sides. Then we will have to adjudicate on their points of difference.

That is optimistic.

Tom Rice has declined.

The Chairman gets my point.

Our issue is that he is from outside this jurisdiction. NAMA is within the remit of the Committee of Public Accounts. PIMCO is a company outside this jurisdiction. Tom Rice wrote from its London office, so we have an issue.

Other assertions come out during oral evidence-----

I agree.

-----that are not always on paper. In the interest, as the Chairman said, of fairness, we should have somebody representing-----

What does the Deputy propose?

We need somebody who will represent Tom Rice if he will not be here. Does the committee have the power to-----

-----have a substituted service outside this jurisdiction?

The essence of this is that Fortress, PIMCO and Lazard are all commercial organisations from outside the State. We have no powers of compellability, even if we choose to go down that route.

We might be premature in that regard. I agree that we must be awfully careful. The narrative of this letter is completely different. That is as much as I would say about it. I will await and keep silent-----

Until we get NAMA's response.

Until I get NAMA's response.

Then we will discuss it.

Then we can take-----

We can discuss any points of conflict there may be at that stage. We are nearly there.

We cannot compel, but Deputy Madigan makes an absolutely fair point. Perhaps we could gently encourage Mr. Rice at the appropriate time and ask him to present himself. We cannot compel him, but Deputy Madigan's point is fairly made.

We cannot assume that what he states is correct either.

We will hold that. We will send a letter to NAMA within 24 hours asking for a paragraph-by-paragraph response, whether confirmation or disagreement. That is the PIMCO letter dealt with for today. We will come back to it.

As I mentioned a short while ago, we are joined by Mr. Seamus McCarthy to give evidence to the committee today. We are also joined by Mr. John Riordan, director of audit at the Comptroller and Auditor General's office. I will ask Mr. McCarthy to make his comments and then we will have some questions and answers. The reason he is here is to respond to the various items of evidence brought before the committee today. I ask members not to ask Mr. McCarthy his opinion on why other people did certain things. If we have questions for other people, we will ask them directly rather than ask people to speculate about other people. This is in an effort to keep the discussion focused.

Mr. Seamus McCarthy

I thank the committee for the opportunity to comment on some of the issues raised in the hearings. I thought I might discuss briefly four or five key matters that have come up on a number of occasions. I have not prepared an opening statement because I am quite happy that my original opening statement stands. That is my summarisation and presentation to the committee of what the report contains, and I would like to put on the record that I am still satisfied with my report.

Regarding the PIMCO letter, Deputy Cullinane put a number of questions to me, so I will make a number of comments in response. First, the point as to whether the board of NAMA knew that negotiations had gone on in April 2013 was, I think, the point which was raised with Mr. Ellingham and which he corrected on the record today. As Deputy McDonald has said, the minutes of the board meeting of 13 March record the fact that the success fee arrangement had been discussed. The minutes state "The Board noted that PIMCO had advised that the negotiations had commenced in April 2013 and noted further that Frank Cushnahan had not resigned as a member of the Northern Ireland Advisory Committee until 7th November 2013 nor had he made any disclosure of his involvement." Those are the facts. I am reading from paragraph 5.19 on page 93 of the report. Moving to page 94, NAMA responded to that. It states in paragraph 5.26:

NAMA was not aware in March 2014 of success fee negotiations that may have taken place in April 2013 between various parties. The minutes of the Board meeting of 13 March 2014 state that “the Board noted that PIMCO advised that the negotiations had commenced in April 2013”. This disclosure was taken by the Board to mean that negotiations between PIMCO and Brown Rudnick had commenced in April 2013, and not that negotiations over success fee payments had commenced at that stage.

That is NAMA's official position on that point.

The question arose as to what advantage there would have been to PIMCO of Mr. Cushnahan's involvement and what success might have meant in that case. I take the Chairman's point about not engaging in speculation. I do not want to engage in speculation as to what that advantage might have been. However, there was a point in the paper put to the board in December 2013 on page 146. It discusses the non-performing loan, NPL, discount. I will come back to the discount rates, but the paper states:

In general, acquiring non-performing loans, without an agreed strategy and consensual plan to simultaneous [sic] take direct ownership of the secured property or shares, carries significant risk.

[Asset recovery] is not aware of any such plan between PIMCO and existing NAMA borrowers.

The significance of that is that the level of discount that a purchaser of non-performing loans would seek can be affected by the extent to which there is an arrangement or whatever in place with the non-performing debtors. I am not suggesting that is the situation, but there is that risk and the committee might wish to consider it as well.

Another point in that regard is that any bidder for Project Eagle or any other purchase of loans in NAMA would have been required to sign a declaration stating that it did not have a connection with any of the debtors. That is an obligation that would have been faced by PIMCO had they gone ahead with the purchase. A declaration of that nature was made under section 172 of the NAMA Act, that that would be an obligation on PIMCO. It was an obligation on Cerberus, which, in fact, signed such a declaration. Those are the comments I have to make regarding the issues that come up in the PIMCO letter.

If the Chairman wishes, I can make the four or five points I want to make and then if the committee wishes to discuss them at that point and dispose of them, that is fine.

The Comptroller and Auditor General might answer questions.

Mr. Seamus McCarthy

No, I will answer questions on this issue and any other issue the committee brings up. If members wish to interject at any stage, we can delve more deeply into the matter.

I ask the Comptroller and Auditor General to keep going.

Mr. Seamus McCarthy

I will begin by going back to a question that was asked by the Chairman about what constitutes a value for money examination. This report is underpinned by such an examination. Value for money examinations are carried out under section 9 of the Comptroller and Auditor General (Amendment) Act 1993. Specific types of issues can be examined within that. I want to draw the committee's attention to the legislative provision that is most relevant here. Section 9(1)(b) empowers the Comptroller and Auditor General to carry out an examination as to whether disposals of resources by public bodies have "been effected upon the most favourable terms reasonably obtainable". I draw attention to that because NAMA's primary purpose, having acquired assets, is to dispose of those assets. We are not talking about NAMA investing in and holding property into the long term. All of NAMA's activity is aimed at disposing of the assets. It is a question of whether those disposals are "effected upon the most favourable terms reasonably obtainable".

NAMA had two options. It could choose to work out the property assets over time or to bundle the loans into portfolios for sale. Chapter 3 examines how NAMA evaluated that choice in the case of Project Eagle. Having decided to sell the loans in a portfolio, the entirely separate question of whether the sales process implemented by NAMA relating to that portfolio sale resulted in the achievement of the best price available in the market for a portfolio arose. That is what Chapter 4 deals with. They are two quite separate and distinct issues. Regarding the objectives of the examination, I want to reiterate, as I said in my original opening statement and in the report, that I draw no conclusion about the merits of the decision to sell or about the commercial or strategic objectives underpinning NAMA's decision. It is not for me to do that or to engage in speculation about it. That is just in relation to the examination.

Can I ask an obvious question?

Mr. Seamus McCarthy

Yes, sure.

It is a value for money report.

Mr. Seamus McCarthy

Yes.

I will keep it in layman's language. The Comptroller and Auditor General's report does not reach a conclusion on whether, in his opinion, the State got value for money.

Mr. Seamus McCarthy

The term "value for money examination" is not used specifically in section 9 of the Act. It is used in the headline, if one likes. It is used to summarise it. Value for money is made up of different things. Under section 9, I am required or enabled to examine whether a public body disposing of resources or assets effected that disposal "upon the most favourable terms reasonably obtainable". I think I have done that.

The Comptroller and Auditor General said there was a probable loss of approximately €190 million.

Mr. Seamus McCarthy

That is how much money was lost as a result of choosing to sell the assets by way of a portfolio, as opposed to working out the assets.

Could the Comptroller and Auditor General have said in his report that there was an actual loss? Why did he use the word "probable" rather than the word "actual"? Why did he qualify the word "loss" with the word "probable"?

Mr. Seamus McCarthy

The workout strategy is a longer-term strategy. It is obvious that if one is trying to choose between holding assets for a number of years and disposing of them piece by piece over a number of years, there is some uncertainty related to that.

Mr. Seamus McCarthy

The cashflows that NAMA put together were looking forward. Inevitably, there would be some element of difference in the outcomes. The other point that comes into it is that NAMA got a better price for the portfolio than the €1.3 billion it was putting it on the market for. My re-working of the cashflows was indicating a net present value of €1.49 billion for that. I was focusing on the decision to put it on the market and say "we are prepared to sell it at a price of €1.3 million" because that meant there was a gap of €190 million. My understanding is that NAMA was prepared at that stage to take that level of loss.

I apologise for interrupting. I will call Deputy Connolly in a moment. Does the Comptroller and Auditor General want to complete his-----

Mr. Seamus McCarthy

No, I am quite happy to engage with the committee on each point as we go along.

Okay. We can go back and forth.

Mr. Seamus McCarthy

I know there will be a number of other points I am not dealing with that the committee will want to interrogate.

We will keep it a little informal at this stage. There will be no ten-minute slots here. We will put quick questions to the Comptroller and Auditor General and have a quick exchange forward and back. I invite him to move on.

Mr. Seamus McCarthy

The discount rate for the workout option is probably the focus of most of the disagreement, or most of the key disagreement, that the committee has heard. It has been represented that I came up with the 5.5% discount rate figure as a proposal. NAMA used a rate of 5.5% to discount its projected cashflows in the paper it gave to the board in December 2013. It chose that rate and used it throughout its paper. When, in the course of the examination, we asked NAMA why it used that rate, it explained to us that the board had confirmed as recently as June 2013 that this specific discount rate was appropriate for such exercises. The board paper notes that NAMA had a low cost of capital at the time.

When was this confirmed?

Mr. Seamus McCarthy

It was in June 2013, or six months before the paper was put to the board. The board had considered what was the appropriate level of discount to use. We have reproduced the relevant part of that paper on pages 42 and 43. When one reads that, one should consider it in the context of the reduction in NAMA's cost of capital. The tenor of the paper is to question why it was appropriate for NAMA to continue to use a rate as high as 5.5%, and why it should not be reduced, given that its cost of capital had fallen. It argued, for a number of reasons that are laid out in the paper in question, that it was reasonable to continue to use that rate for commercial decision-making by NAMA. We accepted that argument, which was presented to us when we queried why a 5.5% rate was being used.

I have already referred to page 146 of the paper that was put to the board in the context of NAMA's claim that a 10% discount rate should be used to arrive at a net present value for the workout option. That was not raised with us in the course of the examination until June 2016, when NAMA suggested that it would have been appropriate to use a 10% rate. The question that arises in that context is why such a rate was not used in the paper to the board if it was appropriate to use it. Having looked back over it, all previous documentary references to a 10% discount on asset values or to a 10% discount rate are in the context of how potential purchasers would value a loan portfolio and not how a seller should value such a portfolio. I have no difficulty with NAMA's argument that a potential purchaser of a portfolio of distressed assets would have arrived at a bid value based on a 10% or higher discount of asset value. A purchaser would need to have that space in order to make a profit. Equally, I accept that purchasers could have applied a 10% discount rate to their own projected loan cashflows, reflecting their typically higher cost of capital. In the report, we have tried to represent fairly NAMA's position in relation to that and how purchasers would go about valuing a portfolio of assets. We have included in the report all the expert advice that was received by NAMA in 2016, first of all from a number of loan sale advisers and then latterly from KPMG. We have no dispute with it.

The focus in all that advice relates to the use by purchasers of a relatively high discount rate. More recently and in the course of the evidence here, it was not something that was raised with us during the examination. NAMA has pointed out that it used a 10% discount rate in arriving at a fair value for its loans for disclosure in its 2012 and 2013 financial statements. That is absolutely correct but in that context, a fair value estimate is designed to reflect the price that the market would pay NAMA for all of its loans if it had to sell them on the balance sheet date. Again, it is 10% being appropriate when looked at from a purchaser's point of view.

I will conclude by making the following points. I do not accept NAMA's representation of this disagreement as a difference in accounting treatment. Rather, it is a question about economic decision making and the discount rate is relevant to that. It is about how we make choices between alternative ways of handling publicly owned resources. It is not just an esoteric accounting point. A paper which was submitted to the committee in the last week is relevant to this point. The reference is 167 B. This is a document that my office would have received from the chief finance officer when we were finishing the 2013 financial statements around April 2014. It relates to a matter that the Chairman raised when I was here originally, namely, whether there should have been a post balance sheet adjustment of impairment. That was something we discussed with NAMA at the time and this paper was NAMA's response. I wish to draw attention to the part of the paper where the chief finance officer points out that the future potential sale of the Northern Ireland portfolio as a portfolio loan sale was not considered in the impairment calculations at the reporting date, 31 December 2013. In estimating the cashflow of the Northern Ireland debtors, assets disposals would have been anticipated in periods from 2014 to 2020 in line with the existing strategy for NAMA. What NAMA is confirming there is that it had an alternative to selling the portfolio, which was to work out the assets. In the next paragraph of the document, NAMA is saying that the portfolio loan sale is anticipated to generate a loss, on disposal, of £160 million. The discount to carrying value reflects the impact of a sale of the entire portfolio of assets. This discount factor did not arise and would not have been considered as part of the year-end impairment asset as it was anticipated that the Northern Ireland loans would be held for the longer term in line with existing debtor strategies. Therefore, NAMA is of the view that the conditions that generated the loss on disposal did not exist at the reporting date. Effectively, what NAMA is confirming there is that it had a strategy to hold the assets and work them out and that it did not see that it needed to incorporate the loss into the impairment figure at the end of 2013.

Obviously, a lot of points have been raised with the committee around the discount rate. If members have questions relating to it, I would be happy to answer them.

Was that discount rate based on the 5.5%?

Mr. Seamus McCarthy

Which discount rate?

Sorry, not the discount rate-----

Mr. Seamus McCarthy

At the reporting date?

Yes, at the end of 2013.

Mr. Seamus McCarthy

That would have been based on the effective interest rate, EIR. It would have been for the Northern Ireland -----

I ask Mr. McCarthy to explain EIR to the public.

Mr. Seamus McCarthy

Okay, when NAMA acquired the loans it would have calculated an effective interest rate, EIR, for each loan. This would have varied, depending on the characteristics of the loans and how long NAMA was expecting to hold them. Effectively, for accounting purposes, one stays with the EIR when one is reporting. On average, for the Northern Ireland loans, the EIR at the end of 2013 would have been about 4.8% as opposed to the 5.5% that was used in the cashflow analysis. I can talk a little more about that if members wish but there is not that much difference between 4.8% and 5.5%. The higher the interest rate, the lower the net present value. That was actually why we queried it in the first place. We asked NAMA why it was using a higher discount rate, which has the effect of lowering the net present value but we accepted that it was reasonable on the basis of the paper that was presented to the board in June 2013.

We will be able to read the transcripts and go back through some of this later. NAMA talks about the difference between fair value and carrying value. I ask Mr. McCarthy to explain the difference there. We do not want to get bogged down but we must put this on the record-----

As a follow up to that, I ask the Comptroller and Auditor General to also clarify what he means by "lower costs of capital".

Mr. Seamus McCarthy

On fair value versus carrying value, carrying value and accounts in general should reflect the nature of the business and what it is that the business is trying to do. So, with regard to loan assets, if one is intending to hold them and work them out, that should be reflected in one's financial statements. The carrying value does that; it is built on cashflows that assume that NAMA would work out the assets over time, from 2014 to 2020. Everything on the balance sheet was looked at from that point of view. Under International Financial Reporting Standards, IFRS, NAMA is also required to disclose in its financial statements what would happen if it had to sell all the loans on the balance sheet date, if it had to have a fire sale of everything it holds, which is different to its strategy of working them out. The fair value amount is to be presented in the financial statements as well but it is presented by way of a disclosure note rather than being built into the balance sheet. If NAMA changed it strategy and moved to one of disposing of the loans as quickly as possible, then it would have been required to revalue those loans and present in its balance sheet the loans valued on a fair value basis.

I ask Deputy Cullinane to repeat his question.

What is meant by lower costs of capital?

Mr. Seamus McCarthy

NAMA's borrowing cost in June 2013 was around 1.2%. Effectively, this was the cost of its senior bonds. The interest rate on its subordinated bonds, of which there is a smaller amount, would have been about 5.6%. One could say that taking the interest rate on the 95% senior bonds and the 5% subordinated bonds, one would get a blended cost of capital. As at June 2013, and things did not change that much between June and December 2013, NAMA's cost of capital was very low. NAMA also had a hedging strategy for its interest rate which was protecting it against any sudden increase in the interest rate on its bonds. NAMA discussed this in the June 2013 paper. Effectively, NAMA had ensured that its interest rate would not go above 2%. The difference between that and the 5.5%, which was the discount rate, reflects the risk in the portfolio. Between a figure of around 1.2% and 5.5%, one is looking at around 4.3% or 4.4% of a risk premium, which is relatively generous. The potential purchasers would have been looking at bank interest rates, for the element that they borrow from banks, of around 4.5% or 5%. The equity proportion would have an expected higher rate of return.

Again, with a blended rate of-----

That is the point about NAMA's holding onto the assets. It had an advantage over a potential purchaser who would have had a higher rate of capital.

Mr. Seamus McCarthy

It had, because it had cheaper capital. Albeit there have been times when the State has been under pressure, generally Government borrowing anywhere is at a lower rate than market rates. In a situation in which one bank is selling to another, they are probably relatively similar. There would not be a big gap between what bank A, which is selling the assets, and bank B, which might buy the assets, would have. Therefore, these kinds of issues would not arise so much because there would not be such a gap between a selling bank and a potential purchaser.

I was looking to come in on the wider issues but I will wait.

Does Mr. McCarthy accept that the Project Eagle assets were of a lower quality than other NAMA assets?

Mr. Seamus McCarthy

When NAMA acquired the assets, the assets had particular characteristics, for example it has been pointed out that land in west Ulster would be a low-quality asset. When NAMA acquired the assets, and the other assets in the north of England and Scotland, it should have taken into account the locations. It has also impaired the assets substantially. The impairment on the Northern Ireland assets was higher, on average, than it was on other assets.

What does Mr. McCarthy mean by "impairment"?

Mr. Seamus McCarthy

Say one has an asset in Scotland. One acquires it at a price in 2010 and subsequently, if property prices in Scotland fall, one would say that if one were to sell it in two or three years, as planned, one would not get the value back. In the cashflow, one reduces the amount one thinks one will get back from it and compares it to the amortised value. The difference between the two figures is the impairment figure. One has to charge-----

They devalued it, then.

Mr. Seamus McCarthy

They devalued it, effectively. It is writing down the value of the asset.

This is pertinent.

Mr. Seamus McCarthy

The process had gone on from the point at which NAMA acquired them. Any deterioration in the property market in all the locations where NAMA held the assets should have already been reflected. There was a relatively strong rent roll from the Northern Ireland debtor property. Given that NAMA had bought it at a relatively low price, it was generally yielding. The amount of property in west Ulster was relatively small. When property that is not in Dublin, London or wherever is characterised as being poor investments per se, I would like to see the evidence of it as opposed to the assertion of it. We did not see such evidence.

NAMA made a big play about the political situation in Northern Ireland and also spoke about the relationship with its clients and creditors. It spoke about Brexit. We kept asking NAMA about its long-term strategy, if it sold off assets slowly up to 2020, bit by bit, rather than this quick-fire or loan sale that happened in one go. We never got a very good answer to it. What is Mr. McCarthy's comment on it?

Mr. Seamus McCarthy

We have looked back at NAMA's risk register. Brexit could have had implications for more of its property than just the Northern Ireland assets. Some of the debtors in this jurisdiction would also have had property in the UK and Northern Ireland. NAMA's risk register at the time when it decided to sell Project Eagle did not identify Brexit as being a concern at all. NAMA recognised that there would be uncertain economic conditions into the future. It could be to do with any development or shock to the economic system. Figure 3.3 shows that we are not talking about planned disposals in which one decides to hold everything until 2017 or 2018. Many of the disposals that were in the plans at that stage would have occurred in 2014, 2015 and 2016. It could have been that, as markets improved in 2014 and 2015, there would have been opportunities to accelerate it. That would have meant NAMA could have received the disposal receipts earlier. The Brexit shock was in the middle of this year. A substantial part of the portfolio could already have been sold and there might have been opportunities to accelerate more of it. We are in the realms of speculation and the counter-factual, discussing what might have been.

In the Comptroller and Auditor General's report, the discount rate is backed up by NAMA's cashflow projections and we have a lower discount rate, 2.5%, on the extract that is replicated in the report. What work does Mr. McCarthy's office undertake to stress test it commercially? At times, I get a view that it has to be backed up by the minutes of the board and its replicated cashflows. How does Mr. McCarthy's office assess whether the discount rate is off the wall or holds, commercially?

Mr. Seamus McCarthy

This is something I want to examine in more detail in the section 226 report, which is planned. I talked about it previously. The annual audit does not focus on the issue. We do not examine it in that level of detail. We do not test the commercial analysis. We had a previous section 226 report. At that stage, it was mainly assets that were being sold rather than loan portfolios. In general, the thing that grounds a disposal of an asset is to get a valuation of the asset before one puts it on the market. This is where one gets the reliability from. When something is sold, we look back at the cashflow regarding it. While there would be pluses and minuses, in general, one would not see very substantial departures from it.

