Joint Committee on Finance, Public Expenditure and Reform debate -
Wednesday, 26 Feb 2014

Sale of IBRC Mortgage Loan Book: Discussion

Chairman

We will now deal with matters relating to the sale of the IBRC mortgage loan book. Before we commence business, I remind members, witnesses and those in the Visitors Gallery that all mobile phones must be switched off to avoid interference with the broadcasting of the meeting. The meeting is being broadcast, not on cable but on a webcast, and there will be people watching it. Any mobile telephone interference creates technical difficulties. If there is interference, I will disrupt the meeting. If there is a difficulty, I will ask those concerned to leave.

I welcome to this afternoon's meeting the special liquidators for IBRC, Mr. Kieran Wallace and Mr. Eamonn Richardson, and officials of the Department of Finance, Ms Ann Nolan, second secretary, Mr. Anthoine Mac Donncha, head of the legal unit, and Mr. Gary Hynds, assistant principal. The witnesses are here to discuss matters relating to the sale of the IBRC residential mortgage loan book. This discussion will begin with opening remarks from Mr. Richardson on behalf of the special liquidators. Following that, questions may be put by members to the special liquidators or officials, as appropriate.

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

I ask Mr. Richardson to proceed with his opening remarks.

Mr. Eamonn Richardson

My name is Eamonn Richardson and I appear here today with my colleague and fellow special liquidator, Kieran Wallace. We thank the committee for this opportunity to present on the special liquidation process as it impacts on IBRC mortgage customers.

With the committee's permission, we have an opening statement which we would like to provide to it. I will highlight some of the key contents from that statement. Then we will be available to take questions from the committee. The members of the committee will be aware that we retain obligations of confidentiality towards individual borrowers of IBRC and we are unable to discuss the specifics of any particular account or borrower. Furthermore, the sales process for the residential mortgage portfolio is ongoing with final bids due on 14 March 2014. As I am sure the members of the committee will appreciate, there are certain matters that remain commercially sensitive in relation to this transaction which we are unable to discuss.

Mr. Wallace and I were appointed as joint special liquidators on 7 February 2013 under the Irish Bank Resolution Corporation Act 2013, IBRC, Act 2013. The passing of the IBRC Act and the appointment of the special liquidators was part of the promissory note transaction which yielded significant benefits for the State.

On our appointment, we were instructed by the Minister for Finance to arrange for the valuation of IBRC's loan assets by independent advisers. In this regard, the special liquidators appointed PwC as independent advisers to value the residential mortgage portfolio.

PwC was also appointed to provide independent advice in developing a robust and credible sales strategy for the sale of the residential mortgage portfolio which would ensure that maximum value was achieved for the benefit of all creditors of IBRC. We understand the committee sought a copy of this report issued by PwC. In view of the commercially sensitive nature of the material contained in that report, we regret that we are not in a position to make this available or to put it into the public domain.

It is also worth noting that, per the ministerial instructions, the assets of IBRC could only be sold at a price equal to or in excess of the independent valuations obtained. Should a bid in excess of the independent valuation obtained not be received, the loan asset will transfer to NAMA at the independent valuation price.

I will give a general update on our loan sales processes to date. For operational reasons, the loan assets of IBRC have been divided into six portfolios, code named Evergreen, Sand, Rock, Salt, Stone and Pebble. The Sand portfolio comprises Irish originated residential mortgage loans with a par value of €1.8 billion. In total, there are 15,734 borrower groups comprising 24,632 loans for sale across the six portfolios. Thirty-three of these borrower groups, representing 0.2% of total borrower groups, were or are being offered for sale on a stand-alone basis. No IBRC borrower is being provided with an exclusive opportunity to buy back his or her loans at a discount, and each sales process is a competitive sales process involving third parties.

Within the Sand portfolio, there are 11,825 individual residential mortgage customers comprising 12,702 mortgages with a par value of €1.8 billion. Following receipt of legal advice, we corresponded with these residential mortgage holders and provided them with an opportunity to make written representations on the method of disposal of their loans and the criteria for determining who may bid on those loans. We received 1,224 residential mortgage holder representations. The special liquidators have reviewed and considered each representation. In addition, the representations were considered by PwC in delivering its sales strategy advice to us.

The valuation of the Sand portfolio was completed on 11 November 2013, with the sales process commenced on 14 October 2013.

As indicated, we expect to be in receipt of final bids on the portfolio on 14 March 2014.

We did consider the concept of selling individual mortgages but for a number of reasons we could not proceed with that. We can discuss these with the committee in more detail later. However, some of the issues we encountered included the cost of running such a process; timing; the independent advice received from PwC; borrower-only bids; the confidentiality of personal information that would be in the public domain; delivering best results for the creditors, including the taxpayer; and the execution risks associated with such a strategy.

We confirm that since the commencement of the special liquidation, the residential mortgage holders have continued to enjoy the protection of the Central Bank code of conduct on mortgage arrears, CCMA, and other protections in Irish consumer law. We have established a robust residential mortgages credit committee process and have reviewed mortgage accounts for forbearance, restructuring and enforcement measures.

Of the 12,702 mortgage accounts in IBRC, 10,622 relate to mortgages on a borrower’s private dwelling house, PDH. Of the PDH accounts, 4,175 are in arrears. Over the past, year we have been engaging with borrowers to address these arrears. A key development we have achieved to date is that we have concluded restructuring with 38% of the customers in arrears, with a further 6% in the final stages of completion. In addition, we are working towards a solution with 42% of the remaining accounts, which, with borrower co-operation, we will endeavour to deal with before the sales process. We do not currently have sufficient information to devise a solution in respect of 14% of our customers. Further information is being requested from these borrowers with a view to working towards a sustainable solution for them.

We are currently making approximately 16,000 customer interactions per month across the full Sand portfolio. Efforts to contact borrowers are via telephone and letters, and we are urging borrowers to re-engage with us and work towards a sustainable solution. We are in monthly contact with in excess of 98% of our customers in arrears. Any IBRC borrower can repay all borrowings with IBRC at any time up to the end of the sales process. The full amount, or par value, of all borrowings outstanding at the time must be repaid.

Some concerns have been expressed on the intentions of third-party purchasers of the Sand portfolio. In this context, it is important to note the objective of any third-party purchaser will be to make a financial return on the purchase. It is unlikely that this purpose could be achieved through actions that would make it more, rather than less, difficult for borrowers to comply with the terms of their loan agreements. Third-party purchasers will be required to honour the legal terms of the underlying loan agreements.