Has that work been carried out?

Mr. Seamus McCarthy

This is a much more in-depth analysis of the material presented to the board.

My concern is in terms of the value-for-money audit. We are checking everything that is in the board. We are checking the data and backup, or lack thereof, NAMA has had for its decision. Mr. McCarthy's scope is to get the backup for the discount rate NAMA chose. It had cited different discount rates in the past which were lower than the one it chose for the portfolio. This is the replicated extract Mr. McCarthy has. If we are saying there is a significant probable loss, surely it has to have a commercial benchmark.

NAMA is very unusual in terms of its cost of funds and its risk. No other firm can have those supports in the market when purchasing property. I am concerned about how it stacks up commercially when there is a loss to the taxpayer because this discount rate is incorrect. If NAMA has backup for certain points in the report, that has to be tested commercially to show it is incorrect from its point of view. That is why I am concerned.

Mr. Seamus McCarthy

The paper to the board in June 2013 deals with exactly this issue. How is it that 5.5% continues to be an appropriate discount rate-----

They need flexibility in that, but in the report it states that the board noted "that 5.5% rate should not be used as an over-arching discount rate to evaluate all potential transactions".

Mr. Seamus McCarthy

Yes and that it needs to be considered case by case. In December 2013, when it presented a paper to the board, it was presented with 5.5% and 2.5%, not 10%.

Does the Comptroller and Auditor General stress test that to see if it is correct? The 2.5% sensitivity analysis it did on the cashflows could be off the wall commercially. That could be a reasonable comment.

Mr. Seamus McCarthy

In the normal way we would not get into examining the commerciality of that decision in the course of the financial audit.

That aspect is important for this committee. When the Minister for Finance was before the committee, he quoted €32 billion of contingent liabilities for the State in exiting the bailout and it was not an option to work all these loans out to 2020. We are reading NAMA strategy but things evolve as the pace in Europe gathers. Does Mr. McCarthy concur with the Minister's view? I know he is using work-out values in his report.

Mr. Seamus McCarthy

When we reported previously on the section 226 report, which was around the time Project Eagle was being sold, my recollection is there had been sales and payback of debt in line with the targets set. In fact, they were ahead. The fact that it had access to capital on a lower cost basis meant that it could choose what it would sell at what time. It was put in a position of being able to hold assets and not have to sell them at a loss.

That is the nub of the issue, but how long could it hold them? Surely if the State had so much debt on its balance sheet, it had to get sales through and show that the banking system and the property market were getting back to some normality. Essentially that is what NAMA was there to do. That would be a fair point.

Mr. Seamus McCarthy

I do not want to get drawn into the commercial or strategic reasons for making this individual sale, but it had until 2020. It would not hold everything until then and try to have a job lot sale but it had set out a plan for disposing of these assets. The paper I referred to by the chief financial officer in NAMA reiterated that was its strategy, other than moving to the loan sale.

In his opening statement Mr. McCarthy commented that he had spoken to NAMA's sister audit office in the United Kingdom and got advice from it on the report, and Northern Rock was used as an example. Mr. McDonagh said in his opening statement that, at the time, experts were sought on the valuation of assets in dealing with Northern Rock. I am beginning to understand now why Mr. McCarthy did not engage experts because he is reviewing raw evidence and the work provided by NAMA but not assessing whether the discount rates hold up commercially and their benchmark etc. Is that a fair comment? Mr. McCarthy is using his expertise to review exactly what is contained in the minutes, the backup for them and all the cashflow projections to ensure they all match up. Would it be fair to say that if he was to bring that to the market, he would need additional expertise in valuations?

Mr. Seamus McCarthy

It is worth bearing in mind that the National Audit Office, NAO, in the UK is not the auditor of the bank. It has a reporting remit but not an auditing remit.

It would have engaged experts in that report.

Mr. Seamus McCarthy

No, I think it used its own team.

I think Mr. McDonagh was very clear on that. If memory serves, he wrote that on the end of his statement that day. He was using that to discredit what Mr. McCarthy was saying. It is important to get to the truth of that. Did the NAO seek additional expertise in compiling its reports?

Mr. Seamus McCarthy

I do not think it did, but I will check it and come back to the Deputy on that.

We need clarity now on some issues. I will not go over old ground because we want to try to reach some conclusions. When NAMA first attended the committee, it was very strong in its criticism of the Comptroller and Auditor General's report on the discount rate and his understanding of market values and so on. That softened the last time board members were before the committee, and there was some discussion of Mr. McCarthy's interpretation of what he meant in the report and their understanding of it, or at least their perception of it. It might be clearer when the senior officials of NAMA attend a meeting of this committee in a couple of weeks' time.

There is a lot of discussion about whether Mr. McCarthy had market expertise, the level of outside expertise he should perhaps have got and so on. I do not have that expertise. I have to understand this through what I hear from NAMA and from Mr. McCarthy. The same is true, I would imagine, for all committee members. Mr. McCarthy said this is about economic decision-making and the sales strategy NAMA employs, and that whatever sales strategy it employed in respect of these assets would determine discount rates and so on. There was a sales strategy to hold the assets, working them out over time, and Mr. McCarthy mentioned the lower cost of capital, so that would have yielded a higher return. At no point did he say that NAMA should have held the assets until 2020, which NAMA insinuated he did. It is clear that misrepresented what Mr. McCarthy said. It is important that is corrected. Mr. McCarthy's distinction was not so much that if NAMA switched to a loan sale strategy and wanted to sell at that particular time, a market rate would apply and that it should not have applied a higher discount rate, but that with all the evidence the board had at the time, as presented to us, if it had held out and kept to the work-out strategy in place, it would possibly have got a higher return because there was a potential loss in switching strategy.

I want to understand why it switched strategy. That will come back to some of the PIMCO material but leaving that aside, why, from a commercial perspective, did it switch strategy? It is now using retrospective excuses such as Brexit which Mr. McCarthy said it did not raise with him.

It also talks about the low performance of the assets and it had problems with debtors. There were all sorts of excuses given but there is no evidence. We have asked them for evidence to back this up. The secretariat has a briefing note document written by a Martin Whelan from NAMA. Do we have that there on the screen?

Is it from 3 November?

It is from 6 November 2013. It was sent from NAMA to the Department of Finance.

Is there a reference at the top of the page?

It is 229/2013. The secretariat gave me a copy of it earlier. Is the Comptroller and Auditor General aware of that document?

Mr. Seamus McCarthy

Yes, I think it is a briefing note that was released by the Department under freedom of information. It may be in the pack.

What is interesting about this is that this was in November 2013. It talks about 70% of the North of Ireland's portfolio being completed property and income-producing; that NAMA has approved €140 million in new money advances; a small number of cases had to be enforced in the North; that the agency's enforcement was proportionate to the scale of its exposure in the North and was not really different from what was happening in the South. The document then says that as it transpires, NAMA's commercial approach had been aligned with this, which would have been working out the assets.

My point is that nowhere in this does it refer to difficulties with debtors. Nowhere does it point out that there is a real motivation that would lead us to having to bundle all of the assets and get rid of them because there is a problem here. We can only work on what we have. This seems to contradict the rationale being given to us by NAMA to justify the change in sales strategy. Maybe the Comptroller and Auditor General can comment on that briefing document and his understanding of it.

My point is that at all times we have asked NAMA to justify why it changed its sales strategy. What was the basis for it? Was the board given the information it needed? On what basis did it make the decision to change from the work-out of the assets?

We will ask NAMA that when it is back, not the Comptroller and Auditor General. He cannot answer for NAMA.

The Chairman is missing the point completely.

We have not got the information.

We will ask that. My point is that the Comptroller and Auditor General's report talks about the potential loss of €190 million. That is based on the fact that, in his view, it had worked out the assets.

Mr. Seamus McCarthy

Maybe it was. It goes back to Deputy Josepha Madigan's point about the quality of the assets. The quality of the debtor was relevant to that as well. It was one of the issues that was adduced as an argument as to why a 10% discount rate should apply to the cash flows because of the increasing difficulty of dealing with Northern Ireland debtors. That is one of the things we asked for evidence of. What was NAMA pointing to? The briefing note supplied by NAMA to the Department said this is not that bad and that there is not that significant difficulty with the debtors, particularly as 70% of the Northern Ireland portfolio is completed property and income-producing. There is that question of how one squares that with the valuation of the assets and, effectively, the paper, which was presented to the board in 2013, which directly contradicts that saying there is increasing difficulty with the debtors.

That goes to the heart of the matter. When it talks about the rump - I think that is how it described it - of what was left, that was the motivation for the bundling of the assets. It felt the rump of what was left could not be worked out. That is what drove NAMA to the motivation for the opportunity to avail of an overall sale rather than a work-out. On that basis, Mr. McCarthy is asking for documentary evidence to show that is not the case. Would he accept NAMA's contention?

Mr. Seamus McCarthy

I do not want to get drawn into the specific commerciality of it.

Unfortunately, that is the issue.

Mr. Seamus McCarthy

I do see NAMA's point about the idea of putting the whole portfolio together, so that one is not left with the rump. That is NAMA's argument.

On the other hand, we have looked at other loan portfolio sales where there was advice from loan sales advisers as to what was the best way to put a portfolio together, to put it into packages, to look at who was looking for what kind of assets. We did not see any of that in relation to Project Eagle. It was quite simply we will work it out or we will sell it all as a single loan portfolio. It might be instructive for the committee to see the Lazard documents. I know the committee has asked to see them and I presume they are coming to it. From these, the committee will see nothing in them about how to shape the portfolio. If one were to look at the tender submitted by the loan sale advisers for Project Arrow - their bidding for the work, their analysis of the market, who is available to buy a portfolio of this size, what way the portfolio is put together - it is remarkably different. It explains the logic of the thing in good sense. What it did with Project Arrow was that it took some of the better assets and sold them separately.

There are strategic responses that might have been available to NAMA but we do not see any of that kind of analysis. Lazard was not asked to produce that kind of advice for NAMA. That leaves me with a concern - one that remains with me - that it may not have approached it strategically. I am not going to try to say what was the alternative best way to sell it. I would not attempt to do that. However, it could have got advice to assist it, taking the temperature of the market at the time and looking at who is interested in buying loans of what kind and what sort of tranches and so on. I would have much more of a sense of assurance that the market then had given the best price.

That comes back to the point that NAMA's failure with the procedural process leaves us with a whole raft of “what ifs” in terms of the questions Mr. McCarthy is raising. That is one aspect of its decision to go and pursue that strategy if it had not worked out.

The points raised by Deputy Peter Burke are pertinent here in respect of the Minister for Finance and in terms of the pressure. We know we have the Department of Finance officials coming in today. They claim they were not under pressure, yet the Minister for Finance says we needed to relieve this liability off the balance sheet from the State's point of view. Does Mr. McCarthy accept that contention from the Minister for Finance?

Mr. Seamus McCarthy

Certainly there were targets and the NAMA board itself had adopted targets for the redemption of debt. That was an objective of the board's. It was making progress in relation to that. Ultimately, if it was to end up with a surplus at the end of its life and have something to hand back to the taxpayer, it had to be selling things and making more than what they paid for them.

If there is pressure from the European Central Bank and so forth, that is not a quantifiable accounting figure that one can put in an audit. It is a bigger pressure coming from those in Europe. What is Mr. McCarthy's assessment of that?

Mr. Seamus McCarthy

It is undoubtedly the context in which it was operating. We have tried to represent that in the report and explain that is the context. However, one still has to come back to individual choices about disposal of individual assets or portfolios of assets. One needs a framework that will allow one to ensure one does not sell at a loss if one has an alternative. That is the point.

The Comptroller and Auditor General has made a very forthright statement here this morning to the effect that it is not an accounting difference between his office and NAMA. He has said the difference is about economic decision making and how one makes choices about public resources. That is a very important statement because the dispute was characterised as simply a matter of accounting methods. Mr. McCarthy has put it on record here that his assessment is made in the context of the interests of the State and is not related to accounting differences. In that respect, is Mr. McCarthy satisfied that NAMA did not work out all of the processes that could potentially have realised the best result for the State and the taxpayer?

Mr. Seamus McCarthy

It is perfectly conceivable that in making a business decision one decides that the balance of advantage is to take a loss, acknowledge that and to move on. NAMA is working within specific legislation which requires it to dispose of assets and get the best return available for the taxpayer. If one bundles certain types of assets together, one may cross-subsidise one asset with another. There may be an element of-----

Sorry to interrupt, but on that final point, is that where we are? Is the dispute about that, namely, that it could be the right decision, from a business point of view, to proceed and take a loss? NAMA is still contending that given the baseline figure that was set out it made a profit, not a loss. Are we arguing the toss of a coin on that point? Is that where we are?

Mr. Seamus McCarthy

As I said, I am not making any comment on the strategic or commercial merits of disposing of the assets in the way it was done. That is not my interest. My interest is in how NAMA made that decision, how it analysed the cashflows and weighed up the choice between working out the assets over four, five or six years or selling them as a portfolio. My focus is on the technical aspects of how the economic decision was made.

Deputy Connolly is next. We must try to speed things up a bit because we have officials from the Department of Finance-----

I thought I was very quiet today-----

That was not personal.

First of all, I welcome this opportunity to hear from the Comptroller and Auditor General again. He has shown great dignity in listening to a narrative which is quite the opposite of that which is contained in the report. It is good that Mr. McCarthy is getting the opportunity to look at that today.

On the issue of fair value, I am a little confused. There are three values at play. There is the value that had to go into the accounting reports if one was to sell all the assets in a fire sale. Then there is the fair value and a third one-----

Mr. Seamus McCarthy

No, the first one is the carrying value-----

Yes, I got that one-----

Mr. Seamus McCarthy

-----which is in the figure which is in the balance sheet. In terms of fair value, NAMA is required to make a fair value disclosure in the financial statements which effectively is the amount that would be realised if it sold all of its loans immediately, at the balance sheet date. Then the third-----

That is okay, I understand that now.

Mr. McCarthy has said that he is standing over his report, that he has had the benefit of listening to all the evidence from the various witnesses who have appeared before this committee and that he is not changing one single thing in his report.

Mr. Seamus McCarthy

Yes.

I welcome that clarification. Mr. McCarthy has provided that clarification after listening to all the evidence laid before this committee over the past few weeks.

Mr. Seamus McCarthy

Yes and I would say that most of the contentious matters that have been aired here were aired in the course of the examination. Apart perhaps from the fair value question, we would have engaged with NAMA on most of the report's contents on a number of occasions-----

On the draft report?

Mr. Seamus McCarthy

Yes. We would have heard all this. Believe me, I considered everything that went into this report very, very carefully.

One of the criticisms made is that the Comptroller and Auditor General did not engage with NAMA. He has come back and said that is not true. Leaving aside that criticism, Mr. McCarthy has heard the evidence and read all the documents presented by NAMA. Has any of it changed his mind?

Mr. Seamus McCarthy

No.

To go back to what Deputy Peter Burke said about commercial decisions, Mr. McCarthy has made it clear from day one that he will make no comment on NAMA's decision to sell and on whether that was commercially correct. He has repeated that here today.

Mr. Seamus McCarthy

Yes.

Mr. McCarthy did not pluck the 5.5% figure out of the sky. There are three pertinent documents produced by NAMA for this committee; one from Mr. Brendan McDonagh on 29 September, one from Mr. Frank Daly on the same date and one from NAMA, unsigned, on 14 September. In those documents it is argued that the Comptroller and Auditor General has a "misplaced attachment" to an accounting value and that his office does not have the required expertise. It is also argued that Mr. McCarthy used the wrong figures, should have obtained expert advice and so on. What does Mr. McCarthy say to all that?

Mr. Seamus McCarthy

As I have already said, I am happy with the report, notwithstanding the material that has been presented since. The material presented on 14 September was around the time the report was published, which was followed by two opening statements presented on 29 September. We dealt with most of the arguments that have been presented in the course of the examination.

I do not expect Mr. McCarthy to comment. I have re-read the documentation and God help us, as committee members, we must re-read the stuff. That is our job-----

Mr. Seamus McCarthy

I am sorry that-----

That is our job. On 29 September, Mr. Brendan McDonagh asserted that the Comptroller and Auditor General's report has adopted a position which would not be accepted by "anyone engaged in actual loan sales in Ireland or anywhere else". The statement uses that type of language throughout. Basically, the assertion is that the Comptroller and Auditor General's office did not have a clue. Mr. McCarthy has dealt with that today. What worries me about this type of narrative is that the report is being ignored in terms of the process of the sale and the concerns that were raised with regard to that process. The concerns, for example, relating to conflicts of interest, to the limited information given to Lazard and so forth. I am not happy that those concerns have not been dealt with by NAMA. As far as Mr. McCarthy is concerned, have those issues been dealt with in any of the material presented by NAMA?

Mr. Seamus McCarthy

No and I would share Deputy Connolly's frustration with that. I know that the report is not an easy read. It is difficult and tortuous but there are concerns raised therein around the quality of information presented to the board, on which the board was asked to make a decision and difficulties with the meaning of board minutes. To be in a situation where we are disputing the meaning of words is highly frustrating for everybody.

There are a few other points that I would like to make that may address some of the issues raised by Deputy Connolly. The NAMA representation of the sales process is that the nine largest potential purchasers in the world had access to it. That misses completely the evolution of the sales process. It was never intended to involve the nine largest players involved. That would be my reading of it, if one works through it and sees the way it evolved. We tried to lay that out in our report.

Some witnesses from NAMA have said that I have used the benefit of hindsight in looking at certain aspects of this but one could only describe it as "with hindsight looking back" to claim that nine potential purchasers were approached. That is one perspective on it but there is another perspective when one looks at the way it evolved. For example, the paper that was put to the board on 8 January by the asset recovery unit in NAMA proposed that Lazard be appointed and at least two other purchasers be invited to look at the portfolio in the data room. Those purchasers would be given about two weeks in the data room and then Lazard would come back with a recommendation by 31 January.

As for being castigated as not having market understanding or market knowledge when that is the proposal that comes from asset recovery, that would have been simply a pretence of a sale process. In fairness to the board, it said there needed to be more than this and more time had to be given. A better process was run but that was the starting point. That would have been a token exercise.

There were a number of other issues.

Mr. Seamus McCarthy

There are many issues as one goes through.

Does Mr. McCarthy want to comment on those issues?

Mr. Seamus McCarthy

From an evolutionary point of view, this process moved through various stages. When one gets the Lazard document, one will see that the approaches to the purchasers were in tranches. In the case of the first tranche of three that were approached, the second tranche was composed of replacements or substitutes in case the first tranche did not take up the offer. We looked at all of that. The information is in the report to be drawn out. I know it is painstaking.

Mr. McCarthy misunderstood me. I did not say it was tortuous to read it. I was referring to the replies we have received on a continual basis. My frustration was with the failure to deal with the issues raised in the Comptroller and Auditor General's very clear report. It is not that I am agreeing with the report but my frustration is that none of those issues has been dealt with. Mr. McCarthy is telling the Committee of Public Accounts that those concerns have not been addressed, other than in relation to the-----

Mr. Seamus McCarthy

I have not heard them addressed here. These are all issues that we put on the table with NAMA. We looked for explanations. In the report, we have faithfully tried to represent its point of view on everything. I considered all that very carefully. I weighed up every objection and statement it made when I was arriving at my conclusions. I am hearing the same engagement.

For the record, because we will be going on to do a report, does Mr. McCarthy still say the process was faulty? Would he use a different word to faulty? Perhaps the best way to say it is that Mr. McCarthy had concerns about the process of the sale.

Mr. Seamus McCarthy

What I am saying about the process is that it does not give me sufficient assurance that the best price was achieved.

Mr. McCarthy had concerns about the conflict of interest and he specifically said that NAMA should have taken more action when it came to the retention.

Mr. Seamus McCarthy

Yes. That was particularly on the suggestion that was made that I am using the benefit of hindsight. We have scrupulously tried to stick with the information NAMA had at the time. There may be a question that not everybody had the same information but NAMA had it and its systems should have been good enough to make sure that those who were making decisions had the best quality information that was available at the time.

Lazard will come in before us next week or the week after. Can Mr. McCarthy comment on the limited information available to Lazard? He has made a comment on it in his report. NAMA got the assurance from Lazard and that has been used as reassurance by NAMA that everything was right.

Mr. Seamus McCarthy

In its final opinion and advice on the sale process, Lazard specifically drew attention to the fact that its assessment of the sale process was based on the information available to it at that time. It raised the question of the quantum of information specifically where there was a piece of information that was not given to Lazard. This has been confirmed both by Lazard and NAMA. It was not told about the success fee arrangement. It was not, as I understand it, discussed with Lazard, so it could not have known at the time that it made that return.

Can Mr. McCarthy comment on whether Lazard should have been told about it? Is that within his remit?

Mr. Seamus McCarthy

Given that NAMA was looking for an assurance on the probity and effectiveness of the sale process, I do not understand why it would not have discussed it with Lazard.

I remember reading about Mr. McCarthy's concerns that the market was not great in Northern Ireland and there were bad assets. I have the minutes here of one of the advisory committee's meetings on 7 October and it points out that the market was picking up.