We can confirm that the third-party bidders who are bidding on the residential mortgage portfolios have confirmed they will be directing that the mortgages be serviced in accordance with the terms of the CCMA should they be successful in acquiring those loans. We are satisfied that the voluntary nature of this arrangement strikes a fair balance between the interests of the mortgage holders as well as the interests of the creditors of IBRC.

The sales process for the Sand portfolio is ongoing and it is, therefore, too early to comment on what percentage of it will be sold to third parties or to NAMA at the valuation price. We will continue to work with residential mortgage holders who are in arrears and we are willing to correspond with them pending the sale of the portfolios to third parties or to NAMA to arrive at sustainable solutions for them.

I thank the Chairman and other members of the committee for their time. We are now available to take questions on our statement.

Chairman

I thank Mr. Richardson. Could the delegates explain who the creditors are in the liquidation process?

Mr. Kieran Wallace

They are quite varied in nature. We have employees who are owed moneys in respect of contractual entitlements and suppliers who were owed money on the date on which the bank went into liquidation. The most substantial creditor is the State, which will account for approximately 70% of the unsecured creditors of IBRC. We have our secured creditor, NAMA, which is owed just short of €14 billion.

Chairman

Between NAMA and the State, what is the percentage in the creditor book?

Mr. Kieran Wallace

It is in excess of 70%.

Chairman

Consequent to last night’s statement, many people in the mix will be very interested in knowing the detail. What level of supervision can be applied to the voluntary code of practice that was announced in the press statement last evening?

Mr. Kieran Wallace

As we said, we have got a voluntary agreement from the potential bidders in regard to the mortgage loans. From our perspective as liquidator, we have been able to get a voluntary agreement, and that is as far as we can go.

Chairman

Who supervises that? The Central Bank would supervise the banks that fall under the regulator's office. Who supervises this one?

Mr. Kieran Wallace

As far as I understand it, the Central Bank would classify the bidders. The names are not known but the majority of the bidders we would be talking to in respect of the portfolio of loans we are talking about today would be unregulated entities, so it would not be an option for the Central Bank to regulate them.

Chairman

So the Central Bank will not be supervising any of these loans after the sale?

Mr. Kieran Wallace

That is my understanding.

Chairman

That brings me on to the next question. There are resolution targets. The delegation mentioned its own resolution targets in its opening statement. I will return to this later. Under the existing scheme, set out around April of last year, very specific targets were set for the banks. There are percentages of 25%, 35%, 50%, etc. There was a carrot-and-stick approach. The stick approach is that if financial institutions do not meet their targets, capital penalties will apply to them. The loan book being sold contains people with performing mortgages. They may be performing just by their fingertips but there are people in resolution processes, as has been explained. I will go into the detail of the resolution process later. What is the position on the resolution targets pending the sale? If the Central Bank has no role in this matter, how can penalties be applied according to the code of conduct?

Mr. Kieran Wallace

We are very pleased with the progress that has been made while we have been in the IBRC during special liquidation. As my colleague Mr. Eamonn Richardson alluded to, by the end of next week we will have effected restructuring deals with 44% of the borrowers in arrears who are co-operating with us. A further 42% are work in progress. We are actively encouraging those in this category to continue to co-operate with us so we can have restructuring deals done for them over the coming weeks.

Chairman

That is not the question I am asking. Mr. Wallace referred to the current state of play and said that following the sale of the loan book, a voluntary code of practice will apply, but I am saying the current resolution process for people in Allied Irish Banks, Bank of Ireland, Ulster Bank, Permanent TSB involves very specific targets which, if not met, result in the application of penalties by the Central Bank. Capital reserves must be adjusted, for example. Will any penalties apply to the new institutions? It is critical that people in difficulty be put into a resolution process. What gatekeeping exists to ensure the targets will be met by the new financial institution?

Mr. Kieran Wallace

I am not aware of any.

Chairman

Is there no structure for the resolution process and are no targets in place for the period after the sale?

Mr. Kieran Wallace

Any restructured deals we agree to prior to the completion of the sale will involve a contractual term within our sales documents. Any buyer will have to honour those restructured deals.

Chairman

Following the sale of the loan book, will homeowners be in a position to transfer their loan from the new financial institution to an institution subscribing to the code of conduct and subject to regulation by the Central Bank?

Mr. Kieran Wallace

All I can say is that ours is not the first loan book sold in the State. As far as I am aware, there have been two others. I know of circumstances in which borrowers have been able to buy out their loans from the new purchaser. The issue is outside our control.

Chairman

Let me move on to the Department of Finance. The statement issued last evening by the liquidator claims all the parties now in phase 2 agree on abiding by the voluntary code of conduct. In earlier comments by the Minister and the Department, there seems to have been concern about the rating in terms of the creditors' best interests and distortion with regard to the value of the book on the basis of having some people in a box and others outside it. Given that everyone in phase 2 has accepted the voluntary code of conduct, it creates equalisation with regard to the purchasing of the loan book. Does this present a legislative impediment that would be damaging to the creditors?

Ms Ann Nolan

First of all, I would like to welcome the fact that all the bidders have said they will voluntarily abide by the code. As regards possible future legislation, last week in the Dáil the Minister said he hoped they would voluntarily abide by the code. However, we are in discussions with the Central Bank and the Attorney General on whether we can extend the legislation. It is quite complex because a lot of different legal contracts were entered into between different people at different times.

The Minister is absolutely determined that the code of conduct will apply. We will certainly be watching the space. If the bidders who eventually purchase them do not abide by what they have committed to do, the Minister has said he will legislate as necessary.

Chairman

I need to thrash this out with Ms Nolan again, if she does not mind. The earlier argument was that creditors would be at a disadvantage if we were to legislate for a code that would have devalued the book. Because everybody has now signed up to the voluntary code, there is no negative impact on the loan book. Putting aside the fact that the State is the major creditor, what is the impediment from a creditor's perspective? Is there a creditor impediment that would stop a legislative framework being put around this?

Ms Ann Nolan

We only got this information last night and I have not spoken to the Attorney General's office on whether there would still be an impediment in legal terms. I cannot give legal advice on that issue but it is unlikely, given that this process is now half-way or three quarters way through, that we would have legislation to go through in that period, even if we had it ready. The fact is there are legal complexities and this is not necessarily the only book that would be sold. We are looking at legislation, as the Minister said. The creditor position is obviously changed by the commitment.

Chairman

Would Ms Nolan admit that the creditor position has changed quite radically now that everyone is on the same hymn sheet in terms of purchasing?

Ms Ann Nolan

It is certainly a huge improvement and we very much welcome it.