Mr. Seamus McCarthy

Yes. There were possibly other signals as well. The paper to the board refers to the information coming back from PIMCO, which was indicating there was a pick-up and it wanted to be in to avail of and benefit from-----

That is clarified in the Comptroller and Auditor General's report as well.

Mr. Seamus McCarthy

Yes. The board paper is there. It is in the board paper on page 139. PIMCO had access to a data room for the top 55 assets. It is just at the bottom of the page. The letter the Chairman read this morning refers to its indicative bid of £1.1 billion to £1.3 billion. One can see in table 7, at the bottom of page 139 of the report, PIMCO's bid of £1.1 billion to £1.3 billion. The assets PIMCO examined were the top one to 55. One can see in NAMA's cashflows, it was projecting the disposal cash from those assets of £891 million. That was without doing any discounting. PIMCO was willing to bid for those assets at £950 million so it was actually prepared to pay more for those assets than NAMA was carrying in its cashflows at the time. What that suggests is that PIMCO was valuing the assets more highly than NAMA was.

Is that because in its view, the market was picking up?

Mr. Seamus McCarthy

Yes, or it had already picked up. PIMCO was looking at the 2009 valuations so it would not have known how much impairment NAMA had built in. The NAMA cashflows took account of its assessment of the deterioration in the assets. NAMA has said there was valuation advice, and in some cases red book valuations, for a significant part of the portfolio but by getting a valuation of the whole portfolio before it sold it, it would have gotten a better fix on what it should have expected for that portfolio but they did not do that.

The other key issue is that there were no valuations.

Mr. Seamus McCarthy

Some valuations had been done and they were factored into the cashflow. The whole portfolio was not valued.

I started to read from page 5 of the minutes of the Northern Ireland advisory committee meeting on 7 October 2013, which states "Positively, rent and yield forecasts across the commercial property sector are predominantly stabilising or strengthening". There were indications all over that it was picking up. I will finish because I see the Chairman looking at me.

Mr. Seamus McCarthy

The Northern Ireland advisory committee would only have been concerned with property in Northern Ireland. A good part of this property was in the UK.

Was it in England, Ireland and Germany?

Mr. Seamus McCarthy

Yes and there was some in Scotland. There were significant assets in Edinburgh.

In the interest of clarity, this is the first time in my eight months here where the Comptroller and Auditor General is standing over his report yet the body on which the report has been done is not accepting it. Is that fair? Every time we have been in here, Mr. McCarthy has highlighted concerns or made recommendations and the organisation in question, generally speaking, has said "We accept that; we put our hands up."

Mr. Seamus McCarthy

Yes. I talked about how there is always an engagement and sometimes we get something wrong. If they point it out to us and we can see that we are wrong, we will accept it and amend a report accordingly so that by the time we get here we normally have agreed the facts. Even if we have not agreed on the interpretation of the facts, at least they understand what our point of view is, we understand their point of view and they are presented to the committee. I have never been in a situation where there has been such disagreement before.

I thank Mr. McCarthy.

We have to take a short break. We are not finished with the Comptroller and Auditor General. Will we take ten or 15 minutes?

I will be very short.

I have experience of "short" being a half an hour.

I will be two minutes.

Are any other members indicating? There are three or four other members indicating.

Does the Chairman want to take a break?

Yes, we will take a break for ten minutes. We have been here for three hours. We do not want to be accused of running the witness for three or four hours without a break. We have to take a break so we will resume at 12.15 p.m. and try to conclude within a half an hour after that. The Department of Finance officials will be before us thereafter and I ask members to be more brief with them if that is possible.

Sitting suspended at 12 p.m. and resumed at 12.25 p.m.

We are back in public session and we are continuing our discussion with the Comptroller and Auditor General regarding his special report on Project Eagle. We are discussing clarifications on matters raised during previous meetings and I ask members to be brief. My plan is to finish with the Comptroller and Auditor General as soon as possible. We have to take a 30-minute break for lunch and then we will have Department of Finance officials before us. I understand weekly divisions are to be taken in the House at 3.30 p.m., which is when we will adjourn, no matter what time we resume following lunch. We cannot be expected to return at 4.30 p.m. following the divisions. We must be concise. The Department of Finance was one stop removed from the transaction and was not directly involved with it. Members should be conscious of that.

I have a few questions and I will endeavour to be concise. The reaction to the Comptroller and Auditor General's report has been boiled down to his estimation of probable loss in respect of that transaction. I refer to document PAC32-R-167 B, which is from the NAMA audit committee meeting on Thursday, 1 May 2014. We received it yesterday and Mr. McCarthy referred to this earlier. The document states and then reiterates, "Based on preliminary calculations it is anticipated that the loss generated on the loan sale may be up £160 million". It is stated on the first page and reiterated on the second:

NAMA has now agreed to portfolio loan sale of the Northern ... to Cerberus. This is anticipated to generate a loss on disposal of in the region of £160 million.

What was the hullabaloo and defensiveness around Mr. McCarthy citing a probable loss?

Mr. Seamus McCarthy

I do not know.

The public needs to know this. There has been such a hullabaloo. One would swear Mr. McCarthy had made the most outlandish of accusations in citing a probable loss when, in fact, NAMA officials have conceded the point repeatedly at an audit committee meeting. Was that not all a journey up and down hill and vale for nothing? I just wanted to see if he had an explanation for that.

Mr. Seamus McCarthy

That document was in the context of the 2013 financial statements and the point at issue was whether or not they should book that loss in 2013 knowing that they were going to sell it at a loss. That is effectively what it was. In the 2014 financial statements, which is the year in which they booked the loss, it would not have been set out in the financial statements that, "On Project Eagle, we took a loss of £160 million". It was kind of incorporated into other-----

As a layperson with no accounting expertise, am I correct that it does not take from the fact that there was an anticipated and a real loss, whatever way it was reflected in accountancy terms?

Mr. Seamus McCarthy

Yes, that is correct.

I thank Mr. McCarthy. I just wanted to confirm that. We will hear from Department of Finance officials next and we have had sight of a letter that was sent to Mr. Harkness in the Comptroller and Auditor General's office from Ms Ann Nolan. She raised a couple of issues with Mr. McCarthy and challenged his assertion that NAMA did not seek formal external advice on its sales strategy.

She also challenged him on his claim of a potential loss to the taxpayer. On a previous outing here, at our meeting on 6 October, when responding to Deputy Kelly, Ms Nolan stated the Department questioned the use of the 5% discount rate and suggested that had the Comptroller and Auditor General's staff experience in the sale of loan books, they would have used a higher discount rate. Will Mr. McCarthy speak to me on the issues raised in the letter dated 8 July? Will he also address the issue of the discount rate and the issues the Department of Finance raised with him and when it did so?

Mr. Seamus McCarthy

Regarding the letter of 8 July, we sent a copy of the third draft of the report to the Department in May 2016, and Mr. Harkness and Mr. Riordan met Mr. Reid and Mr. Carville and they went through the report. A number of issues were raised at the meeting. We expected a formal response from the Department, but for one reason or another it did not give us a formal response at that stage. When we received NAMA's response, we sent it what was to be the last draft of the report and the report was to be finalised. The letter is the response to the penultimate draft of the report. With regard to the issues raised in the letter, mainly what we included in the almost-last draft was a summary of the report. The point Ms Nolan made in the report was that we had not expressed in more or less the same way the points in the summary that we had in the body of the report. We made adjustments to take account of the issues she raised. I was satisfied at the end of the process, having considered what it put on the record, that we had dealt with everything it had raised.

With regard to the reference to the meeting, Ms Nolan was not at the meeting between Mr. Reid and Mr. Carville and my officials. The discount rate, and whether 5.5% or 10% was appropriate, was not discussed at the meeting at all, for the very simple reason that NAMA had not put it on the record. We only got a response on 10 June, which proposed that if we had done a loan workout value, we would have used the rate of 10%. It was not discussed with us. As the Deputy can see, it was not raised in the final letter from the Department of Finance.

For clarity, because I can see it was not in the letter, Mr. McCarthy is stating that contrary to the evidence given here on 6 October, in fact the discount rate was not raised.

Mr. Seamus McCarthy

Mr. Reid may have stated that at the meeting. He may have come in after Ms Nolan. The Deputy might want to check the transcript in this regard.

Two entities were involved in working out distressed assets. IBRC was one and NAMA was the other. We have been constantly reassured by the Minister in the Dáil any time oversight of NAMA was raised that the Comptroller and Auditor General had a big team in it. I found it quite useful to hear about the practical work the Office of the Comptroller and Auditor General does in NAMA. It was very different to my perception. I thought it was on the board and more hands on because this is what the perception led us to believe. The value-for-money study is very different to what has taken place in respect of looking historically at what has happened regarding the disposal of distressed loans.

The emphasis in the report is on the process, and best practice is to have a two-phase process with a wide involvement of people which is narrowed down. Did Mr. McCarthy look at best practice from elsewhere in this regard?

Mr. Seamus McCarthy

Regarding the Deputy's first point on having staff in NAMA, a point I have put on the record on a number of occasions is that references to staff being embedded in NAMA, and an impression being given that everything that moves in NAMA is seen by and examined by somebody from my office, is absolutely incorrect. If everybody in the office was in NAMA we would not be able to exercise that level of control. It would not be an audit, it would be a control function. I have always corrected this impression when the matter has been put in front of me. The focus of our ongoing work is on the correctness of the financial statements and the operation of key controls, as we see it, regarding transactions that are accounted for, which we look at on a sample basis and not on a comprehensive basis.

When we came to look at the process in which NAMA engaged, our first point of reference was NAMA's policy. How it will sell assets or loans is clearly set out in a policy statement and guidelines. It has the option to depart from this for specific reasons, but in the course of the examination we asked where else had it used a single-phase procedure and it referenced only one, which started out as at two-phase process but it received only two bids - actually it was only one bid - and it was a very small asset. It has always operated a two-phase process.

In addition, when we looked at Project Arrow and Project Tower, we looked at the process to see whether NAMA had followed its own guidelines on how assets were to be disposed of. We looked at the advice it received from loan sale advisers. We reproduced in the report a piece of advice on why it is best to use a two-stage process, as the Deputy has described. To us, it seems fairly clear, unambiguous and well reasoned. It is easy to understand why it makes sense. We do not have to be market experts to state it would give us confidence in the price we would be likely to achieve at the end. Ultimately something can be sold only once, so when something is put on the market, if an appropriate process is followed and it is made as competitive as possible, while it may whittle down, at the end of the day I as an auditor looking at the price achieved will state the process gives me confidence that the price was the best available at that time in that market.

The reason I raise IBRC is because process is something with which there is a comparison regarding-----

Mr. Seamus McCarthy

It was suggested by NAMA that we look at the process there.

My difficulty with that is that I do not have access rights, those being rights to inquire into IBRC. Other inquiries were ongoing. In any event, one would have been examining a receiver, and that is a wall that we would not have been able to get through.

Some witnesses stated that the expertise that was available to PIMCO became available to Fortress and Cerberus.

Mr. Seamus McCarthy

That is right. Some of it.

Would that fall into the conflict of interest category? Is it a practice that Mr. McCarthy has seen before or does it deviate from process?

Mr. Seamus McCarthy

It was something that we queried. It did not sound right, but the representations we received were to the effect that it happened from time to time. The Deputy must bear in mind that every potential purchaser signs a non-disclosure agreement and is required to get from its advisers a similar undertaking not to disclose any of the information around the transaction or that they take from the room. It might be worth the committee's while examining a non-disclosure agreement in terms of the specific requirements. It has been represented that one must sign a non-disclosure agreement in order to get into the data room, but the restrictions are broader, in that it does not have to be just information that one gets from the data room. There can be restrictions concerning how the process is being run, who is engaged in it and so on. We queried the transfer.

A specific requirement in the non-disclosure agreement was that NAMA was to be told who was to be used. That happened. Cerberus told it about the advisers that it was taking on. Cushman and Wakefield, which was PIMCO's property adviser, moved to Fortress. This is on page 80. NewRiver Retail, PIMCO's retail property advisers, moved to Cerberus. In both cases, Cerberus and Fortress informed NAMA that they were proposing to take these on at a later stage in the process. However, Cerberus did not advise that it was taking on Brown Rudnick.

We also heard that there was no disadvantage to anyone who subsequently entered the process. Given the timelines involved, does Mr. McCarthy accept that that is correct? Was there an advantage to someone who was in the process earlier?

Mr. Seamus McCarthy

When a potential purchaser is going to take on an exercise, it is probably possible if the purchaser is geared up to examine a data room. If a purchaser has enough people, it can probably work through what is in the data room and get up to speed with others. A number of the potential purchasers said that they did not believe that they would have had enough time. However, it is not just about turning up in the data room and processing the information. A purchaser needs to have teams in place that are ready to start when the data room opens. I have drawn attention in the report to some of the bidders that withdrew saying that they did not have enough information and, therefore, were not getting involved in the process. They did not believe that they had enough time. Some asked for more, which would have allowed them to mobilise teams. The particular restriction that was placed on those coming late to the process was that they were not allowed to get Northern Ireland valuation advice when putting their bids together.

As the PIMCO-Brown Rudnick approach came from a long way back even before they approached NAMA, it is possible that they could have had some advice of that nature. There was no step taken by NAMA that we could see to close off that potential advantage. It is difficult to know. There is a possibility that an advantage existed.

Mr. Seamus McCarthy

At least one of the firms that withdrew from the process said that it would not continue because it could not get over the advantage. A potential purchaser made that point. It would certainly have a market view.

Time could have been a serious factor in terms of achieving the best financial outcome.

Mr. Seamus McCarthy

Yes.

Mr. McCarthy stated that he would stand over his report. Is there anything in it that he would strengthen?

Mr. Seamus McCarthy

No. I went through a process and we considered this carefully. At each draft stage, we would have sat down, gone through it and weighed everything up. I am happy with the report as it stands and it was the right report to make at the time I made it.

I will be brief because most questions have been asked. I apologise, as I was at the health committee this morning with the Minister, Deputy Harris.

Regarding the documentation that has subsequently been provided to the committee, had Mr. McCarthy been unaware of any of it and was he surprised by any of it? Would it have made a material difference to the report?

Mr. Seamus McCarthy

No, I do not believe so.

I just wanted to ask. There has been a debate on the valuation of the assets. NAMA has gone through this matter in detail. Is there any validity in NAMA's argument that, in light of the information that it has provided to us, including on asset locations, the assets would have deteriorated in value over time if NAMA had not got rid of them quickly?

Mr. Seamus McCarthy

We did not see anything along those lines. I discussed the quality of the assets with Deputy Madigan. As I mentioned in the report, the perceived poor quality of the assets in terms of their locations, the markets that they were in and their nature, that is, retail, development, offices or so on, should have been taken into account. It was taken into account when NAMA acquired the assets. Any deterioration that had taken place in the market should have been taken into account, and would have been, in the impairment that had already been logged. We did not see any firm evidence of the deterioration of the relationship with the debtors to which NAMA referred.

Regarding NAMA's cashflows from 2017 on, NAMA was not expecting any uplift even though there were some references, including in PIMCO's indicative or initial bid, to the effect that PIMCO believed that an upturn was coming in the market. Take the example of a shopping centre in a particular market. Even the valuation advice that NAMA would have got, which it would have factored into the cashflows, would have taken a potential appreciation in value into account. There is nothing that I can see to suggest that the market was going to deteriorate further.

The main issue for me is the process. We have gone through it in detail.

Regarding Mr. McCarthy's report, I feel from some of his responses today that he is hardening even further his position on this process. Of particular relevance is the fact that NAMA states that a number of other potential bidders were offered the opportunity but that this was effectively not the case at all. In many cases it was ticking boxes. The role of Lazard in this regard was a process of being brought in to tick a box. Is there anything in the evidence that has been brought forward that strengthens Mr. McCarthy's view on the weakness of this process, and if so, in what specific areas even further to what he has written in the report?

Mr. Seamus McCarthy

No. As I said, we have been looking at this for a year. We have considered it carefully. What I was looking for from the process was whether I could take assurance from it that, in running this process in the way it was run, NAMA got the best price. I do not see enough in the process that was run to take away my doubt in that regard. That is my conclusion in the report. There is no single broken link in the chain, but when the process put together by NAMA, the way it evolved and the way in which it was run were taken as a whole, I did not get sufficient assurance that the price NAMA got was the best price that was achievable.

It was a combination of all the evidence across the board.

Mr. Seamus McCarthy

Exactly, taken together.

I have one last comment. I will be brief. Point 10 in Mr. McCarthy's summary is a point to which I have consistently referred. During all the questioning, it has come across to me that there is an unwritten or undefined aspect to this, that is, that there were four components, to which Mr. McCarthy has made reference, to the making of this decision which, through this process, I believe we will strengthen in our conclusions, namely: political pressure, particularly from a Northern Ireland perspective; diplomacy; the lack of debtor engagement, to which Mr. McCarthy has made specific reference; and an unquantifiable business risk of holding onto the assets. I believe those are the four main reasons that are not factually accounted for in great detail because they are unquantifiable in many ways. Would Mr. McCarthy strengthen his summary based on the evidence we have found? I certainly would. I believe that the outside factors I have just referenced were by and large huge components of the decision to sell in the way in which NAMA did.

Mr. Seamus McCarthy

I mentioned earlier that I am not taking any view on the commercial or strategic-----

I understand that.

Mr. Seamus McCarthy

-----decisions. I am reporting NAMA's explanation that these considerations were in the background to its decision. That is as far as I am going. I will not speculate on it and I will not give a view on it. However, it is open to the committee. If it wants to-----

I think we will.

Mr. Seamus McCarthy

Deputy Catherine Murphy asked whether there is anything I would strengthen or do differently. Looking back over the papers in recent days, one point I will make concerns figure 4.6 on page 71 of the report, which effectively shows a sequence of the opportunities to access the report. What we possibly should have done there is present the actual dates when approaches were made and when companies declined to enter or withdrew from the process because they are instructive and underline the substitution of round 2 bidders when round 1 bidders did not come forward.

We will write directly to NAMA to supply those dates directly to us. May I raise quickly one or two further issues?

Mr. Seamus McCarthy

Sure.

I do not want to lose people but I would like to explain the chart on page 143. It starts simply with the par debt that NAMA had, which was €4.6 billion. It paid €1.98 billion for it. In the preceding years, 2011-12, NAMA had impairments of €315 million, giving a value coming into 2013 of €1.665 billion. It then decided that €190 million would form part of the 2013 impairment, giving a figure of €1.475 billion. That is the figure in its financial statements.

Mr. Seamus McCarthy

It is not actually in NAMA's financial statements. NAMA was doing this at the end of November 2013-----

Yes, exactly.

Mr. Seamus McCarthy

-----so it was projecting forward. The equivalent figure in the financial statements at the end of 2013 was €1.486 billion, so NAMA got it fairly accurate.

I would like an explanation as to the meaning of the following line, which reads "assets held at in 2017 to 2020 period (Assumption 1)". It seems to me that NAMA has accounted for impairments at the end of December and that at the December board meeting another €85 million has been introduced on top of the €180 million. I would like Mr. McCarthy to explain that.

Mr. Seamus McCarthy

The table basically states that the focus of the exercise at the end of 2013 was mainly on the period 2014 to 2016. There is a footnote to assumption 1: "Assets forecast to sell from 2017 to 2020 are adjusted down by 17% or €85.0m." NAMA is therefore effectively adding further impairment regarding NAMA-managed assets that it was projecting for sale between 2017 and 2020.

What would it have normally projected up to that point?

Mr. Seamus McCarthy

We will probably come to this later, but note 3 at the bottom of the table on the following page states: "Assets forecast to sell from 2017 to 2020 are impaired by 17% or €85.0m (currently not impaired)." It was effectively telling the board that those assets were not impaired and that an impairment needed to be placed on them based on what had happened in the market.

Did they want €90 million not included in impairments?

Mr. Seamus McCarthy

In fact, the assets were impaired.

Mr. Seamus McCarthy

They were already impaired, so that footnote to table 9, we have found, is incorrect. Northern Ireland assets form-----

That is important to put on the record. Mr. McCarthy is saying there is something incorrect in the figures given to the board. He is saying in table 9-----

Mr. Seamus McCarthy

Yes. Footnote 3 states that the reason they wanted to put in this additional impairment-----

It is additional.

Mr. Seamus McCarthy

-----of €85 million-----

Therefore, it was not correct to say the assets were not impaired.

Mr. Seamus McCarthy

That was our finding. The same assumption is made in the previous table.

On this issue, I wish to make a few small points. The document we are considering, appendix C, which runs from page 129 to page 152, is the document that was prepared for the board meeting on 12 December 2013.

Mr. Seamus McCarthy

That is right.

We have asked NAMA time after time to provide us with documentary evidence that that board meeting was considering a 10% discount, which is the essence of NAMA's argument.

I wish to take the committee to table 7 at the very bottom of page 139 of the document with which we are dealing. The table deals with the PIMCO bid. In the document presented to the board by the assets recovery section, NAMA's net disposal forecast is compared with PIMCO's bid of €1.1 billion to €1.3 billion. The net present value is 5.5%.

Mr. Seamus McCarthy

That is correct.