Chairman

Mr. Wallace referred to the people in resolution processes. When the banks' representatives appeared before this committee, they told us that thousands of people were in resolution processes but we discovered that the resolution process was a letter telling people to engage with the banks. I would be interested to know what Mr. Wallace's resolution processes are. For instance, how many people in that book are in split mortgages or structured resolutions, rather than just written correspondence?

Mr. Kieran Wallace

I do not have the specific numbers with me, but there are a number who are on split mortgages, a number where we have recapitalised the interest on their accounts, and a number where we have extended the term of their actual mortgage vis-à-vis the number of years for repayment. There are a number where we have given moratoria whereby they do not have to pay for a period when they find themselves in temporary difficulty. We have also done some trade-down solutions for people wanting to move from a certain size of house to another house to alleviate some of the problems with their mortgage.

Chairman

I want to move on to another matter.

Deputy Arthur Spring

I am sorry, Chairman, but can we have those data?

Mr. Kieran Wallace

I will be happy to supply those after the meeting. No problem.

Chairman

An earlier point concerned somebody who may wish to switch financial institutions. The audit committee members will be referring to this in their own questions. The concern for people on the existing mortgage loan book is that they are in performing mortgages, albeit by their fingernails. Am I correct in stating that everyone currently in a performing mortgage on the book Mr. Wallace is dealing with is on a variable interest rate? There is no one on a tracker mortgage or a fixed rate.

Mr. Kieran Wallace

We have a very small number of tracker mortgages.

Chairman

What is the percentage?

Mr. Kieran Wallace

Fewer than 100 mortgages out of the total book.

Chairman

That is less than 1%.

Mr. Kieran Wallace

Yes.

Chairman

There is a presentable risk, therefore, in that the variable nature of these mortgages means the rate can be changed upwards.

Mr. Kieran Wallace

That is a risk with any financial institution.

Chairman

If one looks at the other loan books - across AIB, Bank of Ireland and so forth - nobody has 99.9% of the book on variable mortgages.

Mr. Kieran Wallace

That is a risk, yes.

Chairman

What is the percentage of people in resolution situations?

Mr. Kieran Wallace

We have 4,175 accounts which are in arrears from a total of roughly 10,700 PDH mortgages. Of that 4,175, approximately 3,270 are co-operating with us, as Mr. Richardson said. We correspond on a monthly basis with approximately 98% to 99% of all borrowers in arrears, but about 22% are not corresponding with us at all.

Chairman

Are they people who are not responding to any engagement?

Mr. Kieran Wallace

They are not responding to any engagement whatsoever. Of the 78% who are corresponding with us, by the end of next week we will have restructures done for 44% of those borrowers. Some 42% is work in progress where we are actively encouraging borrowers to work with us to resolve their restructure. We are still waiting for information from 14% of those borrowers to progress the restructure.

Chairman

The people who are not engaging with the special liquidators could be doing so for 101 different reasons. Is Mr. Wallace indicating that half the 74% group are currently in a resolution process and the other half are due to come to some structured resolution?

Mr. Kieran Wallace

Some 38% of them are through the resolution process and restructures have been agreed. A further 6% have been signed off by the credit committee and we will be communicating with those borrowers over the coming week to ten days. Some 42% are at some stage of the resolution process but are not fully through it.

Chairman

If they have not completed their resolution process pending the sale of the bank, who will continue the resolution process with them?

Mr. Kieran Wallace

We are actively encouraging those borrowers to work with us. We still have over two months before any sale is completed. We still have plenty of time for those borrowers to work with us and get the resolutions completed. We are actively encouraging them to work with us to get those resolutions.

Chairman

For those on the mortgage book who may have been able to discuss their financial situation with another financial institution in the country - let us say, one of those that comes under the regulation of the Central Bank - and have received loan approval to purchase their mortgage out of the new structure, is it envisaged that the purchasing out will draw penalties upon the buy-out?

Mr. Kieran Wallace

We have said that any borrower in IBRC, which is governed by the IBRC Act, can repay their debt at par. It is just the level of the debt that is outstanding. At the moment, just over 400 mortgage borrowers have repaid us in full.

Chairman

Was Mr. Wallace advised to get an independent valuation?

Mr. Kieran Wallace

That is correct.

Chairman

Was Mr. Wallace also told to appoint PwC to advise in the sales strategy, or was that a decision made by the special liquidators themselves?

Mr. Kieran Wallace

That was an entirely independent decision made by myself and Mr. Richardson after a competitive tender where we went out to a number of firms in the loan portfolio sales space. We held a competitive tender, including interviews with each of the potential candidates. Based on experience and cost, we went with PwC.

Chairman

Why did Mr. Wallace decide he was not competent enough to do it and had to bring in PwC?

Mr. Kieran Wallace

Mr. Richardson and I spent most of our careers in insolvency. We have no experience of selling loan books whatsoever.

Deputy Michael McGrath

I thank the liquidators and the officials from the Department of Finance. I want to keep this exchange as interactive as we possibly can. I will start with last night's statement of voluntary compliance by the bidders. What status does that have? Can Mr. Wallace advise where that will be written down in this sales process? What piece of paper will that be on?

Mr. Kieran Wallace

It is actually just a voluntary agreement. It will not be on any particular piece of paper.

Deputy Michael McGrath

It will not be written down anywhere at all?

Mr. Kieran Wallace

No.

Deputy Michael McGrath

So it has zero legal standing.

Mr. Kieran Wallace

That is correct.

Deputy Michael McGrath

It is utterly unenforceable legally and has no standing whatsoever. They can say they are complying voluntarily but, equally, they can withdraw that voluntary compliance at any time.

Mr. Kieran Wallace

Having had discussions with the relevant bidders, I would put my reputation on the line. My personal view is that they will honour that commitment.

Deputy Michael McGrath

I was going to say that it is not worth the paper it is written on. It appears, however, that it will not be written on any piece of paper so I am not sure what value that puts on it. Mr. Wallace has been put in the firing line here today, but this is as much a political issue as it is one for the special liquidators. I will take up those issues with Ms Nolan as she is representing the Minister who, unfortunately, cannot attend this meeting.

The bottom line is that thousands of IBRC mortgage holders now feel they will be at the mercy of an unregulated, unsympathetic, potentially foreign-owned fund which is out to maximise the profit it can make from the mortgages those people took out in good faith from an Irish financial institution, regulated by the Irish Central Bank. They will find themselves completely exposed, isolated and vulnerable to whatever that particular fund decides to do with their mortgages. That is where those people find themselves as a result of the way this process has been handled. Does Mr. Wallace have any comment on that?