Therefore the documents prepared for the board at that December meeting were based on that 5.5% in the stock. There is no 10% there.

Mr. Seamus McCarthy

That is correct.

This brings me to page 144. This concerns the documents presented to the board for its meeting on 12 December when it considered the Project Eagle portfolio disposal. In table 9 on page 144, in respect of net present value, the right-hand column uses a rate of 5.5% while the column beside it uses a discount of 2.5%. The last column in table 11 on page 145 again deals with the net present value and has a 5.5% discount. The alternative is 2.5% in the column beside it. If I go up a few lines on that page, it says that NAMA's November 2013 debt using a discount rate of 5.5% resulted in a current value of €1.291 million. Throughout this document, in respect of asset recovery, information is produced based on discount rates of 5.5% and 2.5%, yet the board chose to use 10%. The only place where there is a reference to 10% is on page 146 where it is stated that sometimes a 10% rate can be used to reflect the associated risks and costs of purchasing the loan from the purchaser's side.

Mr. Seamus McCarthy

Could I point out that the figure of 10% was not a discount rate. It was a discount on the value of the collateral. It was basically like saying that if a property in the market has a value today of €100 million, somebody buying the loan associated with that would only give €90 million for the loan because-----

NAMA's only reference to a 10% discount rate was in those annual accounts in 2013 and 2014. It was generic.

I am just saying that NAMA's documentation for its board is based on a discount rate of 5.5.% or an alternative rate of 2.5%. There is no mention of running the figures at 10%.

Mr. Seamus McCarthy

I wish to make an additional point about tables 8 and 9. Table 8 is a projection of what the value will be at the end of the year for accounting purposes. The discount rate underpinning that is 4.8%, which is the average effective interest rate for accounting purposes. In table 9, the figure used for discounting was 5.5% so that is why we queried why it was 5.5%. We got the explanation, which was related to the June paper. A further difficulty with table 9 is that when a future value is discounted, it brings it back to a particular point in time, usually to a balance sheet date. NAMA's standard approach in doing that is that it treats rent as it gathering rent all through the year. If there is a rent roll of €100 million, basically it is treated as if it came in on 30 June and it is discounted back to the balance sheet date, which is December. When NAMA produced table 9, it changed that assumption and nowhere in this paper to the board does it explain that it changed it and what it did-----

How does the Comptroller and Auditor General know that? How did he spot it?

Mr. Seamus McCarthy

It was because the team recalculated all of this cashflow. We re-performed, effectively. NAMA treated all the rent in a particular year and all the proceeds from sales as if they came in on 31 December. Unless a person is familiar with it, that does not sound like much, but it does have a significant bearing on the net present value. We calculated that this difference alone lowered the net present value by about €39 million.

In other words or in layman's terms, getting €100 every month is a lot better than getting €1,200 at the end of the year.

Mr. Seamus McCarthy

At the end of the year.

NAMA adjusted that.

Mr. Seamus McCarthy

It adjusted it.

It told the board-----

Mr. Seamus McCarthy

Attention has not been drawn to it here. NAMA may have explained that to the board at the time.

I want to complete discussion of this discount rate. If we look at NAMA's documents, it answers all the questions. I am looking at page 111 which concerns NAMA board meeting minutes of 8 January. I referred to the December meeting. The board met again in January. Paragraph 3 is very important because this was where the minimum price was set. In the middle of paragraph 3 it is stated:

In relation to sales price, the Board noted that PIMCO had given an indicative bid of £1.1 billion to £1.3 billion subject to due diligence. The Board noted further that NAMA’s own discounted cash flow valuation of the portfolio was in the £1.2 billion to £1.3 billion range depending on the assumptions used.

The assumptions used are the reference on page 139 that we already used in respect of the PIMCO bid - table 7.

Mr. Seamus McCarthy

It is not on page 139. I think it is page 145 - scenarios 1 and 2.

Some people might be getting a bit lost. Let us look at the PIMCO bid in table 7. PIMCO has an indicative bid of £1.244 billion. Using the 5.5% discount, NAMA valued that £1.244 billion. This is in the £1.2 billion to £1.3 billion range.

Mr. Seamus McCarthy

It is, but these are just disposal values. It is not taking any account of rent and so on. The best place to look is table 11.

Table 11 on page 145?

Mr. Seamus McCarthy

Yes. If the Chairman looks there, he will see that baseline net present value at 5.5% at £1.381 billion. Scenario 1, net cash, discounted at 5.5% is £1.29 billion, while scenario 2 is net cash at £1.236 billion. When those scenarios are considered, we are effectively looking at somewhere between £1.2 billion and £1.3 billion. That was our interpretation of what the board minute was referring to.

On 4 December 2013, PIMCO made an offer of up to £1.3 billion. NAMA considered that a week later on 12 December and eventually settled on a reserve of £1.3 billion. We have put the question. Does the Comptroller and Auditor General think there is a connection between the £1.3 billion PIMCO offered and NAMA setting a reserve price of £1.3 billion out of the blue?

Mr. Seamus McCarthy

The Chairman is asking me to speculate.

I will ask NAMA that question.

Mr. Seamus McCarthy

We asked how it arrived at the figure of £1.3 billion and did not get what I would consider to be a clear explanation.

The Comptroller and Auditor General can understand that the figure of £1.3 billion came from PIMCO to start with and that a few days later, it is NAMA's reserve price. NAMA will have to explain to us how there is no connection or whether there is a connection between them.

My next point concerns the reply received on 3 November relating to this issue. On page 5, there is reference to financial statements certified by the Comptroller and Auditor General. I have to put this final point to him. At the top of page 5 it is stated, "For the 2012 Financial Statements [2], the methodology used by NAMA for arriving at ‘fair value’ was to discount future estimated cashflows at 10%", so this was in its 2012 financial statements. It goes on to state in page 5:

[F]or the 2013 Financial Statements [3], the fair value cashflow discount rates were 5.5% for future cashflows forecasted for the period between 2014 and 2016 and 10% for cashflows forecasted for the period after 2016. These financial statements, including the ‘fair value’ disclosures using 10% discount rates, were certified by the C&AG in May 2013 and May 2014 respectively.

There seems to be a change in the 2013 accounts to 5.5% from 10% in 2012. Is that correct?

Mr. Seamus McCarthy

Yes.

Is that the result of the board paper in June 2013 looking at the 5.5% rate?

Mr. Seamus McCarthy

It could actually be more a reflection of an improving property market, maybe a more settled market, and a lower interest regime in the period.

The 10% fair value discount in the 2012 statements applied at the time that the decision on offering the Eagle portfolio for the sale was being considered by the board. The board was aware that this fair value rate applied to the loan portfolio as a whole but was also aware given that the loans comprising Project Eagle were among the riskiest of all loans held by NAMA, a fair value discount in excess of 10% would have been applicable had the Eagle loans been evaluated as a discrete group. They are not saying they were evaluated-----

Mr. Seamus McCarthy

No, they were not because they were not thinking of it as a portfolio like that at that time.

In other words, NAMA has qualified this in the letter of clarification in the last week by saying that had the loans been evaluated, the 10% rate would have been applicable but they did not value them. The 10% rate is based on something that did not happen.

Mr. Seamus McCarthy

But there is also the point that fair value is about what the market would pay for the loans if one had to sell them at the balance sheet date. One is required to consider what a purchaser might value them at, not what would one value the assets at if one was to hold on to them. It is not relevant.

At the end of the day, Mr. McCarthy is satisfied with the 5.5% discount rate he has referred to in his document. We have asked NAMA to produce otherwise and there are various references in the documentation to the board to 5.5% and 2.5% and a marginal reference to 10%. We will pursue all those with the board members when they appear again.

We will conclude this session. I thank Mr. McCarthy for his time. We will take a 20 minute break for a quick lunch. Can we agree to conclude by 3.30 p.m.? If there are outstanding issues at 3.30 p.m., we can put them to the officials in writing. We will resume at 1.30 p.m., giving us two hours for the next session.

Sitting suspended at 1.10 p.m. and resumed at 1.30 p.m.
Ms Ann Nolan (Second Secretary General, Department of Finance) called and examined.

The committee is now back in public session. I welcome the following officials from the Department of Finance: Ms Ann Nolan, second Secretary General; Mr. Declan Reid, senior banking specialist; and Mr. Des Carville, head of shareholding management unit. I remind members, witnesses and those in the Gallery to turn off all mobile phones or ensure they are on aeroplane mode.

I advise the witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to this committee. If they are directed by it to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity either by name or in such a way as to make him, her or it identifiable.

Members are reminded of the provisions within Standing Order 186 that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policy or policies. Finally, Members are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the House or an official, either by name or in such a way as to make him or her identifiable.

I invite Ms Nolan to make her opening statement.

Ms Ann Nolan

I thank the committee for inviting us here. I am here with Des Carville and Declan Reid, as the Chairman has already mentioned.

I want to begin by discussing the balance between NAMA's independence and accountability and how this informs NAMA's relationship with the Department of Finance. NAMA was established under the National Asset Management Agency Act 2009 as a separate statutory body with its own board and CEO appointed by the Minister for Finance. The board of NAMA is mandated to carry out its functions independently and is closely guided by its obligations under the NAMA Act.

The NAMA board has full responsibility and authority for determining NAMA's strategy and commercial policies, conducting NAMA's day-to-day operations and all other business of NAMA in accordance with the board's legal and fiduciary duties. The NAMA board also has responsibility and authority for ensuring compliance with all regulatory and legal obligations of NAMA.

The NAMA Act established the independence of NAMA and created a separation of NAMA from the Minister and the Department of Finance, limiting intervention by the Minister and the Department in the conduct of NAMA's business. It is recognised that NAMA is a statutorily independent, fully accountable organisation and remains a separate economic unit with independent powers of decision. As a result, the CEO of NAMA is the Accounting Officer for NAMA and is directly accountable to the Committee of Public Accounts, PAC.

This relationship between the Department of Finance and NAMA differs from other bodies under the aegis of the Department of Finance. Through every interaction with NAMA, Department officials are very mindful of the will of the Oireachtas, as expressed through the NAMA Act, in safeguarding NAMA's independence. Nevertheless, it is not forgotten that the State has a significant financial exposure to NAMA as the guarantor of NAMA's senior notes. The primary financial risk to the State posed by NAMA stemmed from its ability to redeem its senior debt in full and eliminate the State's initial €30.2 billion contingent liability. Recognising the State's significant financial exposure to NAMA, the Oireachtas was conscious of striking a careful balance between NAMA's independence and accountability.

Respecting this balance, the Minister and the Department keep in regular contact with NAMA. The Department holds monthly meetings with the NAMA management team and there is almost daily communication between NAMA officials and officials from the Department across a range of issues. Such daily issues include parliamentary questions, briefings on topical matters and NAMA's financial results, as well as broader strategic matters.

Ultimately, the Department is primarily interested in NAMA at a strategic level, that is, in evaluating NAMA's ability to achieve its objectives under the NAMA Act. As has been stated previously to the committee, the Department does not seek to involve itself in issues regarding specific debtors, specific assets or the detail of individual sales processes. These are a matter for NAMA.

The Oireachtas also plays a significant role in NAMA's accountability in light of the number of reporting obligations provided for in the NAMA Act. Section 53 of the Act requires NAMA to produce an annual statement to be laid before the Oireachtas, providing NAMA's objectives for the upcoming year and details on the nature and scope of NAMA's activities. Section 55 requires NAMA to produce quarterly financial reports also to be laid before the Oireachtas. NAMA's most recent section 53 and section 55 reports were laid before the Oireachtas last week.

Section 57 requires NAMA's annual accounts to be audited by the Comptroller and Auditor General, ensuring that the accounts are critically and thoroughly examined on behalf of taxpayers, prior to being laid before the Oireachtas. In addition, the Minister's section 227 reports and the Comptroller and Auditor General's section 226 reports assessing NAMA's achievement of its purposes and objectives are laid before the Oireachtas.

The Act also establishes the accountability of NAMA's chief executive officer and chairman directly to the Oireachtas, requiring them to give evidence, whenever required to do so, to the Committee of Public Accounts and to any other committee appointed by the Oireachtas to examine matters relating to NAMA. In this regard, it is worth noting that NAMA has appeared numerous times before this committee since 2009.

In balancing NAMA's independence and accountability, the Oireachtas established the Act to ensure as much transparency as is consistent with bank confidentiality, while allowing NAMA to go about its business unhindered in maximising the commercial return for the State. The Act is careful to avoid undermining NAMA's commercial mandate, to avoid placing NAMA at a competitive disadvantage, or indeed, advantage, and to avoid leaving NAMA open to potential constitutional and legal challenges.

During the Minister for Finance's recent appearance before this committee there were a number of questions regarding the pace of NAMA's deleveraging and whether NAMA was pressured to accelerate its disposals. It is important to place these questions in their historical context. As we begin to emerge from the crisis, we must not forget the crisis, and the magnitude of the problems we faced and the need to deal with those problems upfront. The reality is that without some difficult and brave decisions that were made in the depths of the crisis we would not be in such an improved position today, which is not to say everything is perfect.

NAMA was established at a time when the Irish banking system was near collapse and there was severe instability in the global financial markets. By the end of 2010, the Irish sovereign was locked out of the debt markets, the State's finances were unsustainable and we had no option but to enter into a programme of support. As part of that programme of support, the State relied upon the troika and others for billions of euros of funding and the State and the banks relied upon the European Central Banking system for billions of euros of liquidity support.

Faced with severe financial pressure, one of our main priorities as a nation was to regain our economic sovereignty by reducing our reliance on emergency funding and liquidity support. We aimed to reduce our sovereign debt, including contingent liabilities, to sustainable levels and to deleverage our banking system in order to increase confidence in the Irish sovereign and the broader economy, regain access to the market and reduce our cost of borrowing.

The €30.2 billion contingent liability created by the guarantee of NAMA's senior debt was a significant component of our sovereign debt and contributed in no small way to Ireland being shut out of the sovereign debt markets. The importance of reducing the State's debt, including NAMA's contingent liability, was not lost on the Members of the Oireachtas who mandated NAMA to deal with its assets "expeditiously" and limited NAMA's life to ten years.

NAMA took this mandate seriously and from the outset identified one of the key tensions in its mandate as being the tension between maximising value and dealing with its assets expeditiously. In order to achieve its mandate within its ten year life as set out in the NAMA Act, NAMA's first board approved business plan dating back to June 2010 anticipated a healthy level of debt redemptions, establishing its first senior debt redemption target of 25% by 2013.

Once established by the NAMA board, this target was monitored by the Department and the troika becoming a de facto commitment within Ireland's recovery programme. In balancing its primary objectives of dealing expeditiously with its assets and protecting or otherwise enhancing their value, NAMA's mandate was completely aligned with the interests of the State and the troika. It is to be expected that there was general consensus in support of NAMA's commitment to take full advantage of investor interest with a view to accelerating disposals and the resulting senior note redemptions beyond its original targets while remaining faithful to its overall objectives and purposes under the Act. No pressure was placed on NAMA to accelerate its disposals by the Department and I am not aware of any such pressure from any other source. All stakeholders recognised the market dynamics and broadly agreed that NAMA was pursuing the most appropriate strategy. This strategy was entirely consistent with the NAMA Act and the interests of the State. This is most evident in the Department's section 227 report which evaluated NAMA's progress and made recommendations consistent with NAMA's chosen strategy.

When market opportunities began to present themselves in the UK and then later in Ireland, NAMA began to take advantage of these opportunities, accelerating the pace of its sales activity. In adjusting its strategy to emerging market conditions, NAMA remained faithful to its mandate to achieve the best financial return for the State while dealing with its assets expeditiously.

Pursuing this strategy NAMA materially reduced the State’s contingent liability and in so doing reduced the banks' reliance on liquidity support from the ECB. To put it another way, as NAMA redeemed the contingent liability, it redeemed senior notes held by the participating Irish banks on a pro rata basis thereby improving their viability and reducing their reliance on emergency ECB funding and liquidity. NAMA's steady successes have helped improve confidence in Ireland, reduced our cost of debt and accelerated the pace of our economic recovery. In advance of our appearance, we provided a series of excerpts from troika and rating agency reports over a number of years which reflect this progression. These materials are available on the Department of Finance website and we would be happy to discuss them in greater detail today.

I would like to focus briefly on the Department's knowledge of the Project Eagle sale process. Around this time last year, the Department of Finance provided the PAC with over 40 documents regarding the Department's knowledge of the sale process. In the interest of full disclosure, we provided the PAC last week with a number of additional documents released under freedom of information regarding Project Eagle. These documents remain available on the Department of Finance website and we are happy to discuss them today. The Department of Finance supported the Minister in his dealings with the Northern Ireland Executive across a broad range of cross border financial services issues including those relating to NAMA and ultimately relating to NAMA's Northern Ireland loan portfolio and a potential sales process. This is a matter of public record. It should not be surprising that officials both North and South became aware of a potential sale following the receipt of expressions of interest and were mindful of potential impacts on the Northern Ireland economy. Throughout our engagement, we are not aware of any political pressure being placed on NAMA and I note this position has been asserted by the NAMA chairman and the Minister. I also confirm that in each interaction with our Northern Ireland counterparts, it was stressed that NAMA was independent in its functions, should be approached directly by interested parties, was obliged to run a competitive process, and must be satisfied that it had achieved the best price.

Suggestions that the Minister for Finance should have interfered with NAMA's commercial decision and called a halt to the board-approved sales process fundamentally misunderstands NAMA's independent mandate and the role of the Minister for Finance. The Oireachtas ensured NAMA's independence when it made section 9 of the NAMA Act unambiguous, stating that "NAMA is independent in the performance of its functions". Section 12 of the Act bestows the NAMA board with the power to sell or dispose of the whole or any part of the property or investments of NAMA, either together or in portions, for such consideration and on such terms as the board thinks fit. In summary, the Oireachtas aimed to ensure NAMA would be independent in its decision-making and would remain insulated from political influence. This is enshrined in the NAMA Act and is respected by the Department of Finance in its every interaction with NAMA. I hope this has provided some helpful context for the committee regarding the Department of Finance's relationship with NAMA both generally and in the context of Project Eagle. We are happy to be of assistance to the committee.

I welcome the witnesses. Ms Nolan has been before us before. Who wrote the script she delivered? Did she write that herself?

Ms Ann Nolan

Mr. Reid wrote it.

Does he write the Minister's scripts as well?

Ms Ann Nolan

He does not write the Minister's scripts. Department officials write scripts for the Minister. It would normally be the case that a number of different people contribute.

I am struck by the singular style of writing. Ms Nolan has given us a comprehensive overview of the NAMA Act, for which I thank her. Can she give us a word that describes in her mind the role of the Department of Finance in its interaction with NAMA? Is it "watchdog", "overseer" or some other word?

Ms Ann Nolan

Our role is to provide a strategic oversight of the performance of NAMA on an overall level.

To whom and for whom does the Department provide that strategic oversight and overview?

Ms Ann Nolan

To the Minister and, when he reports to the Dáil, to the Dáil.

The Department has told us before that it has regular interactions with NAMA.

Ms Ann Nolan

Yes.

Who carries out those interactions? Is it Mr. Reid?

Mr. Declan Reid

Yes.

Mr. Reid is the NAMA person. Do some of those interactions include Mr. Reid being part of or attending NAMA audit committee meetings?

Mr. Declan Reid

Absolutely not.

Mr. Reid has no involvement?

Mr. Declan Reid

No.

Does he get reports from the audit committees?

Mr. Declan Reid

No.

Ms Ann Nolan

No.

Does the Department get copies of the board minutes?

Ms Ann Nolan

No.

Mr. Declan Reid

No.

Can the witnesses describe to me the dynamic of the interaction with NAMA? What information does it get? What raw material does it have access to and sight of? Perhaps Mr. Reid is best placed to help me.

Mr. Declan Reid

As I mentioned the last time I appeared, we attend monthly management meetings with NAMA executives. Those meetings are not attended by board members of NAMA, just the senior executives. We also receive the documentation that is on its way to the Oireachtas. We receive the financial statements and annual reports, etc., and present them to the Minister for discussion at Government meetings prior to them being submitted to the Dáil.

So the Department would not have access to the kind of documentation we as a committee have sight of in the course of this examination?

Mr. Declan Reid

Correct.

Tell me then, when this briefing pack was put together on 11 July 2015------

Mr. Declan Reid

Do we have that on screen? I am familiar with it. There are a number of versions of that briefing pack.

This is the one I have. It is dated 11 July. Where did the Department get the information to put this together?

Mr. Declan Reid

Maybe we could just bring up the table of contents of that. That would be great.

It is a fairly comprehensive piece. It zeros in. Obviously, it is about Project Eagle, because that is what we are here to examine - the Comptroller and Auditor General - and that goes through everything, including the issues that are outside the remit of the committee, the crime agency investigations and so on. It deals with the withdrawal of PIMCO, the circumstances of the withdrawal of PIMCO and so on. As we wait for the details, where did the Department get the information it had to put this together for the Minister?

Mr. Declan Reid

That would be an aggregate of information from any source we had access to, whether it was the press, testimony before the committee from NAMA or discussions with NAMA or any other parties.

Who gave the Department the run-down on the withdrawal of PIMCO?

Mr. Declan Reid

The Deputy is saying that is July 2013.

Mr. Reid is at a disadvantage.

Ms Ann Nolan

We cannot answer questions on a document if we cannot find it.

There is a lot of documentation.

The Department wrote the document.

Help us again. Does Deputy Cullinane know which pile it is in?

It is 11 July 2015. We have used this document at committee before, so it is not its first outing.

Mr. Declan Reid

At a high level - and to give the members some insight - a lot of these may or may not have come up in the context of parliamentary questions or they could have come up in Dáil debates in the process of preparing for each of those individual interactions, and in helping he Minister to prepare for each of those interactions in the Dáil we would have interacted with NAMA on some of these issues and this would be an aggregation of all of that work.

Okay so tell me specifically about the withdrawal of PIMCO. Mr. Reid may want to refer to page ten of the report.

Mr. Declan Reid

This would be my recollection of conversations I would have had internally in the Department based on communications received from NAMA to both the Minister and to Ms Nolan, and from subsequent discussions with NAMA.

Did NAMA disclose to Mr. Reid, all of the details with regard to PIMCO's approach to them, PIMCO's disclosure around the success fees, fixer fees and so on?

Mr. Declan Reid

I would have to reread it now while we are sitting here but I would believe that this is an accurate reflection of what I knew at the time.

Okay, and somebody told the witness. I am just trying to establish who. NAMA gave Mr. Reid this information, is that correct?

Mr. Declan Reid

It would have been a combination of the discussions internally in the Department having received communication from NAMA, upon the withdrawal of PIMCO, and then subsequently in discussions around that with NAMA.

Did NAMA indicate to Mr. Reid that the relationship with PIMCO, Brown Rudnick, Tughans and so on, went back to April 2013?

Mr. Declan Reid

No.

The witness was not aware of that.

Mr. Declan Reid

Not until it came to light in the context of these proceedings.

Perhaps Mr. Reid could take the committee through what it was he was led to believe.

Mr. Declan Reid

I was under the understanding that PIMCO informed NAMA that its compliance staff had discovered a relationship between Brown Rudnick, Tughans and a former member of the Northern Ireland advisory committee and that it was an untenable situation from both sides and it resulted in PIMCO's withdrawal from the process.

Okay. At no stage was any suggestion about a prior relationship - going back as far as April 2013 - ever raised with Mr. Reid.

Mr. Declan Reid

No.

Was it ever raised with the Minister?

Mr. Declan Reid

I could not tell.

Ms Nolan might know that.

Ms Ann Nolan

Obviously I cannot speak for the Minister but I know that we knew in July 2013, because we got the letter from Brown Rudnick, which is on the record here-----

Yes, I am aware of that. I am talking about April.

Ms Ann Nolan

PIMCO was not mentioned specifically in that letter. It just talks about two parties, as I remember it. It does not say who the parties are and I do not know who the other party was that they were mentioning too, and we simply referred it on to NAMA.

So Ms Nolan did not know that.

Ms Ann Nolan

We would not have known. The reference to the letter this morning of April 2013, was not something I would have been aware of at the time.

Okay. It is a date that is reflected in board minutes and in contemporaneous telephone notes-----

Ms Ann Nolan

We did not see it.

-----but Ms Nolan had no access to that. I thank Ms Nolan.

With regard to PIMCO's withdrawal, the witness has said that NAMA said to the Department of Finance that it had made it clear to PIMCO that PIMCO was to hit the road and withdraw.

Ms Ann Nolan

It was-----

I mean no disrespect Ms Nolan but I need to hear this from Mr. Reid because, unless I am wrong it was Mr. Reid who had the conversations.

Ms Ann Nolan

No. No, it was I and the Minister who had the conversations, sorry.

Ms Ann Nolan

With regard to Mr. Reid, this document was written in 2015-----

Ms Ann Nolan

-----and the conversation happened in 2014 when Frank Daly rang the Minister and he rang me, at the time PIMCO withdrew.

He rang Ms Nolan also.

Ms Ann Nolan

He did indeed, yes.

Ms Ann Nolan

I was told, at the time, that the board found it completely inappropriate that any payment would go to Frank Cushnahan, that PIMCO had withdrawn and basically that if PIMCO had not withdrawn it would have been told that the board would not have entered into such an agreement.

Did they mention to Ms Nolan any attempt by PIMCO to seek their acquiescence to stay within the process?

Ms Ann Nolan

I cannot remember, and I did not make a note of the conversation because the Department was not involved - as we have already established - in the detail of it. I am not, however, aware of that having been said, no.

I am sure that Ms Nolan is aware, of course, that PIMCO has corresponded with the committee.

Ms Ann Nolan

I have heard that.

PIMCO absolutely refutes NAMA's account of events around that time.

Ms Ann Nolan

I cannot possibly make any comment, and I believe it would be completely inappropriate, as to whose version of events-----

I am just checking with Ms Nolan-----

Ms Ann Nolan

I have no knowledge of what happened between NAMA and PIMCO at the time-----

Okay, except that Ms Nolan had received a telephone call and that she had-----

Ms Ann Nolan

-----except the outcome of it. It was all over at the time I heard, if the Deputy knows what I mean.

I thank Ms Nolan. What is Ms Nolan's attitude now to the Comptroller and Auditor General's report? Does she accept the findings of the report?

Ms Ann Nolan

Obviously I accept the findings of the report, I have great respect for the Comptroller and Auditor General and I have worked with him over many years. I was pleased to hear him say this morning that he was not making any comment on the commercial or strategic aspects of the deal because that is where my concerns are; on the commercial and strategic aspects.

I am glad that she heard that this morning but I should remind Ms Nolan that the Comptroller and Auditor General had actually said that previously.

Ms Ann Nolan

I had not heard that earlier, I am sorry I did not hear that earlier.

Ms Ann Nolan

My concerns were in that space. The document itself is a fine document.

What is Ms Nolan's reaction to the very damning findings or issues that arise in that report with regard to conflicts of interest?

Ms Ann Nolan

Conflicts of interest are a matter for the NAMA board and if there are issues there, and I have concerns around it, I believe they are issues the Deputy should put to the NAMA board.

We have, and Ms Nolan is here now and I am asking for her view. She was the strategic overseer of people of NAMA, she has an ongoing relationship with them and she surely has a view with regard to those conflicts of interest as public servants.

Ms Ann Nolan

I absolutely think that conflicts of interest have to be managed very carefully and it is really important that people have proper policies in place and my understanding is that the NTMA and NAMA both have conflicts of interest policies in place. How they operated in practice is something that the Deputy will have to put to the NAMA board because I have no insight into that.

Perhaps the witness would just explain this to me as I need to have it clear in my head. Ms Nolan has this relationship with NAMA, she meets with them, she takes a strategic overview role and Mr. Reid is the point person for that aspect. Ms Nolan works more closely with the Minister.

Ms Ann Nolan

I work with both Mr. Reid and the Minister.

I am trying to get a-----

Ms Ann Nolan

With regard to NAMA, I would speak reasonably regularly, but not in great detail to the chairman of NAMA, if there were any issues.

Ms Nolan speaks to the chairman of NAMA and she speaks to the Minister etc., etc.

Ms Ann Nolan

Yes.

What does she give? Is it guidance, counsel, advice or feedback?

Ms Ann Nolan

The Department of Finance role is to ensure that NAMA is meeting its strategic objectives which is to pay back the €30.2 billion-----

Ms Ann Nolan

-----that the Government went guarantee for and to ensure other strategic issues, such as building the 20,000 houses that are very badly needed in the State and other strategic-----

But not on Project Eagle? Ms Nolan took the call, she was informed about PIMCO, she was not in that conversation, she did not know about what was contained in other documentation - I can accept that - and she does not have a view on conflicts of interest-----

Ms Ann Nolan

I do have a view on conflicts of interest-----

-----in terms of-----

Ms Ann Nolan

-----in that it is very important they are managed.

-----in terms of Project Eagle. Did Ms Nolan give the Minister any advice?

Ms Ann Nolan

I think if Mr. Cushnahan had still been on a Northern Ireland committee in March 2014 at the time when I found out about this proposal that he might have had a payment To be honest, until I saw the letter from PIMCO I never knew there was any suggestion of a payment while he was still on the committee, which is even worse - it is not good in either sense, but a payment while he was still on the committee would have been completely outrageous, and probably illegal.

I better not say that. I withdraw that comment. Obviously, I would have advised the Minister to ask him to step down and to report the matter, if I thought something illegal had happened, to the authorities.

I did not ask Ms Nolan about a "what if" scenario. I asked about the actual scenario.

Ms Ann Nolan

In the actual scenario I was not aware of any illegal activity happening at the time.

Why was Ms Nolan told?

Ms Ann Nolan

We were told because it was-----

Not "we". I understand why the Minister was told. Why was Ms Nolan told?

Ms Ann Nolan

I was told for the same reason the Minister was told because my role is in that-----

It was just to keep Ms Nolan in the loop.

Ms Ann Nolan

Yes.

That is not very helpful from a public interest point of view, is it?

Ms Ann Nolan

The public interest is-----

I would have thought telling Ms Nolan and the Minister should have triggered something somewhere in the system, but I might be just an innocent and naive soul.

Ms Ann Nolan

I am not sure to what the Deputy is referring. What does she believe it should have triggered?

When Ms Nolan was last before the committee on 6 October, she said she raised the issue of the discount rate. She will be aware that it has been a matter of contention. The established rate was 5.5% as agreed by the NAMA board yet NAMA says the discount rate applied in respect of Project Eagle was 10%, that that was the appropriate rate and so on. Ms Nolan said at her last appearance that she had raised the issue of this discount rate with the Comptroller and Auditor General. She said she questioned the use of the 5% discount rate by the Comptroller and Auditor General and suggested that had the Comptroller and Auditor General's staff experience in the sale of loan books, they would have used a higher discount rate. That is not true.

Ms Ann Nolan

I think Mr. Reid tried to correct me on the day. If the Deputy looks a little further on she will see that he wanted to clarify that the discussion was less about the discount rate and more about the appropriateness of the process. In fairness to me, I did point out at the time that I was not at the meeting, and I had understood that that was in that version of the report. I had read the later version of the report so it was-----

I thank Ms Nolan. Can we have absolute clarification on that because Mr. Reid went on to state:

May I clarify the concern ... raised at the beginning? The discussion was less about the discount rate per se ...

The testimony we have is that the discount rate was not raised per se or otherwise. Can Mr. Reid clarify that?

Mr. Declan Reid

Yes. The discount rate, in the context in which it is being discussed today, was not raised at all.

I thank Mr. Reid for clarifying that because it was a matter of-----

Mr. Declan Reid

It was more theoretical discussions around bid processes, sales processes in general and understanding market dynamics.

For the purposes of clarity, the discount rate was not raised with the Comptroller and Auditor General's office.

Mr. Declan Reid

Correct, because it had not yet appeared in a draft of the report we were discussing.

Precisely. I thank Mr. Reid.

Ms Ann Nolan

I am sorry. It was my mistake because I had read the later draft. I had heard they had gone through the draft and therefore assumed it had come in.

It is important that we have clarity on that. Is Ms Nolan still contesting the Comptroller and Auditor General's position or does she still harbour those worries in respect of the discount rate?

Ms Ann Nolan

It depends on what way one looks at it. My concern, and this is why we get back to the question of what is commercial and what is not commercial, is and remains that NAMA will not be left with assets it cannot sell and that we do not put it in a position where it cannot make a commercial decision. That has been and would be my concern. If we look at an average discount rate, and the 5.5% is an average discount rate for the whole book, if that was applied to every individual sale, and in terms of my original mathematics, some things will be sold too cheaply and others too dearly if the same discount rate is applied to everything. That is not to say it has anything to do with Project Eagle. This is a purely theoretical position.

I am assuming Ms Reid has read the Comptroller and Auditor General's report.

Ms Ann Nolan

I have of course, yes.

So she will be aware that that is not the contention of the Comptroller and Auditor General.

Ms Ann Nolan

I am concerned about the conclusion that there is a probable loss as a result of applying an average discount rate. If one is just talking about an accounting loss, and there was at least €160 million of an accounting loss, which is admitted by NAMA, then one is into very little difference between the two, but it is important to say that it is a theoretical loss. It is not-----

I do not wish to be rude to Ms Nolan. I am sure she is an accomplished and committed public servant but when I hear the officials of the Department before this committee, and not least today, I hear waffle. It pains me to say that. Ms Nolan was listening to the proceedings earlier and the Comptroller and Auditor General made clear that it is not a quibble over accountancy treatment but a matter of economic decision making. I am sure Ms Nolan heard him make that point.

Ms Ann Nolan

Absolutely, yes.

What I cannot understand is why, as a witness before this committee, Ms Nolan lapses into a tour of the world when we are talking about the specifics of Project Eagle. I need clear-cut answers from Ms Nolan at this stage in terms of her acceptance or otherwise of the Comptroller and Auditor General's report and matters associated with it, as well as answers in terms of the kind of surveillance and oversight she carried out in respect of NAMA and its role, not just for the Minister but for the taxpayer.

Ms Ann Nolan

First, in respect of the Comptroller and Auditor General's report, I accept it is there, and we all accept it is there. In respect of the discount rate that should be applied to particular sales, it differs from sale to sale. That would be my general position. If one applies-----

Sorry, Ms Nolan, but is it a matter of absolute coincidence that that is precisely the position taken by NAMA? Is that purely coincidental?

Ms Ann Nolan

No. It is a question of how a complete set of very different assets can ever be sold if the same discount rate is applied.

That is not the finding of the Comptroller and Auditor General.

Ms Ann Nolan

The Deputy asked me what my position was on the discount.

Ms Ann Nolan

I have explained my position. My position is that I have no knowledge of the individual assets that were in that portfolio. I have no idea of the correct discount rate. My position on the discount rate is simply that one cannot have a single discount rate across every single asset because if one does that, strategically one is left with all the rubbish at the end.

Yes, and I want to make it clear that the Comptroller and Auditor General does not disagree with Ms Nolan on that point.

Ms Ann Nolan

I do not disagree with it. The Deputy asked me about my position. I gave my position.

I will finish on this point. This is why that worries me, and I say this with the greatest respect to Ms Nolan. She tells us now that she has no idea what the appropriate discount rate should be or might have been. That was the sentence out of her mouth.

Ms Ann Nolan

I have no individual knowledge of the assets.

Yet on 6 October she came before this committee and made an issue of the use of the 5% discount rate. That is incoherent, and I am not sure what it adds to our unravelling of all of these matters.

Ms Ann Nolan

I questioned-----

I do not know if that is deliberate or accidental but I hear Ms Nolan very much taking an identical analysis to NAMA and perhaps that is okay. Perhaps she has just arrived at the same conclusions.

Ms Ann Nolan

It can happen that people look at the same facts and come to the same conclusions.

Ms Ann Nolan

I said on the previous day that I was concerned. Perhaps the Comptroller and Auditor General said it previously and I had not heard it. If one were to take the entire NAMA portfolio and say that nothing could be sold at less than the average discount rate-----

Why is Ms Nolan repeating that? That has not been said.

Ms Ann Nolan

That is what I said. I am concerned, and I mentioned the possibility of having a lot of stuff left in 2020. My concern is about repaying the taxpayers' money, and that is the bonds.

Is it wise to be concerned about issues that have not been raised? That is-----

I am going to call Deputy Cassells. Deputy McDonald will have an opportunity later to come back in.

I welcome Ms Nolan, Mr. Reid and Mr. Carville back to the committee. Our hearings are becoming a little like the film "Groundhog Day", with witnesses making return visits to the Committee of Public Accounts. Unfortunately, unlike Bill Murray in the film, our previous repeat visitors before today have not seen a change in the script, although PIMCO's letter this morning will at least make the sequel appearance by Mr. Daly and Mr. McDonagh interesting. The previous appearance by Ms Nolan and other senior officials with the Minister for Finance was very interesting, in that the strong stance taken by the Department, and the Minister, on that day was that there was no other option on the table, bar the course of action that was taken.

We had a very interesting discussion this morning with the Comptroller and Auditor General on the options not explored. What was also strongly put on the day was the fact that it was stated that the Minister and the Department played no role in the portfolio and it would have been inappropriate for anyone to do so. However, an aspect in the letter from Tom Rice, chief legal officer of PIMCO, which we discussed this morning, sets out the context for the approach to NAMA on the purchase of the property and that the Northern Ireland Government expressed a desire that it wanted a responsible purchaser and that PIMCO fitted that bill. It also goes on to state that the Minister, Sammy Wilson, advised the Minister, Deputy Noonan, of the fact that Brown Rudnick wanted the deal to proceed with one party on a limited exclusivity to ensure an expedient process and that the Minister, Deputy Noonan, responded that parties should make contact with NAMA directly and he advised that Brown Rudnick should enter dialogue with NAMA so that any interest in the loan portfolio could be fully assessed. Why would the Minister, who I am sure would have conversed with Ms Nolan and the other senior officials on this, consider it necessary or appropriate to advise the Minister, Sammy Wilson, how to proceed? If the Northern Ireland Government was expressing preferences for a particular-----

Has Ms Nolan got a copy of this letter?

Ms Ann Nolan

I have this letter.

If the Northern Ireland Government was expressing specific preferences for bidders, why would the Minister, Deputy Noonan, and the Department not raise flags, considering it was said that the Department wanted a fully open and transparent process in the previous discussions we had here, yet the Northern Ireland Government was saying it wanted to proceed with just one bidder?

Ms Ann Nolan

Just to make it absolutely clear, the letter which came in from Mr. Wilson - which is on the record, before this House and which the Minister addressed the last time - mentions two bidders, not one bidder. It did not state that it wanted PIMCO specifically. As I remember it, and my colleague might double-check this, PIMCO is not mentioned in that letter, the letter that came into our Minister. Notwithstanding what is in this letter, with respect to the letter that came into us from Sammy Wilson which included the Brown Rudnick letter, we forwarded it on to NAMA and we also wrote back to Mr. Wilson telling him that they should approach NAMA directly. We did that with anyone who came to us about any assets that they wanted to buy in NAMA. That was our standard procedure.

There is a different version in terms of what it is saying in this letter.

For the record, has Mr. Reid something on that?

Mr. Declan Reid

I think you have it. It has already been entered into evidence, the letter from Brown Rudnick to the Minister, Sammy Wilson, which accompanied the Minister, Sammy Wilson's letter to the Minister, Deputy Noonan. In that letter it does not mention-----

Does it refer to PIMCO?

Mr. Declan Reid

It does not refer to PIMCO.

Ms Ann Nolan

The letter does not refer to PIMCO. PIMCO may have thought that it did but-----

They obviously do, as again expressed in this letter.

Ms Ann Nolan

They expressed that but that is not true.

Mr. Declan Reid

It mentions potentially two interested parties, one which Brown Rudnick would find more credible than the other but it does not mention them by name.

Okay. In the context of my earlier remarks on the evidence at the time of Ms Nolan's first appearance here, she made the point that there was only one game in town in terms of how this process would proceed, and that there was not an option in her mind or in the Department's mind to work through the loans. How much hard analysis was put forward by NAMA to the Department in respect of an analysis of the portfolio that shows that this was a non-runner?

Ms Ann Nolan

I do not think I said that another option was not available. I do not have any recollection of saying that. I think what I said was that the option of waiting in general was not available. In other words, NAMA had to act expeditiously on its portfolio but as to whether it sold the Northern Ireland, west of Ireland or south of Ireland portfolio, that was a choice for it. I certainly never said there was no other game in town. I did not say that this was the only option. It had an option. If it had failed to reach its reserved price, I imagine it would not have sold this and it would have been wrong of it to do so.

My apologies, I have a very different recollection of our previous conversations and of my questioning of Ms Nolan on the last day in terms of her analysis.

Ms Ann Nolan

I am sorry if-----

That is fine I can go back and check on her analysis of the role that NAMA took in this respect and the manner of her defence of the role it took. I think we all asked Ms Nolan did she believe that the role NAMA took was the right course of action in securing the best possible deal for the State.

Ms Ann Nolan

I know I definitely explained on the last day that we did not have access to details of the portfolios that NAMA had, and I explained this again to Deputy McDonald this morning, and therefore we could not make an assessment, and it would have been improper of us to get involved. The NAMA Act does not allow us to get involved in individual sales. That is entirely a matter for the NAMA board as set out under section 9; that is why the board is appointed. We would look at whether it was selling down its portfolios fast enough and whether we were going to get our money back but we did not look at each individual loan sale and say that this one is okay. If I ever gave that impression, I never meant to.

That is an interesting point to explore. Ms Nolan said that her interest was in whether it was selling and whether it was getting the money back. The Chairman raised points earlier in respect of table 7, where PIMCO in its bid for assets one to 55 had put in a figure of €950 million, yet NAMA was looking at a figure of €891 million. In terms of issues like that where potential bids were on the table, was NAMA advising the Department?

Ms Ann Nolan

No.

The Department had no knowledge of that whatsoever.

Ms Ann Nolan

I never saw those papers until I saw them in the Comptroller and Auditor General's report. The Department would not get papers. That is set out very clearly under the Act, and if the Deputy were to read through the debates on the Act, he would note it is very clearly set out that there should be no political interference in the sale of loans by NAMA.