Mr. Kieran Wallace

I understand those concerns entirely from individual mortgage holders. Indeed, Mr. Richardson and I have spoken to many of them directly. As liquidators, we have a job to do, which is to sell the assets for the best price we can for the benefit of the creditors, which I alluded to already. The only other thing I would say is that this is not the first mortgage book that has been sold in Ireland. Our experience on the ground is that we have seen no material difference in the way the buyers of those books have dealt with and handled customers post-acquisition than with any existing Irish bank.

Deputy Michael McGrath

In the last 24 hours, when they indicated their willingness to comply voluntarily, was there any indication from the bidders that they would be prepared to pay less for the mortgage book if the commitment were a binding condition of the sale? Is there any evidence to suggest they would actually pay less to the special liquidator for the IBRC mortgage book where it was a binding condition of the sale that they would have to comply with the statutory code?

Mr. Kieran Wallace

It is our professional view that if it were a binding term, that could have an impact on value.

Deputy Michael McGrath

Has that been indicated to the special liquidators by any of the bidders?

Mr. Kieran Wallace

Unfortunately, we have not got the bids in from the bidders at this point in time. There is still a reality to the possibility that the loans will transfer to NAMA. As everyone understands, NAMA has a backstop position in respect of the IBRC liquidation. It is not a foregone conclusion that these loans will go to outside buyers.

Deputy Michael McGrath

We now have two different standards of protection for Irish mortgage holders who took out a mortgage from an entity in Ireland regulated by the Central Bank in respect of their family home. We are not discussing investment properties but family homes. We now have a vista in which we have two different standards of protection. If one is a customer of AIB, Bank of Ireland, Permanent TSB or Ulster Bank, one has the full protection of the code of conduct on mortgage arrears and recourse to the Financial Services Ombudsman. However, if one had taken out one's mortgage with the former Irish Nationwide, one will now have a completely different standard of protection which is entirely discretionary and can be removed at any time by the new holder of one's mortgage, if that ends up being an unregulated entity. The issue is that even if the funds say they are compliant, a dispute may arise. If one is in difficulty with one's mortgage and the fund says it is complying with the code of conduct and offering various restructuring options, to whom does one turn to if one disagrees? One cannot go to the Central Bank, which has nothing to do with it and one cannot go to the Department of Finance, which also has nothing to do with it. One cannot go to the special liquidator, which will have got its fees and be gone. Who do people turn to? They have nowhere to turn. That is morally bankrupt and completely unacceptable. It is as much a political issue as it is one for the special liquidator. Even with the voluntary compliance that these funds say they will adopt, what will happen if they sell on the mortgage book? That is what they do. They will not necessarily work out each of these mortgages for the next 15 to 20 years. They may well sell this on. That commitment will be sold on with it and will be gone. Has that issue been discussed?

Mr. Kieran Wallace

That is an issue that would not come up in terms of the work we are doing. As we are working with a number of defined bidders for the portfolio, the concept of selling on has not arisen.

Deputy Michael McGrath

Can Ms Nolan confirm that irrespective of the intentions of any unregulated fund that might hold the mortgages, there will be no access to the ombudsman for the IBRC mortgage holders? It is a statutory issue.

Ms Ann Nolan

I understand it will not apply if the buyer is a non-regulated entity. They will not have access to the Financial Services Ombudsman. It is another matter we are considering in the Department at the moment. I understand the two purchasers of the existing portfolios of mortgages that have previously been sold on the Irish market have established an internal, independent appeals procedure which they are using for people who wish to appeal where they have a problem with their mortgage. We will ask whoever purchases these mortgages to do the same. We are reviewing this issue in the legislative review that we are carrying out.

Deputy Michael McGrath

It is a major issue, as the Financial Services Ombudsman is the statutory watchdog for Irish consumers who have complaints about financial products sold to them. That avenue will be completely closed off for IBRC mortgage holders who will have their mortgages sold by the special liquidator. There is a serious vacuum in the law which must be addressed urgently.

I revert to how this issue arose in the first place. We know from parliamentary questions that the Department of Finance was in contact with KPMG as prospective special liquidator for IBRC as far back as autumn 2012, which was several months before the Minister came to the Dáil in February 2013 with emergency legislation to appoint the special liquidators. Did anyone think of this issue and the mortgage holders and of ensuring that these basic but vital statutory protections would be retained in the circumstance of the bank being liquidated? Why was that not factored into the sale process following the appointment of the liquidator?

Ms Ann Nolan

It was very important for legal reasons that the sales process was independent and that the other creditors of IBRC would not have recourse to the State. We did not do anything that would impinge on the value of the assets as they were being sold as the taxpayer would otherwise be left liable for quite a considerable sum of money. The question of public policy on the protection of mortgage holders is a separate one in respect of which we are looking at legislation. It is not as part of the sales process of IBRC loans. Any legislation we bring forward is likely to apply to any sales process of any loans and unlikely to apply exclusively to the IBRC loans.

Deputy Michael McGrath

What Ms Nolan is saying is in fact worse. She is saying the issue was considered but a decision was taken not to insist that these mortgage holders would be left in no better or worse position. The Department felt that insisting these protections be retained might diminish the value of the loan book and so decided to exclude them.

Ms Ann Nolan

No. What I am saying is that as part of the IBRC liquidation, we dealt only with the value of the assets being sold. In terms of protection for the individual mortgage holders, at the time we introduced the legislation, it seemed most likely these mortgages would go to NAMA. I understand that now there are other bidders. That is not exactly what we expected at the time. We would require NAMA to apply the consumer protection code to any consumers.

The question of sales of mortgages is a broader one that encompasses more than just the IBRC. It has to do with the mortgage contract. It is obviously preferable that all of the protections of the State apply to these customers, but it is also important not to put ourselves in a position in which we are implying they will have no protection at all. They are governed by the mortgage agreements they have signed and they will be governed by any restructuring agreement they sign with KPMG or have already signed with IBRC before the liquidation. It is not the case that these customers are left with no protections at all. The legal position is that the courts have asked anyone who has gone to court over a mortgage case whether the consumer protection codes applied or not. The courts will retain the right to ask that question. It is specifically provided for in the insolvency legislation that people have rights under the consumer protection code.

Deputy Michael McGrath

Ms Nolan knows as well as I do the conditions of a contract of sale of a mortgage.

If anyone looks at their mortgage document and if that is the limit of their protection, it is apparent that it is skewed heavily in favour of the lender. Essentially, if one gets into any level of difficulty with a mortgage, it can be called in at any time. That is why a statutory code of conduct was put in place. It was to allow breathing space for a borrower, as well as putting an obligation on the bank to work with a customer to come up with solutions to be worked out over a period. To claim the new mortgage owner will step into the shoes of the bank and that the same conditions will apply is no comfort to that person with a mortgage.