Therefore, from the Department's point of view, it is not the case that the objective of selling at all costs trumps everything. That would not be the case from the Department's point of view.

Ms Ann Nolan

No. The word "expeditiously" appears in the Act several times. The objective of selling is very important but in terms of the objective of selling each individual loan, there was never a point where NAMA had to sell this particular loan at this particular time. It had a choice between which loans it sold and in what order, and how it bundled them and everything else.

Ms Nolan said that she was glad that the Comptroller and Auditor General was not making any comment on the commercial aspect of the deal.

A mobile phone is ringing again. I ask everybody to ensure their phones are switched off as the interference they cause affects the recording of the proceedings.

Ms Nolan said she was glad that the Comptroller and Auditor General was not making any comment on the commercial aspect of the deal, is that correct?

Ms Ann Nolan

Yes.

Can Ms Nolan expand on that?

Ms Ann Nolan

As I said earlier, I would be concerned. I do not think one can say from what the Comptroller and Auditor General said that this was or was not the best possible price; I do not think there is sufficient evidence in either direction. The reality is that one can only sell loans for what someone is willing to buy them for. While the Deputy and I can have a great idea about how theoretically we could have sold this portfolio for more, we do not know that. You do not get to do it more than once.

What we are discussing is the process.

Ms Ann Nolan

There are aspects about the process where very valid questions have been asked.

By the Comptroller and Auditor General?

Ms Ann Nolan

Who else?

Yes, of course. Ms Nolan agrees that there is validity in the-----

Ms Ann Nolan

Absolutely. I accept the Comptroller and Auditor General's report. I said that earlier.

He made the point that the presentation being put forward with a spin by NAMA was that there is an accounting difference and he made the point that this is not simply an accounting difference, rather it is about economic decision-making and how one makes choices in terms of public resources.

Ms Ann Nolan

It is a very theoretical difference because the loss that he attributes is not a loss if somebody was willing to pay.

I think that the contention would be different.

Ms Ann Nolan

The Deputy asked me my opinion. I totally accept it is only an opinion. The reality is that you do not get to play it out two ways.

Did the issue of the discount rate arise in Ms Nolan's discussions with the Comptroller and Auditor General or in her response to the report?

Ms Ann Nolan

My response to the report is on the record. I sent a letter and it does not mention the discount rate.

In terms of the external pressures from the ECB on the Department in respect of the disposal - which we discussed on the last day - can Ms Nolan take us through that again?

Was there real pressure coming from the ECB in respect of the disposal of these assets?

Ms Ann Nolan

I think there was big pressure across the system. The ECB was part of that but it was also from the European Commission, the IMF and the rating agencies because Ireland was-----

How was that pressure manifested?

Ms Ann Nolan

It was manifested by these people all coming into town once a quarter while we were in the programme. They would meet NAMA and ask how quick it was going and whether it could go any faster. They would meet us. The meetings would go on for two weeks. They would meet Mr. Reid and his team, they would meet me and they would meet the Ministers. If there was any suggestion that anything had slowed or that there was a danger we were not going to meet all the targets etc., one would be very well aware of it. In addition, the rating agencies would come around, I think probably twice a year in those days and possibly more. I could not give the frequencies.

Mr. Des Carville

Many rating agencies would come in, spend quite a bit of time with us and spend quite a bit of time in Dublin meeting various people. The Deputy has to remember that we had €375 billion of contingent liabilities at the peak. That figure is now less than €10 billion. In fact it might be as low as €3 billion. The figure of €375 billion was a massive one. This was a huge concern to the rating agencies from a sovereign point of view.

In addition, the Irish banks, many of which are quoted on the stock market and have their own analysts covering them and commenting on their profitability, viability and results, held NAMA bonds and NAMA sub-debt. It was very important that those NAMA bonds were redeemed because they were used as collateral with the ECB. That was part of the system funding which the banking system was taking from the ECB.

These were extraordinary times and extraordinarily high figures. The idea, which was absolutely correct when one looks back even with hindsight, was to reduce this exposure, both from a banking point of view and also from a sovereign contingent liability point of view.

Mr. Declan Reid

That is across the piece, with the banks, with the IBRC and with NAMA, because all of those played a part in the interconnectedness between the financial system and the State at that point of time and reducing our exposure.

Mr. Des Carville

That explains in no small part why the rating agencies now have Irish debt back at investment grade from junk status at the worst point in the cycle.

At the previous meeting Ms Nolan said that waiting until 2020 to sell the property was not an option, but NAMA's asset work-out plan set out in figure 3.3 envisages that half the property would be sold by 2015 and 90% by 2017. Does the Department have a view on whether that timeframe was appropriate?

Ms Ann Nolan

As I said, the timeframe was entirely a matter for NAMA because I do not have individual things. What I would be concerned about, and my concern the previous day was based on this, is that if one makes it impossible to sell, is that a barrier that makes it impossible to sell over the whole period? If one puts up a barrier or a price or one values the thing far higher than anyone who is going to buy it, then it may well be that one can never sell it. It is like the guy who puts his house on the market for €400,000 and then says nobody wants to buy it for that. He then decides to wait until next year and sell it for €400,000. Then the next year the prices go down rather than up so nobody wants to buy it. In five years' time he still has not sold it because the prices have not gone up. There is an element of gambling and waiting. That is all I am saying. If one sets the barrier, and this is where one comes into the discount rate, where one always has to reach the average discount rate, then some things will never sell. In fact, the less good things will never sell. The good things will sell anyway.

Mr. Declan Reid

NAMA had a large portfolio and a finite time to work through it. It would have had to make decisions on some aspects of that portfolio to make sure it was able to achieve its ultimate goal of deleveraging the entire portfolio.

Before I call Deputy Madigan, I wish to follow up on one point. I think the witnesses said that the Department's main concern related to the commercial aspects of NAMA. It would have been concerned if the Comptroller and Auditor General, had strayed into that, which he did not and the Department accepts he did not. Did Ms Nolan suggest to Deputy Cassells that regarding the sale there was no evidence either way on the commercial outcome?

Ms Ann Nolan

My issue is that we do not know whether, if it waited, it would have got more or less money, whether the present value of the money would be more or less. We do know there was pressure on it to sell because of the rating agencies and all the things we have talked about, but there was not pressure on it to sell this in particular.

I understand that.

Ms Ann Nolan

It has to decide which things it can sell best and how the bar is set as to what price it is willing to sell at.

Is Ms Nolan saying, therefore, that the report is right and that NAMA cannot prove it did get the best price for that?

Ms Ann Nolan

No. There was a sentence in the report that it cannot prove whether it did or whether it did not, and it probably never can on any of them. There is a point at which one can never prove. It becomes unprovable.

I will read one sentence of Ms Nolan's opening statement: "I also confirm that in each interaction with our Northern Ireland counterparts, it was stressed that NAMA was independent in its functions, should be approached directly by interested parties, was obliged to run a competitive process, and must be satisfied that it had achieved the best price." Ms Nolan is saying it is impossible-----

Ms Ann Nolan

It is impossible to prove that a different strategy would not give more. On a particular deal, of course, we have to get the best price. On the procedure, we can change it. We must have a reserve price. We have to say there is a price below which we will not go. If NAMA had not set one, I would be extremely worried. There has to be competitive tension. There has to be more than one person bidding. They are the things that are needed to ensure we are getting the best price, as best we can. Of course, it can never be proven that if we waited-----

Okay, so Ms Nolan-----

The reserve price is something that the Chairman already raised this morning.

How do we know the reserve price? Ms Nolan cannot answer that. Is she satisfied it got the best price?

Ms Ann Nolan

I have not valued the asset. It is very difficult for me. This is really the committee's job and it is hard for the committee too.

We are just trying to get opinions. If the answer is that Ms Nolan cannot answer, that is an answer.

Ms Ann Nolan

I cannot really answer that question.

Ms Nolan said in her opening statement it was NAMA's obligation to run a competitive process. Is she satisfied it was a competitive process in light of how the process evolved with only two bidders?

Ms Ann Nolan

There is absolutely no doubt that one can have a very competitive process with only two bidders. Two bidders does not mean it is not competitive.

I know that.

Ms Ann Nolan

It is for NAMA to look at the process and to answer questions on the process. I do not think-----

I only raised it because Ms Nolan raised it in her opening statement.

Ms Ann Nolan

They are what were set down and the procedures that should be set down, and I think NAMA would agree with them in principle, but-----

Ms Nolan is suggesting we should talk to NAMA on the detail.

I thank Ms Nolan, Mr. Carville and Mr. Reid for attending the committee again. I wish to focus on something that has not been raised. I have a viewpoint; I am not saying it is the correct one. The National Asset Management Agency Act was enacted in 2009. It seems that speed has been put above any other strong import regarding this legislation and at the expense of the rest of the rationale for the Act.

Ms Nolan mentioned the word "expeditiously" on numerous occasions. She mentioned that in the report. Even though I have not put this to NAMA, I intend to do so. To be fair to it, in a sense it was straitjacketed because of the language used in the NAMA Act. Section 2 refers to being expeditious and, I think, efficient. Sections 10 and 192 also mention it. There is nothing about reasonableness or appropriateness. The cost is mentioned, but it is all about haste and expeditiousness. It is given a ten-year limit.

I do not know if it is outside Ms Nolan's remit to answer a question like this. Does she think it was far too tight and too restrictive on NAMA if the pressure was to sell, sell, sell? I suppose with my legal background I am interested in the legislation. It occurs to me that the scope of it is too limited and the language was too restrictive. What are Ms Nolan's views on that?

Ms Ann Nolan

I do not agree with the Deputy. In light of the reasons NAMA was brought in, the Deputy needs to read the word "expeditiously" in conjunction with section 2(a), relating to the purposes of the Act, which states "to address the serious threat to the economy and the stability of credit institutions in the State generally and the need for the maintenance and stabilisation of the financial system in the State".

It is against that background NAMA was operating. We were out of the markets because of the position into which the banks had put the State, although I am not suggesting that was the only factor.

Ms Ann Nolan

If NAMA had not been in the position where it was obvious not only to it but to outsiders looking at the Act that it had to keep going then the rest of us might have had a much higher price.

I appreciate that but at what cost? There must be due process and thinking around actions that are taken in the interests of the public and not just haste. That is the point I am making. I acknowledge Ms Nolan's statement that NAMA took its mandate very seriously because of the Act but whether that has implications is a concern.

Ms Ann Nolan

There were implications. They arose because of the agreements that we had with the European Central Bank, ECB, and the EU, particularly DG Competition which insisted on a ten-year timeframe when we might have chosen a lengthier term when drafting the Act. However, we did not have that option. As I said, we had agreements with the ECB and to a lesser extent with the IMF. Another reason for the inclusion of "expeditiously" in the Act is that the Irish-----

I am not saying it should not be in the Act but I think there should be additions to "expeditiously".

Ms Ann Nolan

There are many other phrases used.

Yes, there are but not in relation to reasonable fulfilment. However, we are going to differ on this point.

Ms Ann Nolan

It must be remembered that the Irish property market was killed off by the crash and as long as NAMA held everything there was a good chance that nobody else could sell anything. We went through three or four years when there was almost no turnover of property in this country. When NAMA and IBRC started selling more, some of the banks started selling and the property market took off again. The measures are inter-related in different ways.

Does Ms Nolan appreciate where I am coming from in relation to this issue?

Ms Ann Nolan

I do. I can understand it.

In my view one cannot have speed emphasised over every other tenet that is important.

Ms Ann Nolan

In fairness to the Act, I do not think it is over every other thing but it is certainly there quite a bit.

In my view, it is.

Ms Ann Nolan

Okay.

Mr. Declan Reid

It is important to take into account how the NAMA board interprets the Act. NAMA sets out its interpretation of the Act each year in its annual statements. One phrase that has recurred in each annual statement is that NAMA's principal commercial objective, based on section 10(2) of the Act is to achieve the best achievable financial return for the State, having regard to the cost of acquisition, etc. As reflected in the opening statement, the key tension that the NAMA board has identified in its mandate is that balance between best achievable value and expeditiously exiting those investments.

I accept that. I noted when I read the Act that the word "expeditiously" is at the forefront. That just rang alarm bells for me because I would like to see other phrases included as well. I am just asking that the witnesses take note of my point.

Ms Ann Nolan

Okay, thank you.

Earlier, I asked the Comptroller and Auditor General a question regarding the role of his office in the day-to-day workings of NAMA because the impression was created during some earlier hearings, and explicitly again this morning, that the Comptroller and Auditor General had a large team in NAMA examining its every transaction. It is this "impression" I would like to focus on. In response to questions on this particular issue in the Dáil, the impression was given that the public could be assured about the workings of NAMA on the basis that the Comptroller and Auditor General's office had a strong remit in that regard. However, that remit was very different to the reality. The purpose of this value for money exercise is to examine this particular project. That impression was created by the Department and the Minister. For example, we know when the Department became aware of the information in relation to Project Eagle, PIMCO and the fixer's fees. After this was known by the Department, it was raised in the Dáil. I recall Deputy Mick Wallace being told that if he had concerns, he should raise them with the Garda Síochána. Ms Nolan or any of the other witnesses can correct me if I am wrong but given that the Department appears to have known that there was an issue about fixer's fees, do they think the Department's approach has done little in terms of building confidence in the oversight that it would have of even a strategic approach of NAMA?

Ms Ann Nolan

It is very difficult to answer for people's impressions. One can only answer in relation to things one has actually said. If people take a particular impression from it that is another matter. In regard to oversight, the Act is very clear. The role of the Comptroller and Auditor General, which the Deputy probably underestimated, is very important. The Comptroller and Auditor General is the auditor for NAMA. He has people embedded in NAMA but in an auditing capacity and not in terms of oversight of everything NAMA does because it would be improper of him to be acting as a shadow-director. The board of NAMA is responsible for the actions of NAMA. At the point when the Department found out about Mr. Cushnahan and the PIMCO fee, Mr. Cushnahan was no longer on the advisory board and, therefore, the question of taking action to remove him from it did not arise.

I am not familiar with what exactly the Minister said in terms of referring a Deputy to go to the Garda Síochána if he had information in relation to wrongdoing but I would certainly recommend that action if the Deputy has information of wrongdoing.

The point is that the Department does not have a culture of being forthcoming with information, in my experience. For example, I have tabled many questions on the same broad topic. If the first question had been answered it would have been to the Department's credit in terms of accountability. It looks like the same pattern will have pertained in relation to this. In other words, the Department would have had information but it was dismissed as almost fanciful and later transpired to be true. This does not build the type of confidence that the public should expect in terms of the disposal of very significant assets that have a bearing on the amount of taxation that needs to be raised, the level of our debt and so on. It is in that context I make the point about the Department having known about this in advance of questions being raised in the Dáil and its dismissal of those questions as fanciful.

The Department knew about the fixer's fees. Irrespective of whether Mr. Cushnahan was on the board the Department knew about those fixer's fees. The degree to which the Department has been forthcoming in real time about when the information became available is the point I am making. It was dismissed.

Ms Ann Nolan

I am not sure what was dismissed and when.

When it was raised in the Dáil regarding-----

Ms Ann Nolan

When was it raised in the Dáil? I am at a disadvantage here. I am not sure what I am being asked.

It was raised in the Dáil in advance of July 2014.

Ms Ann Nolan

I am not quite sure what was raised or what answer was given. I cannot answer for something when I do not have the documents.

I will leave the point and return to it. I may return to it in writing.

Ms Ann Nolan

The Deputy may write to me. I am not trying to be unfriendly but am not sure what the question is.

The Department was aware of it from March 2014 when it received the phone call.

Ms Ann Nolan

Yes, absolutely, and I have never said anything else.

After that it was dismissed by way of questions.

Ms Ann Nolan

I cannot speak about something being dismissed unless I have the question and what exactly was asked.

Maybe we need to ask the Minister directly rather than Ms Nolan.

We will check the dates.

Ms Ann Nolan

And what, exactly, was asked.

What was asked was very forthright. On the reduction in the timeline from 2020 to 2018 in terms of the disposal of the assets, Ms Nolan made the point that one would not want to be left with assets in such an environment in 2020. Neither would one want to be left with them in 2018. The same set of circumstances apply. It truncates the timeline in which one can dispose of the assets. Did the Department, at any point, consider it in terms of NAMA's conduct regarding the disposal of assets and that it might have produced this kind of bundling of assets?

Ms Ann Nolan

The question was examined and we published a section 227 report which was laid before the Houses. We examined the change in strategy, and having a shorter disposal time probably means more bundling. Although it does not necessarily, it is one of the options. It seemed like a good strategy to us, given the amount of pressure there was on the contingent liability of the State and given that the market was open for such a strategy.

I will read the report. Would Ms Nolan regard it as a coincidence that the reserve price was the same as the price being offered for the asset, or did the Department consider it, even in retrospect?

Ms Ann Nolan

At the time, we were not aware of the details. One would imagine the reserve price would be in the same ballpark as the price that was mentioned. One would expect them to stretch the price and have the reserve in or near it. Regarding how it was arrived at, the Deputy would have to discuss it with NAMA.

I welcome the witnesses. I found some of Ms Nolan's responses extraordinary. I will refer to the last time she was here and what she said. I am trying to get clarity. There has been a sleight of hand regarding the perception that NAMA was portraying regarding the Comptroller and Auditor General's report and his analysis of the change in sales strategy and the discount rates applied. NAMA misrepresented what the Comptroller and Auditor General was saying. I said this to NAMA board members when they were here with us. We are trying to clear up those misrepresentations. We got some of it from the Department representatives when they were here before. There is a hangover of it in the responses I have heard so far and I would like to get clarity. If we can get clarity and if there is no real difference, we will be in a better place. The 5% discount rate was put to Ms Nolan and she explained that it may have been a mistake. Mr. Reid clarified that it was not a subject of discussion with the Comptroller and Auditor General.

Mr. Declan Reid

It was not a subject of discussion given that it did not appear in the draft we were discussing.

Exactly. We have absolute clarity that there was never any discussion between the Department of Finance and the Comptroller and Auditor General's office about the discount rate. It never took place.

Mr. Declan Reid

Correct.

Exactly. However, we have evidence that NAMA gave us in which it referenced discussions between the Department of Finance and the Comptroller and Auditor General regarding the discount rate. We will go back and correct that with NAMA that it never happened.

Mr. Declan Reid

With reference to when NAMA discussed what the Deputy just referenced, the discount rate between-----

It was discussions between the Comptroller and Auditor General and the Department.

Mr. Declan Reid

I do not think NAMA has referenced discussions about the discount rate.

It did, and I will come to it later.

Mr. Declan Reid

Was it part of NAMA's testimony?

Yes, and it said some other things. I am trying to avoid NAMA trying to divide and conquer the Department and the Comptroller and Auditor General to justify its analysis of the Comptroller and Auditor General's report, which was either a misunderstanding or a distortion of what the report stated. I will get to it, given that it follows logically from the next question. Ms Nolan said:

There is an underlying theme in the report that the alternative was to work out the loans until 2020. If I were to look at it from a policy point of view, I did not think that was an option given the difficulties there were in terms of the NAMA bonds, the ECB and the pressure we were under to reduce the debt. Just as we came out of the programme in January to March 2014, I do not think it was an option for us to decide not to sell a really large portfolio purely on the grounds that we might or might not get more money. We had to set a value and decide whether it was value for money. That is what NAMA did.

The Comptroller and Auditor General's report never said the assets should be kept until 2020. The Comptroller and Auditor General never said the 10% discount rate was a mistake to be applied to the Project Eagle loan sale. In the report, he argued that the 5.5% discount rate and the probable loss he talked about were to do with the change in sales strategy. All the documents we have received so far from NAMA outlined that there was a strategy in place to work out the assets over time and they could have been sold in 2014, 2015, 2016 or 2017. They could have been sold in different ways but the projection was to get back €1.49 billion. There was a change in strategy from a loan sale to an asset sale. This is the Comptroller and Auditor General's position on the probable loss. Does Ms Nolan accept that this is his position? If she does not, there is a misunderstanding of what is being said.

Ms Ann Nolan

As I explained earlier, the issue of whether one works out the loans and sells them gradually or-----

I am very conscious of the clock. The question is about the probable loss. Ms Nolan said she had a difficulty with it given that it is not a loss that someone is willing to pay. This is not something the Comptroller and Auditor General would disagree with and he does not argue against it. I am trying to get Ms Nolan to accept that the probable loss of the €190 million is in reference to the change in sale strategy from an asset sale worked out over time to a loan sale in which a market discount of 10% was applied. This is where the probable loss is referred to in the report. Will Ms Nolan at least accept that this is what the Comptroller and Auditor General is saying in his report?

Ms Ann Nolan

When assets are working out over time, there is no guarantee of the money either. When one gets money now, one knows for certain one has got it. Looking at some of the supporting documentation-----

I have to interrupt. I find it incredible. When NAMA was here, we were subject to much discussion about the lack of expertise in the Comptroller and Auditor General's office about how things work and market sales. This is not about whether or not it would have materialised. At a point in time, one arrives at a value, which is based on the value of the assets, income generated from the assets, cashflows and all the rest of it. That is what the Comptroller and Auditor General did in his report. He examined it at a point in time. Things can happen and circumstances can change. If Ms Nolan does not understand this simple concept, it worries me.