If these funds do come into possession of these mortgages, have there been any discussions with them about interest rate policy? Another concern people have is that these funds are not subject to oversight in Ireland or do not come under any competitive pressures. Accordingly, the organisations involved could just jack up the interest rates.

Mr. Kieran Wallace

Mr. Richardson and I will be making it binding through the contracts that any restructurings that have already been agreed with customers will be honoured by the buyer of the loan.

There have been no discussions about interest rates for the practical reason that we are still in the bidding phase for these mortgage books. Those detailed discussions on interest rates and other issues will only arise when we get down to more final discussions with the preferred bidder.

Deputy Michael McGrath

In the opening statement, it was stated:

Thirty three of the borrower groups [in the IBRC loan book] representing 0.2% of total groups are being offered for sale on a stand-alone basis. No IBRC borrower is being provided with an exclusive opportunity to buy back their loans at a discount.

How many IBRC borrowers actually bought back their loans?

Mr. Kieran Wallace

It is quite interesting. Not all of these individual loan sales have completed, and of the ones that have completed, there have been quite a number in which the borrower was not the successful party. The competitive tension in the bidding process has actually meant an additional return for the creditors, liquidation and, indeed, a different buyer in respect of those loans. It is not a foregone conclusion by any means.

Deputy Michael McGrath

My question was about how many cases there have been in which the original borrower bought back the loan, presumably at a substantial discount. I am referring to the large commercial debtors of IBRC.

Mr. Kieran Wallace

I do not have the exact number but it is around 60% of the sales that have been concluded within the 33 borrower groups.

Deputy Michael McGrath

What is the typical discount that would apply?

Mr. Kieran Wallace

That is commercially sensitive and I cannot go there.

Deputy Kieran O'Donnell

I welcome the delegation. It has been made a condition that any bidder must honour restructuring arrangements already agreed. If it were made a condition of sale that they must comply legally with the code of conduct for mortgage holders, what would be the difference in value?

Mr. Kieran Wallace

There would be a difference in value. One of the fundamental principles we must work by as the liquidators of IBRC, under law, is to be able to get the best price and value for IBRC’s assets. If we did not, we would be open to legal action by creditors of IBRC. Where there is any question over any impact on the value achieved, that leaves us open to legal recourse.

Deputy Kieran O'Donnell

The par value of the loans is €1.8 billion, amounting to 8% of the overall loan book.

Mr. Kieran Wallace

That is correct.

Deputy Kieran O'Donnell

Of that, fewer than 1% of those loans are tracker mortgages?

Mr. Kieran Wallace

Yes, that is correct.

Deputy Kieran O'Donnell

Any bidder will not be getting too many tracker loans, which makes this an attractive loan book. Would the liquidators consider asking the bidders for a bid in respect of where the code of conduct would apply and one where it would not?

Mr. Kieran Wallace

We have a defined sale process in place. Because of our responsibilities as liquidators, we would not be prepared to do that.

Deputy Kieran O'Donnell

Why not?

Mr. Kieran Wallace

We are of the view that there would be an impact on value. Due to that impact and our obligations as liquidators, it is not a practical solution for us.

Deputy Kieran O'Donnell

Yet the liquidators valued those loans. Is the independent value above or below the book value or the estimated realisable value at the time of the liquidation?

Mr. Kieran Wallace

It can be.

Deputy Kieran O'Donnell

Is it above or below?

Mr. Kieran Wallace

It is either at the value or below it.

Deputy Kieran O'Donnell

The book value of the loans is €13 billion while the estimated realisable value is the same figure. Is the independent value above or below what the former directors valued it in the statement of affairs?

Mr. Eamonn Richardson

We could not comment on the run-off value versus the written-down book value estimated by the company.

Deputy Kieran O'Donnell

The borrowers have to stick to the terms and conditions of their loans. However, the liquidators are selling off a loan book where the purchasers will not have to apply the code of conduct legally. As all the bidders have agreed voluntarily to abide by the code, will the liquidators ask them to bid on the basis that they will legally comply with the code?

Mr. Kieran Wallace

I have addressed that question already.

Deputy Kieran O'Donnell

Will Mr. Wallace give me a reason? It is only 8% of the loan book; 99% of the loans are variable rate, and it is a vulnerable group. Yet the liquidators are telling me they have no legal protection.

Chairman

The Deputy’s question is simple. Will the liquidators consider putting his proposal to the bidders? How many bidders are there?

Mr. Eamonn Richardson

That is commercially sensitive.

Chairman

Even the number of bidders is commercially sensitive?

Mr. Kieran Wallace

It is.

Chairman

Will the liquidators ask the bidders for a bid in respect of where the code of conduct would legally apply and one in respect of its voluntary application?

Mr. Kieran Wallace

The legal advice we have is that we must follow the sales process we have engaged in and which has been set out in the IBRC Act. We must have an open and transparent process for all of the loans.

Deputy Heather Humphreys

I thank the delegations for their presentations.

Will Ms Nolan give me the background to the decision in 2007 to insert the exemption to exclude the purchasers of loans from Central Bank supervision in the Central Bank Act? What are her views on removing this exemption from the legislation?

Ms Ann Nolan

I understand that change was made to facilitate securitisation. As I said already, we are looking at whether we can amend the legislation to ensure the code of conduct applies to loan books after they have been sold. We are discussing this with the Central Bank and the Attorney General’s office.

Deputy Heather Humphreys

Is there a timeframe for that?

Ms Ann Nolan

It is down for 2015 on the legislative list.

Deputy Heather Humphreys

Mr. Richardson referred to the six loan portfolios in his opening statement.

A constituent of mine has a performing loan with the IBRC and has been advised that they are in Project Stone. What stage is the sales process in respect of Project Stone at? Are there preferred bidders for the portfolio? What is the likely time frame for completion of the portfolio? In the event that loans in Project Stone could not be sold, could the liquidators re-engage with the borrowers who previously expressed an interest in buying their loans where these borrowers are in a position to make fully funded bids within a set time frame prior to the transfer of these loans to NAMA?

I welcome the fact that the preferred bidders for the residential mortgages with IBRC have agreed to be bound by the Central Bank code of conduct on mortgage arrears. Can Mr. Richardson confirm that all the preferred bidders for the commercial loans will also agree to be bound by the code of conduct for business lending to small and medium-sized enterprises as issued by the Central Bank? What protection will be afforded to borrowers with residential investment properties?