Ms Ann Nolan

It is not a question that I do not understand it, but that there are uncertainties. I do not necessarily agree with the description of a probable loss being something that happens because one takes this strategy rather than that strategy, and saying there is no uncertainty with the other strategy. Both strategies have uncertainty.

Ms Nolan has missed my point entirely. I do not know whether it was deliberate or because she genuinely did not understand what the Comptroller and Auditor General has said. NAMA worked out the value of €1.49 billion that was based on a sales strategy to work out the assets over time by 2020. Not that one would sell them in 2020 but work them out over time. Then there was a decision to change the sales strategy and because of that decision, at some point when the sale was on, the purchaser's discount of 10% was applied. The witnesses cited, when they were here before, that there were all sorts of difficulties with the NAMA bonds, the ECB and the pressure it was under. At the time, and we heard this from the Comptroller and Auditor General this morning, the cost of capital for NAMA was very low. He talked us through it but I do not know whether Ms Nolan caught that this morning.

Ms Ann Nolan

I know their cost capital was very low.

Ms Ann Nolan

That was part of the reason why there was so much pressure on them to repay the capital because the people who gave them the money wanted the money back. The fact that their cost capital was low did not mean it was available indefinitely. It is the availability of capital.

I refer to all of the difficulties that the Department talked about.

Ms Ann Nolan

Yes.

NAMA also talked about difficulties with debtors and pressures that justified its change in sales strategy. I do not know whether a briefing note is on the system here but I referred to it this morning. The briefing note is dated 6 November 2013 and the reference number is 2292015. It was sent by Mr. Martin Whelan of NAMA to Mr. Declan Reid and the NAMA communications team. The note was displayed on the screen this morning. This overview of NAMA's Northern Ireland portfolio states "70% of the Northern Ireland portfolio is completed property and is income producing", that "NAMA has approved £140 million in new money advances" and that:

In a small number of cases NAMA has had to enforce in [the North]. The Agency's enforcement is proportionate to the scale of its exposure.

That is no different from what happened in the South. The note continued:

It should be pointed out that the .... Assembly have repeatedly asked NAMA to take a phased approach.

That was in line with working out the assets. The last line reads:

As it has transpired, NAMA's commercial approach has been aligned with this.

Nowhere does the note say that NAMA had concerns in real terms about debtors. Nowhere does it say that there were risks that would have warranted a change in sales strategy. That is my point. Ms Nolan has said there were concerns about NAMA bonds, the ECB and pressures but there is no evidence anywhere, that was presented to the board, that backs up those pressures.

Ms Ann Nolan

On the pressures from the ECB, we sent the committee a lot of documents. That has nothing to do with the individual sales. I have made this point before. The pressures were to reduce the number of NAMA bonds so that the Irish Government could get back into the markets.

Ms Ann Nolan

They were not to sell any particular portfolio. So there is no connection between this note and whether there were pressures to sell assets or not.

Ms Nolan talked about a different set of pressures, NAMA talked about a different set of pressures but everybody is talking about pressures that NAMA was under to sell. The claim does not stack up, as no evidence has been presented to the board.

Ms Ann Nolan

I am sorry but there is evidence of the pressures I am talking about because we sent all of the stuff from the rating agencies and the troika. I attended many of the troika meetings so I can give first-hand testimony as to pressures on that.

As far as other pressures on individual debtors, I cannot speak to them because I was not aware of those. I would not have expected the pressures of which I spoke to be in this briefing note.

When it was put to Ms Nolan about probable loss and the conclusions that the Comptroller and Auditor General reached, she talked about them being theoretical issues.

Ms Ann Nolan

Yes.

I do not understand how the Comptroller and Auditor General can characterise them as theoretical issues. Can Ms Nolan clarify the matter for me again?

Ms Ann Nolan

It does not seem to me that there is any way to prove that one would have got more money using a different strategy or that anything in the document proves that. Therefore, the probable loss is theoretical loss.

That is not what the Comptroller and Auditor General did.

Ms Ann Nolan

I know it is not.

Ms Ann Nolan

It is a theoretical loss.

No. It cannot be a theoretical loss because there was a loss. The Comptroller and Auditor General talked us through it this morning. In 2013, NAMA identified a loss of €113 million and I think it booked a loss in 2014, if my memory is correct. Are the tables available on screen?

Mr. Seamus McCarthy

It is €168 million.

It is €168 million.

Ms Ann Nolan

Yes.

Can the table be shown on the screen? What notes were the tables in again?

Mr. Seamus McCarthy

It was 167B.

Ms Ann Nolan

That is the accounting loss. There is no debate about that.

Mr. Declan Reid

There is no debate about that.

Ms Ann Nolan

I am not arguing with that.

Mr. Declan Reid

NAMA has not debated that, by the way.

Yes. Our point is that that is the role and the job that the Comptroller and Auditor General was asked to do, to look at the-----

Ms Ann Nolan

Yes.

Mr. Declan Reid

Yes.

Ms Ann Nolan

I mean if that is the only issue, I can easily agree that there was an accounting loss of €130 million, €160 million or whatever it was.

It is not simply a theoretical loss. When the Comptroller and Auditor General is looking at the probable loss, it is in the context of a change in sales strategy. It is in the context of documents that were presented to him by NAMA that did all of the calculations, at the time, in respect of the previous sales strategy. NAMA would have looked at the values of the assets, what one would have got working them out over time, projections and built-in impairments with the resultant figure being €1.49 billion. The figure only became reduced when NAMA changed sales strategy and that is where probable loss comes into it. I am asking Ms Nolan to accept that this is the Comptroller and Auditor General's proposition.

Ms Ann Nolan

I accept that this is his proposition but I do not necessarily accept - if one looks at some of the other tables examined this morning in the NAMA documentation, table 11-----

I want to allow Deputy Connolly to make her contribution and advise Deputy Cullinane he has gone over time.

Ms Ann Nolan

I think the Deputy will find that NAMA would argue, and I do not know enough about this in terms of what the actual inputs are-----

Mr. Declan Reid

Inputs are just cashflows.

Ms Ann Nolan

If one looks at table 11 on page 145 or the report, under a rate of 5.5% the net present value, NPV, for holding on is different under different scenarios. Can the Deputy see that? It is £1.38 billion down to £1.2 billion-----

Yes, and we can see the discount rates for 5.5% and 2.5% for-----

Ms Ann Nolan

Yes, at 5.5% and 2.5%.

Mr. Declan Reid

On risk-adjusted cashflows.

Ms Ann Nolan

Yes. To some extent, one always has a choice between changing the discount rate or adjusting the cashflows in order to look at future uncertainty and how one prices it in. In this particular one, they left the discount rate the same but they adjusted the cashflow to take into account the fact that there was future uncertainty. Either way, one has to take the uncertainty into account when one is looking at probable loss. That is why I say it is theoretical because one has to take that discount. One has to take that uncertainty into account one way or the other.

I call Deputy Connolly at this stage.

I thank the three witnesses. For the people who are watching and listening I wish to state that none of this debate is theoretical but it has to do with trust and belief in a system. Is that right?

Ms Ann Nolan

Yes.

I ask each witness that comes before this committee the same question. Did they read the report?

Ms Ann Nolan

We did, of course.

Mr. Declan Reid

Yes.

Great. Ms Nolan has pointed out today that she is delighted with the clarification that the Comptroller and Auditor General is making no comment on the commercial decision.

Ms Ann Nolan

Yes.

That was clearly stated in his report on page 11, paragraph 18, where it is written:

NAMA has outlined the strategic and commercial rationale underpinning the decision to sell the loan portfolio. This report draws no conclusion about the merits of that decision.

Ms Ann Nolan

My concern was it seemed to be completely lost in the debate that this was the position. There seemed to be a suggestion that the issue at question was the actual strategic view or strategic decision of NAMA.

I appreciate that it might have got lost but I am not sure where it could have got lost in the Comptroller and Auditor General's narrative. It was presented in the report and in the summary and he made no comment publicly. The narrative after that was written by NAMA.

Ms Ann Nolan

It was written by many witnesses here, not all of whom were NAMA.

The narrative I am referring to is that of NAMA repeatedly in the press and in various public statements. That narrative related to the 5.5% rate predominantly and to the Comptroller and Auditor General's attachment to some type of accountancy fantasy. I used the right terminology this morning. The witness has appeared before the committee today and I welcome that as it is important. However, I am not sure why the Department of Finance has an opinion at all on the 5.5% rate.

Ms Ann Nolan

I said this earlier. I have answered the questions I was asked. There was no mention of the 5.5% rate in my opening statement or in the Minister's opening statement. It is really a matter for this committee to have that opinion, not for me.

That is very good. The Department of Finance has no role in making a comment on the Comptroller and Auditor General's report.

Ms Ann Nolan

Only inasmuch as the Deputy asked me a question, as I will answer the questions asked. My opening statement does not specifically deal with this issue for that reason.

On the previous occasion the witness did discuss it with my colleagues.

Ms Ann Nolan

That is because I was asked.

However, the witness had a very strong opinion in that regard.

Ms Ann Nolan

I have lots of strong opinions. It is a failing.

I would be in that category too. The issue of the 5.5% rate is the one thing the witness has picked out further to questioning. That is the reason I asked if she had read the report. The report is not about the 5.5% rate.

Ms Ann Nolan

No. There are many things in the report.

Let me deal with that, because the witness has had her chance. There is a chapter on conflict of interest. Does the witness have a comment on that with regard to the concerns of the Comptroller and Auditor General?

Ms Ann Nolan

They are very valid concerns. They are questions the Deputy should put to NAMA.

That is great. He has clearly pointed out his concerns with regard to the sales process, and we have articulated those concerns as best we can. Does the witness have a comment on those?

Ms Ann Nolan

They are definitely questions the Deputy should put to NAMA.

Great. The witness therefore has no comment on any of that report.

Ms Ann Nolan

No.

The witness heard the Comptroller and Auditor General's evidence this morning on when he met the Department of Finance. He said he sent a copy in May 2016 to the Department of Finance and two officials met Mr. Reid and Mr. Carville. Is that correct?

Ms Ann Nolan

Yes. Mr. Reid was there for the full meeting. I believe Mr. Carville was there only for a short period.

Perhaps they might tell me.

Mr. Des Carville

I stepped into the meeting for 20 to 25 minutes. I had two objectives in attending the meeting. The first was to get a sense of the tone of the meeting. In fairness to the Comptroller and Auditor General and my colleague, Mr. Reid - another colleague, Mr. Lenihan, was at the meeting as well - it was a very constructive meeting. It was conducted in a very professional manner.

I am not making an issue of that. The meeting took place. However, the Comptroller and Auditor General told us this morning that he would have expected a formal response from the witness. No formal response to that meeting was provided.

Ms Ann Nolan

The formal response would have come from me. We did not give a formal response to the first draft. We had a draft and we just did not get it finished in time. The second draft came before we had it done, so we decided to wait and give a formal response to the second draft.

Mr. Des Carville

If I recall correctly, we knew that the fourth draft was due to be issued imminently, so rather than comment on the third draft and have a third draft out there, we waited for the fourth draft.

I understand that what the Comptroller and Auditor General said was slightly different. I am subject to being corrected by the officials. First, he would have expected a formal response from the Department but the Department did not give it. Second, he then gave the Department NAMA's response. It was after the Department looked at NAMA's response that it made a comment. Is that correct?

Mr. Seamus McCarthy

We got a response from NAMA and we re-worked the report taking account of notes we had made on the discussion with the Department of Finance and incorporating further amendments as a result of our engagement with NAMA. Then the revised draft report went to the Department.

Mr. Declan Reid

I do not think there is any assertion that our feedback was lost in the mix.

I am trying to deal with it factually. The Department made no formal response. Then, when it got the subsequent amended copy with all the changes, it made a formal response.

Mr. Declan Reid

That is correct.

I refer to the famous letter from NAMA to the Department of Finance. It quotes the Department of Finance's opinion regarding lack of expertise. Does the witness recall that letter?

Ms Ann Nolan

Yes.

It was the letter on 12 September from NAMA to the Minister, Deputy Noonan.

Is there a reference number on that document?

It is PAC32-80a (iii). It is a long letter from NAMA justifying its decision. It is sent on the 29th to the Minister, Deputy Noonan. It quotes the Department of Finance as having an opinion. Will the witness comment on that?

Ms Ann Nolan

The letter reads, "Instead, the examination's conclusions are based entirely on opinions by the C&AG and his staff who have no market experience. [That is a statement being made by Frank Daly.] I understand that your Department, following a meeting with OCAG staff on 7th June 2016-----

This is from the second last paragraph on page 4.

Ms Ann Nolan

Yes. It continues, "...indicated to NAMA its surprise at OCAG's lack of knowledge of the loan sales market and advised that they would greatly benefit from external advice". The meeting was a long meeting. It was very constructive, as Mr. Carville said. There was much discussion about loans processes. I mentioned on the previous day that Mr. Reid had much experience in loans processes, the types of sales one would do and the different types of processes. Following that meeting, Mr. Reid was speaking to NAMA, as he does every day, and expressed some opinion which is now being quoted back. However, it was not a formal opinion of the Department of Finance. It was just an opinion expressed by two people talking to each other.

The witness may well seek to lessen the impact of this, but this is NAMA communicating with the Minister for Finance.

Ms Ann Nolan

Yes.

It is quoting the Department's opinion in that paragraph. It is an opinion of the Comptroller and Auditor General that is less than praiseworthy with regard to a report that was due to come before the committee. The Department had an opinion on that.

Ms Ann Nolan

We have a right to have an opinion.

When I asked if the Department had an opinion, the witness said "No". When I asked if she had an opinion on any of this report she said "No". She said that was a matter for NAMA and the Committee of Public Accounts. The witness has an opinion on a specific matter. It is not a complex question. The witness had no opinion on conflict of interest, the sales process, lack of records and all the concerns raised. However, the Department does have an opinion on the percentage and the lack of expertise.

Ms Ann Nolan

No. I am sorry but we sent one formal letter to the Comptroller and Auditor General on the report. That is the only formal opinion we have expressed. Members of our staff speak to colleagues in different organisations frequently. On something quoted back, I would have preferred if that was not quoted back because it was not a formal opinion of the Department, but the fact is that it is something that was probably said.

I think it is inappropriate and NAMA has done us a favour in highlighting the fact, and quoting it to the Minister, that the Department of Finance had an opinion on a certain aspect of this report but not on the other major concerns in the report. I will leave that for the moment because of my time constraints-----

Ms Ann Nolan

Sorry, it is an opinion about individuals which probably should not be put down on the official record. It is not an opinion about the report and it does not say that nothing else was said by the Department.

I did not say that. I am just quoting what is there, which is surprise at the Comptroller and Auditor General's lack of knowledge of the loan sales market "and advised that they would benefit greatly from external advice to help them achieve a better understanding of the loan portfolio sales". This is a serious paragraph where the Department expressed a serious opinion about a report which the witness said had nothing to do with her. She had no comment on any of the other issues in it.

Ms Ann Nolan

Sorry, this is an opinion that is being quoted back by somebody-----

Ms Ann Nolan

Yes, it is by Frank Daly in a letter to the Minister. It does not purport to say everything from the Department. It is not a minute of a meeting.

It is a quote out of context from a conversation held between two people and it was not an official opinion of the Department.

Did the witness tell the Minister that this letter issued by Mr. Frank Daly on the publication of the report from the chairman of NAMA to the Minister was quoting aspects out of context? Did she advise the Minister-----

Ms Ann Nolan

I advised the Minister that I had written the official Department opinion and observations on the report and that at no point did the Department make any official comment, good, bad or indifferent, about the staff of the Comptroller and Auditor General, with whom we have worked very successfully for many years. I have no reason to criticise them personally.

We are agreed on that.

Ms Ann Nolan

I made that very clear to the Minister when this letter came in.

Did the witness go back to Mr. Daly and ask him to withdraw or correct the letter?

Ms Ann Nolan

No, because I believe this is a subject that he felt very strongly about. The committee knows that because it had him as a witness. He was determined to put this in the public arena and he can answer for himself.

Does Mr. Reid still hold that view?

Mr. Declan Reid

Is that a question for me?

Mr. Declan Reid

Over the course of the six hours we spent together, we discussed various aspects of loan sales processes. We looked at how to deal with inbound inquiries, how to create competitive tension, how to structure a single-stage sale or a multi-stage sale; all of those things. We spent six hours talking about those types of concepts, as well as the detail of the draft report. In that context, it was my view that it would have benefited from external advice.

I find that very interesting because-----

Just on that, given that the Department has accepted reports from the Office of the Comptroller and Auditor General as well as its annual reports for the previous five years dealing with the same assets and the same balance sheet, why now at this point, after five years of accepting audit reports, does the Department have an issue?

Ms Ann Nolan

Can I just say-----

Does the witness know the question I am asking?

Ms Ann Nolan

I know exactly the question the Chairman is asking and I really would like to put something on the record. Mr. Reid made a personal observation about something that might have been useful. It is not a rejection of the report. It is not a suggestion that he thinks that the people who wrote the report were not capable of writing the report. It was just an observation about some extra help that might have been useful. I think it has been blown completely out of all proportion.

Just on that statement, who has blown this out of proportion? That is my question.

Ms Ann Nolan

I do not want to talk about someone who is not here.

The witness has made a comment now that has been-----

Ms Ann Nolan

Well, I think-----

Sorry. Just let me ask the question. Who is Ms Nolan referring to that has blown this out of all proportion?

Ms Ann Nolan

The letter was written and signed by Mr. Daly so I think the Deputy should put that question to him. The reality is that it was an observation made in a conversation. It was not an official position of the Department.

Just one second. I will go back to-----

Mr. Declan Reid

I want to clarify a point. Can I just make one point?

I certainly will let Mr. Reid clarify the point. However, this issue has come up and I do not know how much time I have left to ask questions. These are the difficulties that we work under, unless the Chairman allows me to ask further questions at a later stage. I will stop talking and stop asking questions when my time is up. I have opened up the NAMA issue of Mr. Daly writing to the Minister for Finance. I certainly have not blown anything out of proportion. Mr. Reid has expressed a very strong opinion. It has been clarified that it is his opinion that the Office of the Comptroller and Auditor General did not have enough expertise.

Mr. Declan Reid

It was that the office would have benefited from external advice. I am not sure of the timing but the Comptroller and Auditor General has clarified that they did seek some advice from the National Audit Office.

Let us put that red herring away because the Comptroller and Auditor General has clarified that. The Department officials have read the transcripts or have watched that meeting.

Mr. Declan Reid

Yes, but I do not know the timing in relation to the feedback that I provided.

Subject to the Comptroller and Auditor General coming before the committee, he did not seek expertise on this specific report.

Ms Ann Nolan

He did seek expertise from the National Audit Office. He mentioned that himself earlier.

Not for this report. I will let the Comptroller and Auditor General answer.

Ms Ann Nolan

He did.

Mr. Seamus McCarthy

We did not seek external assistance as part of the team dealing with NAMA. What we did do was have an earlier draft of the report reviewed by two individuals in the National Audit Office who have considerable market experience. It was prior to the meeting with the Department of Finance. We had discussed with the National Audit Office what the standard sale processes would have been and so on. We were presenting the findings as we had them at that time. One thing I would like to say is that we did not speculate about motivations or strategies that any participant in the market would have adopted. We are perfectly capable of doing it because we are talking about economic decisions and actions and so on. We could have speculated about it and we could do that privately. However, we cannot do that in a report. If it comes across to anybody that we do not understand what the economic drivers of any agent, that is just not a reasonable interpretation of the report. The report is about what happened and not about what people might have been trying to do or second-guessing.

Mr. Declan Reid

It was the motivations and those types of concepts that we were discussing. I think we are consistent on that point.

Whatever about consistency, from my point of view, this is about somebody from the Department of Finance expressing such an opinion as Mr. Reid has done, as captured in this letter. The rest of the report is ignored, including the context of the report, the conflict of interest and the serious concerns around the sales process. Ms Nolan has mentioned competitive tension and so on. The concerns are exactly in relation to that, a lack of competitive tension. There was also the way that the sales process was limited, the limited information given to Lazard and the change of direction without records. On all of those aspects of the report, there was no comment from Mr. Reid.

Ms Ann Nolan

Sorry-----

Please let me finish the question. Why was there no comment on any of that from Mr. Reid?

Mr. Declan Reid

We spent six hours discussing all of those concepts. I think it is unfair to say that there was no comment on that. We did have a healthy discussion.

Does Mr. Reid accept, as Ms Nolan does, that the concerns raised by the Comptroller and Auditor General are serious concerns on everything that he has highlighted, such as the sales process and the other aspects that I have mentioned?

Mr. Declan Reid

I believe that it is undoubtedly true that the Comptroller and Auditor General has serious concerns over the process NAMA ran.

Does Mr. Reid accept those concerns?

Mr. Declan Reid

I accept that the Comptroller and Auditor General has those concerns.

Does Mr. Reid share those concerns? I think that is the question.

Mr. Declan Reid

I think the way in which the process has been documented could have been improved to reflect in hindsight a better account of what happened and how those concerns could have been allayed in a forum like this.