Mr. Eamonn Richardson

Project Stone commenced phase two on 17 February 2014 so we are currently in a five-week process with the preferred bidders. Final bids on that portfolio of loans are due on 21 March 2014. We are in the middle of phase two of that particular process.

Deputy Heather Humphreys

If parts of this portfolio were not sold, would the special liquidators consider re-engaging with the actual borrowers?

Mr. Eamonn Richardson

Within the legislation, we run a sales process. If our bids are in excess of the valuation price, they are sold to that third party. If we do not receive any bids in respect of a portfolio above the valuation price, it is transferred to NAMA at the valuation price.

Deputy Heather Humphreys

Could Mr. Richardson address my final question regarding the code of conduct for business lending?

Mr. Eamonn Richardson

Again, we are still at an early stage with the preferred bidders in that phase of Project Stone.

Deputy Liam Twomey

The 4,175 borrowers who are in arrears at the moment are possibly the most vulnerable people who have been transferred. If they all reach resolutions with the special liquidators before the sales process is completed, they will have additional protections. This is as much a question for the special liquidators as it is for the Department of Finance. Would I be right in saying that there is nothing to stop us legislating subsequently to give more protection to those people if it is necessary?

Ms Ann Nolan

As I have said, we are looking at legislation. The legislation would not be specific to those people but would apply to anyone whose loan was sold. It would be difficult to pass legislation specific to particular loan groups. Passing legislation for contracts that already exist is quite a complex business but we are talking to the Attorney General and that is what we would have in mind. It would be extra protection and would give them the same protection that other people have.

Deputy Liam Twomey

We are putting it on the record here as something that can be taken into account.

Ms Ann Nolan

The Minister's preferred option would be that at least initially people would abide by the code of conduct on mortgage arrears regardless of whether or not they are covered by it. We are very pleased that they have agreed to do that because that is the first protection of the people because loans will be transferred within the next few months.

Deputy Liam Twomey

I have a question for Mr. Wallace. It is said that around 900 borrowers do not seem to have any connection with the special liquidators. Have they had some or no contact with the special liquidators? The special liquidators are saying they do not have enough information but are they saying borrowers have had no contact with them? Is there more to be done?

Mr. Kieran Wallace

About 970 borrowers are single-handedly failing to engage with us at all. We engage with 98% or 99% of all borrowers in arrears every month. There are still 971 of those borrowers who simply will not engage with us at all.

Deputy Liam Twomey

The special liquidators will be able to make resolutions with everybody else to give them some form of protection?

Mr. Kieran Wallace

We will put in whatever resources are necessary to get the resolutions through prior to any sale if those people engage with us. There will be nothing stopping those individuals getting a resolution with us if they engage with us.

Deputy Liam Twomey

I will hand over to Senator Paul Coghlan.

Senator Paul Coghlan

I thank the special liquidators for appearing before us. I do not doubt they are doing their job properly but how do they answer the question regarding their apparent conflict of interest having been auditors of Irish Nationwide Building Society for so long, having certified its accounts for so long and having signed up to so many improvements that proved to be illusory?

Mr. Kieran Wallace

I want to be careful because this is before the courts at the moment. I will say a few things on behalf of myself and Mr. Richardson. We took independent advice following our appointment as to whether there was any rationale in including KPMG in that litigation and the advice from the independent legal firm was "No". One of the directors has now joined KPMG in the litigation. In the coming days, Mr. Richardson and I will be announcing a very different approach in terms of how that litigation will be managed. From a perception viewpoint, we think it important that it is managed by parties other than us. We will be announcing something like that in the coming days.

Chairman

Can I clear up one thing because everybody in the room wants to know the answer to it? In respect of the timing of last night's announcement, it could be construed that this was a statement that was going to be put together before the special liquidators came before the committee today. How long have they been in negotiations with the preferred bidders with regard to a voluntary code of conduct? We discovered this afternoon that it has no legal standing and that no targets are in place for the people in resolution processes that carry penalties as they do in all the other institutions. This committee would certainly like to know about the timing of last night's announcement.

Mr. Kieran Wallace

That is an entirely legitimate question. As Mr. Richardson said, each process for the sale of loans goes through a number of different stages. We have phase one in which we try to determine whether there are any parties interested in acquiring the loans. After that stage 1, we then look to see what kind of values the potential bidders have put on those loans. Where there is an appropriate reason to bring bidders through to phase two, we do that. This is probably one of the more complex books in terms of getting it to market and getting it sold. It was our professional judgement that it was only in the last two weeks that it made sense to engage with the bidders in respect of this issue. We had heard it debated. In our professional judgement, there was no point in doing it prior to that because it was only at that stage that we had some insight as to which bidders were seriously interested in making a bid for the various loan portfolios within this section.

Chairman

When was the phase 2 list completed?

Mr. Kieran Wallace

We started discussions.

Chairman

Is it the case, then, that two weeks ago, the special liquidators had a list of people? We will not quantify the sum because the special liquidators say it is confidential information. The special liquidators had a list of bidders who were compliant with a voluntary code as of two weeks ago?

Mr. Kieran Wallace

We started discussions on that topic.

Chairman

When was it confirmed because the press statement went out last night?

Mr. Kieran Wallace

It was only confirmed last night. That is genuine.

Deputy Pearse Doherty

While we are primarily here to talk about mortgages, I will pick up on the last point we were talking about in respect of KPMG and the fact that as special liquidators, Mr. Wallace and Mr. Richardson have not issued proceedings against their own firm in respect of its auditing of Irish Nationwide. We see revelations in the newspapers today to add to the arguments put forward by myself and others that the special liquidators should have taken that course of action. The special liquidators say they have independent legal advice, which is fine. Can they tell us the name of the company that gave them that advice?

Mr. Kieran Wallace

Yes, I can. To clarify one point, the litigation does not relate to the role of KPMG as auditors to Irish Nationwide Building Society. The firm that gave us the advice is McCann Fitzgerald.

Deputy Pearse Doherty

Are the special liquidators aware that McCann Fitzgerald was the same legal adviser on corporate governance to Irish Nationwide for many years?

Mr. Kieran Wallace

It was the adviser to the new board which was in place in Irish Nationwide and which replaced the old board. The board took its own independent advice prior to liquidation in respect of who it thought it was appropriate to litigate against in respect of the various issues.

Deputy Pearse Doherty

Does Mr. Wallace think that there is not only one conflict of interest but a number of conflicts of interest? I will summarise it because I want to move on to the mortgage issue. The special liquidators of IBRC are employees of KPMG who ask whether IBRC should sue KPMG as a result of the auditing of Irish Nationwide accounts carried out by KPMG. The special liquidators seek independent advice from a legal firm that gave advice to Irish Nationwide on the issues of corporate governance.