I thought I would be finished in a few minutes, but perhaps not with what is emerging now. Is Mr. Reid saying that the Comptroller and Auditor General's report could have been written differently?

Mr. Declan Reid

No. I am saying that the documentary evidence supporting the decisions of NAMA could have been improved.

In relation to NAMA's decisions?

Mr. Declan Reid

Yes.

Okay. I will finish on this question. Following Deputy McDonald's question, Mr. Reid confirmed that he wrote Ms Nolan's opening statement.

Mr. Declan Reid

It was a collaborative effort, but yes.

Ms Ann Nolan

He was the initial author.

Was he was also the author of the statement of the Minister, Deputy Noonan?

Mr. Declan Reid

Again, it was a collaborative effort.

There is a point to this. It is that they are remarkably similar. I will finish on this. If we look at the paragraph on page ten of Ms Nolan's opening statement, the Minister made the exact same point in his opening statement. Ms Nolan said: "Suggestions that the Minister for Finance should have interfered with NAMA’s commercial decision and called a halt to the board-approved sales process fundamentally misunderstands NAMA’s independent mandate and the role of the Minister for Finance." That phrase, "fundamentally misunderstands", was also used by the Minister. She said that the Minister could have absolutely no role. I do not believe that because in this case there are serious concerns about a success fee with a figure of £15 million or £16 million, with part of that paid to a person who is on an advisory committee, as well as all of the other issues. Certainly, the Minister could have a role in that.

Ms Ann Nolan

If the success fee had been paid to the person buying it, certainly there would be a role to play by the Minister and the Department. I know there have been allegations since, but we did not know that at the time. If we thought there was something improper going on, of course we would have had a role. PIMCO withdrew and the question at that point was whether or not the Minister or the Department should intervene. There was no knowledge at the time that would have justified such an intervention.

There was. Maybe the Department did not like it. That is incorrect.

I find that extraordinary. Ms Nolan has maintained that on both appearances before the committee. The Minister was fully aware in March 2014, at the very latest, that there were success fees in question and of Mr. Cushnahan's involvement.

Ms Nolan and other witnesses have repeatedly stated that Mr. Cushnahan had now departed from the committee so that was the end of that.

Ms Ann Nolan

The Minister was not aware of the allegations - which arose later - that there was a success fee due to Mr. Cushnahan from parties other than PIMCO. The only thing he was aware of was the success fee that had been proposed for PIMCO to pay to Mr. Cushnahan. PIMCO withdrew from the process.

I understand that PIMCO clearly confirmed that there was a success fee to be divided between the three parties, that it communicated this to NAMA and that the chairperson of NAMA then telephoned Ms Nolan and the Minister personally. Is that not correct?

Ms Ann Nolan

That is correct.

Therefore, the Minister was perfectly aware of the success fees and that a portion of those fees was allegedly going to Mr. Cushnahan.

Ms Ann Nolan

Yes, but only in respect of PIMCO.

I have asked this repeatedly of different witnesses, but at that point did alarm bells go off?

Ms Ann Nolan

Obviously, we were very concerned.

Good. What did the Department decide to do?

Ms Ann Nolan

We decided to ensure that PIMCO did not purchase the assets, which as it happened did not matter.

The Department decided to ensure that PIMCO-----

Ms Ann Nolan

PIMCO had already withdrawn.

So the Department did not decide-----

Ms Ann Nolan

When we looked at the situation and asked what we could do about it, the parties involved were PIMCO and Mr. Cushnahan. Both of them had already left the process. The board of NAMA then had to decide whether it wanted to continue with or stop the process. We had no evidence that would have justified our interfering at that point.

Did it ask for advice from the Department on whether it should continue or not?

Ms Ann Nolan

No.

Having asked the question, Ms Nolan immediately said the Department stopped the process. She has now clarified to say that did not happen.

Ms Ann Nolan

I never said that we stopped the process. I said we would have stopped-----

Ms Ann Nolan

Perhaps we are misunderstanding one another.

Ms Ann Nolan

We are misunderstanding one another.

Let me return to the paragraph where it is written that it is a fundamental mistake to think the Minister could have done something.

A vote has been called in the Dáil. Will we stop now or are there those who want to return for a final few minutes? There are probably a few minutes left of the meeting. I would prefer to finish matters out, even if we have to come back after the vote for another 20 minutes. Is that agreed? There is a vote, so we will have to go. I will have to suspend the sitting. Even if there are just one or two people who want to ask questions, is it agreed to resume after the vote? Agreed.

Sitting suspended at 3.35 p.m. and resumed at 4 p.m.

We will resume our consideration of the report of the Controller and Auditor General on Project Eagle. Deputy Catherine Connolly was in possession.

I was just finishing before the break, but we have come back with more energy. I am not sure, however, which side has the most energy. I was asking Ms Nolan what the Department had done when there was a discovery about the payment, particularly to Mr. Cushnahan. She gave two contradictory replies.

Ms Ann Nolan

I do not believe I gave contradictory replies, subject to tiredness and the lateness of the evening. I will clarify what I said to make sure my point is clear. If I did give contradictory replies, I certainly did not mean to do so.

In March 2014 we were aware of a plan by PIMCO to pay a fee to Mr. Cushnahan, but at the time there was no evidence of any fee being paid. PIMCO withdrew from the process and Mr. Cushnahan had already left it. We asked NAMA whether it intended to continue with the process, or the sale to some party. It assured us it would speak to its sales adviser, Lazard, to see whether there was sufficient competitive tension left in the process for it to get a good price for the two parties that were still in it. It stated that if it received reassurance from the adviser, it would go ahead. Later I heard that it had gone ahead. It also told us that, to ensure there were no improper payments in the actual process, as distinct from the proposal from PIMCO, it would receive written confirmation from the purchaser - Cerberus, as it turned out - that no payments were being made to anyone connected with NAMA.

I have two points to make in that regard. My question was about what the Department had done about it.

Ms Ann Nolan

We relied on the reassurance that NAMA had given us that it had received something in writing from Cerberus, that it had received advice from Lazard and that the board - this was its job - had been convinced there was sufficient-----

The Department did not take any action. It relied on what NAMA had told it.

Ms Ann Nolan

Yes.

I understand Brown Rudnick was under an obligation to tell NAMA it was acting as legal adviser.

Ms Ann Nolan

I think that is a question for NAMA. It was not under an obligation to tell us anything-----

Ms Ann Nolan

-----and it did not tell us anything. The only indication we had received from it was in the previous summer. I refer to the attachment from-----

The Department of Finance had no role whatsoever.

Ms Ann Nolan

No.

When the alarm bells did go off in Ms Nolan's head, the Department went back to NAMA which reassured it. Ms Nolan's colleague is nodding. That was the end of the Department's role.

Ms Ann Nolan

That was the end of our role.

Ms Nolan did not believe she had any other role.

Ms Ann Nolan

No.

On that point, perhaps I missed something. Ms Nolan might go over what she said. She said she had received reassurance from NAMA and Lazard that there was a competitive process. When did she seek and receive that reassurance?

Ms Ann Nolan

I spoke to Mr. Cushnahan that March. He spoke to the Minister just before he went off for St. Patrick's Day.

To tell him about PIMCO.

Ms Ann Nolan

To tell him about PIMCO. He spoke to me, but I cannot remember the exact date because I did not keep a note of it. It would have been within a week or two. I was told NAMA had decided to go ahead, that a written assurance had been obtained from Cerberus and that Lazard had stated it was okay to go ahead on the grounds that there was sufficient competitive tension.

The deal was closed. It had been accepted.

Ms Ann Nolan

It was entirely a legal matter for it. It was not looking for my permission.

That is what I am getting at.

Ms Ann Nolan

At no point was it looking for my permission.

It received reassurance from Cerberus only on the day the final bill was accepted, 2 May. It had to be around that time.

Ms Ann Nolan

It must have been, yes. It was on that day, or a day or two afterwards. It was in or around that time.

The Department was not in touch with it in the meantime.

Ms Ann Nolan

I could not say I was not speaking to it, but I was not involved in this issue.

I have one very short question for Mr. Reid following on from his thought that the Comptroller and Auditor General might benefit from additional advice. Has he ever advised NAMA that it should seek external or additional advice?

Did he do so in respect of the sale of Project Eagle because-----

Ms Ann Nolan

Mr. Reid told me about the six-hour meeting he had with the Comptroller and Auditor General. He said they had gone through a lot. He said that he thought they might have benefited. They might have benefited and there are lots of things people could benefit from with extra advice.

We have debated that. That is not my question.

Ms Ann Nolan

He told me at the time-----

My question is to Mr. Reid. Has he ever made a similar suggestion or observation to NAMA? Did he make that observation in respect of the entire Project Eagle process, particularly because one of the notable things from the NAMA side was an excessive reliance on valuations that dated back to 2009 and a limited remit for Lazard? As Mr. Reid is obviously a person who thinks these matters through and who had that view of the Comptroller and Auditor General, did he made similar observations or recommendations to NAMA as regards its operations?

Mr. Declan Reid

Contemporaneous or in the context of the report?

Mr. Declan Reid

I would not have been aware of the detail of the engagement of Lazard by NAMA at the time in terms of what their mandate was and the advice they had been requested to provide to NAMA so I would not have been in a position to comment on that. I would have been aware that they would have engaged advisers so I do not think there would have been a need for me to recommend that they engage advisers. However, I would not have been aware of the detail and the mandate they would have provided-----

So Mr. Reid would not been aware of how limited was the mandate for Lazard.

Mr. Declan Reid

Yes, I would not have been aware of the details of the mandate that they had asked Lazard to provide.

In other words, Mr. Reid would always have taken the view that NAMA was more than equipped internally and in terms of external advice to discharge its functions fully.

Mr. Declan Reid

To the extent that I am made aware of individual sales processes in the context of our monthly management meetings and pipelines. Essentially, I am told at what point they are preparing portfolios, where they seek advisers and where they appoint advisers - those general details about sales processes. I have never felt the need to advise them that they needed to seek an adviser because that is typically done as part of the process.

I have a few questions. In Ms Nolan's letter to Mr. Harkness, she said she was surprised that the Comptroller and Auditor General did not engage directly with board members as part of this special report. I think I have asked this question previously. In all the years of Ms Nolan's extensive experience, when has the Comptroller and Auditor General ever engaged with the full board of any organisation in respect of which he has conducted an audit?

Ms Ann Nolan

I am not aware of that but I would not be aware of everything they do. I am not aware of a case before but neither am I aware of a case where there was such disagreement between the two parties. That is the only basis of my surprise. At the point where NAMA was clearly very upset about it, I thought it might have been useful for both parties to engage directly. It might not have made any difference but I was asked to give an opinion and that is what I said.

I have put this question to NAMA officials and I will put it to Ms Nolan because she referred to it in her letter. I am sure she met the chief executive officer and the chairman. Did she feel that they were not competent enough to portray the views of NAMA and that it was necessary for her to suggest the need to meet the other board members?

Ms Ann Nolan

To be fair, I was aware that the other members had invited the Comptroller and Auditor General in because Mr. Reid had mentioned it to me. I was also aware that they were very agitated. I am not sure it would have made much difference to the report. I am not suggesting that the board members had something to say to the Comptroller and Auditor General that would have necessarily changed his opinion; I merely thought it would have been useful. I am sure the Chairman can see that it is much more useful if matters are sorted out between the parties before they get to the committee. It is in the context of the latter that I made the comment and the same goes for Lazard.

On the second page of the letter, Ms Nolan states, "You have also outlined in the report's summary that the NAMA did not seek formal external advice on the sale strategy". Did NAMA receive such advice?

Ms Ann Nolan

No, I do not think they did. The Comptroller and Auditor General said they did not and I take his word for it.

Is it is a little unusual - given that NAMA has all the expertise and its officials are in charge of making all the decisions - that they did not seek external advice? There is a criticism that the Comptroller and Auditor General had not sought external assistance?

Ms Ann Nolan

In fairness, there is a slight difference. First, there is no criticism. I did not criticise the Comptroller and Auditor General. Second, there is a slight difference in that selling loans was what NAMA was set up for and many of its staff had this particular expertise. So, on the question of what advice they needed, it was a matter for the board to decide whether they had sufficient expertise.

But this was one the agency's biggest transactions to date and its first major loan sale. I make that point but Ms Nolan need not respond.

Ms Ann Nolan

I refer to the final sentence in that paragraph. Perhaps the board members might have explained why they did not seek external legal advice. Maybe they would not have had an explanation and it might have reinforced the Comptroller and Auditor General's opinion. This is a normal letter for these types of reports.

I understand that. The question of additional advice for the Comptroller and Auditor General's office came up but it was in connection with the section 226 report.

Ms Ann Nolan

I saw it.

We are all clear on that. Ms Nolan said before the break that she does not agree with the terms "probable loss".

Ms Ann Nolan

A probable loss suggests that it is almost certain that it was a loss but it is not almost certain that it was a loss. There was a risk factor which could have been put in as a higher discount rate or as they have done by adjusted cashflow. There was a risk factor to holding on to it which might have led to further loss but this is a choice for the committee. As a member pointed out earlier, my opinion on this is just my opinion; I do not have a role to play in it.

The only reason I raise this is because Ms Nolan brought the topic up in a letter. The next paragraph refers to the setting of the minimum price section of the summary. She states, "The decision to sell the loans at £1.3 billion involved a significant potential loss". She referred to this point and that is the reason I am bringing it up. If it had only achieved £330 million, there definitely would have been a probable loss at that point. Does Ms Nolan accept that?

Ms Ann Nolan

Absolutely. There has to be a minimum charge.

Given that Ms Nolan brought up this issue and that she is not happy with the term "probable loss", in respect of what figure would it be appropriate to use the term? She is not happy with £1.3 billion because she says that does not prove a probable loss but she would accept a probable loss at a much lower figure.

Ms Ann Nolan

This is not necessarily the only way of looking at it but the issue is what was their minimum value, how did they arrive at that and was it reasonable. Probable loss becomes emotive. The question is: was £1.3 billion a reasonable minimum value and is appendix 3A of the board papers a reasonable way of assessing that? It probably could have been a bit clearer in the board papers, looking at it a long time later, but that is the question. Once you go into a process, if you have a minimum price set, the decision is you are going to sell at that price, more or less.

There are many other issues in the report and I will not go through them all. Deputy Connolly referred to an issue. There are conflicting views and Ms Nolan may not want to give a view but she represents the parent Department.

Earlier Ms Nolan used the word "fine" to describe the report. That is not a strong endorsement of it. If I were to ask her how did she do and she were to answer, "I did fine," that would not even be good. She can say she has used those words.

Ms Ann Nolan

It is a fine report. I would not necessarily say I do not mean that it is not good. I am sorry, but people can have different interpretations.

Is there any paragraph in the report with which Ms Nolan disagrees?

Ms Ann Nolan

My official opinion of the report is set out in the letter. Some of the points made in it have actually been addressed in the final version of the report. I am not quarrelling with what the Comptroller and Auditor General says in the report on most points.

When we talk about the figure of €1.3 billion and the reference in the letter to the significant potential loss which changed to probable loss, Ms Nolan essentially moves on in the paragraph to say the content of the feedback from the board should have been given more prominence in the summary and main body of the report, respectively. She is not disagreeing with the Comptroller and Auditor General's conclusion.

Ms Ann Nolan

The question is whether it really was a probable loss. I totally get that there are accounting and technical ways of looking at the issue. In ordinary parlance, it seems like it was the most likely outcome, but that has not necessarily been proved.

Does the Department have a role in commenting on losses or probable losses in individual transactions?

Ms Ann Nolan

We do not have such a role. We have a role in commenting on reports of the Comptroller and Auditor General, which is why there is this letter.

Will Mr. Reid tell us who the Department meets and where the monthly meetings are held? We always like to have a feel for what happens. Also, what are the general issues? It was stated there were quarterly and annual reports, etc. How many from the Department of Finance attend and who attends?

Mr. Declan Reid

Typically, I and one other attend from the Department of Finance. We do not meet board members. That excludes the CEO.

That is what I was coming to.

Mr. Declan Reid

We meet the other executives, typically the head of communications and the CFO. We talk about the financial progress of NAMA, month to month, in terms of the transaction pipeline, rent collection and operational expenses.

The CFO. Is it not someone from the assets recovery or social housing section?

Mr. Declan Reid

No, unless there was an issue for discussion at a particular meeting. There are two regular attendees.

Where are meetings normally held?

Mr. Declan Reid

At NAMA.

Generally, will Mr. Reid give us a broad sense of the topics discussed?

Mr. Declan Reid

There is the recurring item of the financial performance of NAMA when we talk about its month to month progression. We always talk about the transaction pipeline, the creation and potential disposal of portfolios over time. As NAMA has progressed, we have talked about meeting debt redemption requirements and the progress towards meeting them. We now talk more about the strategic development zone in the Dublin docklands and the housing funding programme. We are in the middle of a DG Competition case in that regard and talk quite often about our engagement with it. Essentially, there are a few set items that are topical. There are then other peripheral items that may come up in the context of parliamentary questions, media reports, etc., that we want to try to understand. We bring them into the discussion.

Does Mr. Reid prepare a report for anyone such as a summary of what was discussed at a meeting? Are there minutes?

Mr. Declan Reid

There are minutes of meetings, yes.

Who gets them from Mr. Reid?

Mr. Declan Reid

We have a SharePoint system within the Department of Finance. The minutes are saved centrally and accessible to whoever wants to view them.

By a lot of staff. Does the Minister see the reports?

Mr. Declan Reid

No.

Not normally. What if there was something that merited it?

Mr. Declan Reid

If something was worthy of escalation.

Ms Ann Nolan

If there was something really important, we would make a submission on it to the Minister rather than just send him the minutes of meetings.

The Minister has a lot to do.

Ms Ann Nolan

The Minister could not possibly read the minutes of every meeting staff go to.

I thank the witnesses for giving of their time. I have heard a good deal of evidence today. Unfortunately, I was detained at the Select Committee on Finance, Public Expenditure and Reform and the Taoiseach for part of the meeting and hope I am not repeating anything.

Obviously, the discount rate is one issue about which we have had a significant argument. In terms of the process, the way board meetings were dealt with, how decisions were recorded and the backup given, the discount rate NAMA was recommending to the board as late as June 2013 was lower than 5.5% at 2.5%, in other words, a greater discount rate essentially involved an increased risk to the taxpayer. I note the narrow focus of Lazard in advising on strategy at the time in the first major sale. If one looks at Project Arrow and other projects, it has been noted that various asset packages were looked at rather than lump everything together. How does the Department deal with these issues? Does it look at them in its section 227 report? How does the Minister deal with them if he sees sufficient evidence? In each step along the way it looks as if there were inadequate board minutes. Even NAMA has accepted that there are aspects it would change in terms of backup if it had to engage in this process again. That is our problem. Looking at a lot of the audit evidence, I am sure the Comptroller and Auditor General would say - I am not speaking for him - it was deficient in many areas and that it was difficult to understand. When the committee has representatives of NAMA here, we rely a lot on retrospective conversations. They come out fighting and use examples which have not been recorded. If the Department has a major concern about an agency, how does it deal with it or what redress does it have?

Ms Ann Nolan

I would like to make a few points. First, we do not see the minutes of meetings. This was all covered this morning when I know the Deputy was at the Select Committee on Finance, Public Expenditure and Reform and the Taoiseach dealing with the Finance Bill 2016. We would not have seen any of this stuff on a day to day basis because it was outside our remit.

The section 227 report deals with broad strategic issues such as whether NAMA is reaching its objectives and whether it is paying back the debt to the taxpayer. Individual examination is a matter, in the first instance, for the Comptroller and Auditor General. That is why in terms of minute taking, etc., in spite of it coming out fighting on certain matters, NAMA will take on board the criticisms of the Comptroller and Auditor General and will ensure things are done better in the future. No doubt the Minister will ask it whether it has done so.

What teeth does the Minister have under the NAMA Act to direct it? If he believes a major sale was not conducted appropriately, where, in terms of good practice, it has failed to display that there was sufficient competitor tension and where he believes things were not done in a comparable way to other major sales, what teeth does he have to direct NAMA? Does he have any role in that regard?

Ms Ann Nolan

The Minister can direct NAMA on the objectives under the Act but not on its objectives. It is for this committee to ask NAMA and make it answerable on individual items following the Comptroller and Auditor General's report, but that is not to say the Minister will not ask it. It is to say it is essentially the committee's role.

Does the Minister have to act on foot of of the decisions of this committee? I am not pre-empting anything; I am not sure what the process is.

Ms Ann Nolan

The Minister will obviously read whatever report is issued and decide whether he needs to act.

I apologise for the late start. The officials were probably here from early morning, but the early part of the meeting went on a little longer than anticipated. I thank the officials for bearing with us. On behalf of the committee, I thank all of the witnesses for participating in the meeting and the material they supplied. I also thank the Comptroller and Auditor General and his staff for their assistance. The committee will adjourn until 10 a.m. on Wednesday, 16 November when it will meet the deputy First Minister of Northern Ireland, Mr. Martin McGuinness, MLA.

The witnesses withdrew.
The committee adjourned at 4.40 p.m. until 12.30 p.m. on Wednesday, 16 November 2016.
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