Does Mr. Wallace not see there could at least appear to be a conflict of interest and that further advice should have been sought? Is he aware that the clock is ticking on the Statute of Limitations and there are only a few weeks left to instigate proceedings?

Mr. Kieran Wallace

The litigation to which the Deputy referred was commenced prior to our appointment as special liquidators. The independent board made an assessment as to who should be joined to the litigation. It was not our decision. In regard to the Statute of Limitations, we will shortly be announcing a different arena for managing the litigation, other than by Mr. Richardson and me. That independent group can make a decision on whether it feels it necessary to include KPMG.

Deputy Pearse Doherty

I ask the Department to answer the same charge that the independent advice came from a legal firm which advised Irish Nationwide on corporate governance and that employees of KPMG are making these decisions.

Ms Ann Nolan

We have been in discussions with the liquidators about putting procedures in place so that they are not making decisions about their own firm, which clearly would be a conflict of interest. As Mr. Wallace pointed out, the decision not to sue KPMG was made before that firm was appointed as special liquidator. The decision was made by the independent board not the Department of Finance. We did not play a day-to-day management role in the running of IBRC before it was liquidated nor do we do so during its liquidation.

Deputy Pearse Doherty

We will revisit the matter. I have also put questions to the Minister on it. In regard to mortgages, the special liquidator expressed the view that the preferred bidders will honour legal agreements and referred to the restructuring that has taken place in IBRC. Will restructuring agreements affecting individuals with split mortgages or interest only mortgages be regarded as legal agreements?

Mr. Kieran Wallace

We will be putting a clause into the contracts to ensure that any restructuring which we carried out or which existed at the time of our appointment as liquidators will be honoured contractually by the buyers of the loans.

Deputy Pearse Doherty

I welcome that it is possible to put a clause into the contract on honouring restructuring. Mr. Wallace indicated that he is legally precluded from interfering with the issue of statutory compliance with the code of conduct on mortgage arrears but I presume that the compliance with restructuring would be done on the basis of a legal agreement in the contract.

Mr. Kieran Wallace

The restructuring clause is included in all our sales contracts, whether in respect of commercial and corporate loans or residential loans, because they are agreements that have been entered into in good faith by the borrower and the bank. We would expect any buyer of a loan to honour those restructuring agreements.

Deputy Pearse Doherty

Earlier I met with a number of individuals who had mortgages with IBRC. They are deeply concerned and quite angry about what is currently happening. One individual, who is a father of three children, has asked me to outline his situation to the committee. He has a split mortgage under a restructuring arrangement with IBRC that is reviewed on an annual basis. According to Mr. Wallace, that restructuring agreement will be enforced with the buyer but the agreement is reviewed annually. If IBRC rips the agreement up next year and demands the repayment of the full amount, this individual would have recourse to the Financial Ombudsman. However, the new owner of the mortgage will be able to legally review his contract and decide whatever action it considers appropriate. What would Mr. Wallace say to this individual about what will happen when the agreement is reviewed next year?

Mr. Kieran Wallace

I do not know the specifics of that case but I understand the individual's concerns. The restructuring agreements with IBRC that I have seen certainly extend beyond one year. Many of them extend to three years, five years or longer. It is certainly not the norm in the restructuring agreements I have seen.

Deputy Pearse Doherty

This was a one year case but the same issue arises for three year agreements. The most Mr. Wallace can say to those concerned is that the bidder will comply with the restructuring until the time of the review, at which point all bets are off and there is no recourse to the Financial Ombudsman.

Mr. Kieran Wallace

That is a possibility.

Deputy Pearse Doherty

Have the bidders given any formal commitment on signing up to the voluntary code of conduct?

Mr. Kieran Wallace

Apart from their agreement with us that they will do so, that is the extent of it.

Deputy Pearse Doherty

Is that a verbal agreement?

Mr. Kieran Wallace

We have asked the bidders their permission to announce it publicly and they were comfortable with the request because that is their intention.

Deputy Pearse Doherty

There will not be a formal agreement.

Mr. Kieran Wallace

It is not envisaged at this time.

Deputy Pearse Doherty

What is the nature of the formal agreements put in place in respect of the two sales of loan books that have been transacted heretofore?

Ms Ann Nolan

I understand they are not formal agreements. We have approached them and they have agreed to apply them but there is not a formal written document.

Deputy Pearse Doherty

On 20 February, the Minister for Finance stated in response to a question I raised in the Dáil that formal agreements had been put in place for the aforementioned sales. I questioned him about the legality of the agreements and he could not indicate whether they are enforceable under contract law. He indicated the agreements were given to the public in the first instance and secondly to the Central Bank.

Ms Ann Nolan

One of the bidders is regulated by the Central Bank and has a formal agreement in that regard. The second bidder gave a formal agreement to the Central Bank. We will approach whoever purchases the IBRC book but I do not know the names of the bidders at this point.

Deputy Pearse Doherty

The question I asked last week dealt with unregulated buyers. In regard to the agreement between the unregulated buyer and the Central Bank, how did that materialise?

Ms Ann Nolan

I am afraid I do not have that information but I can revert to the Deputy with it.

Deputy Pearse Doherty

The Minister also said that we would attempt, through his officials and the Attorney General, to ascertain the standing of the formal agreement and its legal enforceability. I presume he has done so in the context of the IBRC sale due to take place in the coming weeks and that Ms Nolan is the most senior official he would approach. Was Ms Nolan approached and has she approached the Central Bank or the Attorney General on the matter?

Ms Ann Nolan

We have spoken to the Central Bank and the Attorney General in the context of what has already happened but I do not have the answer to the Deputy's question.

Deputy Pearse Doherty

The Minister specifically stated that he would seek out the legal status of the formal agreements with unregulated bodies which had purchased loan books and ascertain whether they are enforceable under contract law. He indicated that he would ask his officials to liaise with the Central Bank and the Attorney General on the matter. I am specifically asking whether that is happening. I am aware of the other matters being pursued.

Ms Ann Nolan

Yes, this is something we have spoken about but I do not have the answer today. I apologise for that because I should have had the information. I do not know what answer the Central Bank provided.

Chairman

I ask Ms Nolan to supply the information at the earliest opportunity.

Deputy Pearse Doherty

Is it Ms Nolan's opinion that the formal agreement with the unregulated entity, who purchased from another financial institution, may be legally enforceable?

Ms Ann Nolan

I suspect it is not legally enforceable but I have not seen it.

Deputy Pearse Doherty

Ms Nolan indicated that the Minister will legislate if there is a breach of the agreement on the code of conduct on mortgage arrears. Is it possible to have that retrospectively applied?

Let us take it that a company, such as Tanager, which bought Bank of Scotland, voluntarily went into the code of conduct on mortgage arrears, unregulated in this State. Can we as legislators apply conditions to a sale that took place last year?

Ms Ann Nolan

I do not think we can apply conditions to a sale but I am not a lawyer so I have to take the Attorney General's advice. Mr. Mac Donncha is our legal expert here.

Mr. Antoine Mac Donncha

Ultimately that would have to be decided by the Attorney General. In so far as legislation prospectively governed the actions of people who had acquired such assets, it is not a foregone conclusion that it could not be applied to people who purchased those assets prior to the legislation coming in. So because the legislation would be prospective, it would not interfere with the conditions of the sale. It is legitimate for the Government to legislate for the actions of people who are in that sort of space. That is why we have a suite of regulation of financial service providers. It would be for the Attorney General to make the final decision but we are not discounting the possibility that it would be possible to so legislate. That is why it is under active exploration.

Deputy Pearse Doherty

Regarding the voluntary entering into the code of conduct on mortgage arrears, if the preferred bidder decides to purchase these and flip them, how stands that offer to enter voluntarily into the code of conduct on mortgage arrears? We know what is happening. These loans are being flipped, and it is not beyond the realms of possibility that these loans will be flipped again in a number of years. What is the standing of the voluntary code of conduct on mortgage arrears in that event?

Mr. Kieran Wallace

In that set of circumstances it does not stand anywhere.

Deputy Pearse Doherty

Has any comfort been given to the potential buyer to ensure it has a contract with the mortgage holder in the event that a contract becomes unenforceable? Has the Department of Finance given any letters of comfort, indemnities or undertakings? Can there be any recourse if the mortgage is not enforceable? My last question is for the Department of Finance regarding Tanager. There are concerns about a conflict of interest. It is well publicised that directors of Tanager, which bought the loan book from Bank of Scotland, are partners of A&L Goodbody, which provided advice to Certus and which was involved in the outsourcing of the loan books. Is there any concern or are any red flags going off within Departments about directors of one company buying loans from Royal Bank of Scotland being partners in another company which provided advice to the bank to sell the loans? I know we are a small country, but are any red flags going off in the Department?

Mr. Kieran Wallace

I assure the Deputy that nothing whatsoever - no warranties, indemnities, side letters or letters of comfort - has been given to any purchaser regarding the residential loan books. The legal advice on the sale of the mortgage books was not given by A&L Goodbody.

Deputy Pearse Doherty

That is a whole separate matter regarding A&L Goodbody, Tanager and Bank of Scotland.

Ms Ann Nolan

We have no economic, or any other, interest in Bank of Scotland and what price it did or did not get for its loan book. If it sold the loan book at a knock-down price to somebody - I do not know if it did or not - it is a matter for itself to protect its commercial interest. We have an interest in whether the ultimate purchaser abides by the code of conduct because we have an interest in the individuals who own those mortgages as part of the public interest in how mortgage holders are treated across the board. We have no interest in the price Bank of Scotland got for a mortgage book it sold because there was no commercial interest to the Irish State involved.

Deputy Arthur Spring

For the purposes of transparency I always have to declare that I am a former employee of Anglo Irish Bank, among other financial institutions. Everybody knows that. I got a bit of grief at the doors once upon a time. PwC has put a bar in place as to the measure one needs to achieve on a bid in order to sell the mortgage book. Is that correct?

Mr. Kieran Wallace

That is correct.

Deputy Arthur Spring

The special liquidators have also said that in their opinions, if they were legally to oblige the purchasers of the mortgage book to adhere to the code of conduct and to the mortgage arrears resolution process, MARP, etc., the value that would be involved in the sale would be less than if they were not obliged. Is that correct?

Mr. Kieran Wallace

That is correct.

Deputy Arthur Spring

From that I can deduce that there is a built-in value between the market rate if they legally sign up to comply and the price if they make a statement of intent. That is a logical conclusion, is it not?

Mr. Kieran Wallace

That is correct.

Deputy Arthur Spring

Therefore, if a monetary value is attributable to it, there is a benefit to the purchasers of those mortgages. What could that benefit be and why is there a monetary value to it?

Mr. Kieran Wallace

The fundamental objective of our role as liquidators is to get the best price we can for the assets of IBRC. There is a legal imperative for us to deliver on that objective.

Deputy Arthur Spring

My job is to protect the mortgage holders and employees of IBRC, Irish Nationwide, etc. The witnesses are special liquidators, not just ordinary liquidators. The fact that they have been appointed by the State means they also have to look after the citizens of the State. They are trying to get the best price, but there is more at play than that. Ms Nolan has alluded to the fact that in the event that the Minister believes the purchasers are not complying with the code of conduct, the Department will try to put a legal framework in place to protect the mortgage holders. If I were a purchaser of this loan book, that would be built into the value now to begin with, so we are back down to the lower price again. Why not legislate for it now and make them comply with it?

Ms Ann Nolan

The Minister tried to explain this last week in the Dáil. The issue from our point of view is that we have to protect the position of the taxpayer who has given a guarantee to the Central Bank for nearly €13 billion worth of NAMA bonds on the back of these assets. We cannot allow that the other creditors could sue us for a potential loss of value, even if that potential loss of value were zero. If they could make out that it existed and sue us, we could be putting ourselves in the position of having to pay out to other creditors and even the sub-debt holders.

Deputy Arthur Spring

Earlier Ms Nolan said in the event that the purchasers do not comply with the code of conduct, the Minister will legislate so that they comply. Is that correct?

Ms Ann Nolan

Yes, that is what the Minister said to us.

Deputy Arthur Spring

Then any purchaser who is watching what is going on will automatically build that into the value and bring the price down as if the Government had legislated today. Is that not a fair assumption? Mr. Wallace might be best placed to answer that.

Mr. Kieran Wallace

I am not sure it is automatic in the analysis the Deputy put forward. Our job is to get the best price we can for the assets of the bank in liquidation. We have taken independent advice on that and we are following that advice.

Deputy Arthur Spring

What is the difference between a special liquidator and a liquidator?

Mr. Kieran Wallace

None, except that we are also governed by another piece of legislation, the Irish Bank Resolution Corporation, IBRC, Act.

Deputy Arthur Spring

Correct, and the IBRC Act was put in place for the purpose, as Mr. Wallace pointed out at the beginning, of getting the country out of the promissory note trouble for the betterment of the State. This is for the betterment of the individuals of the State.

Mr. Kieran Wallace

Yes, but the fundamental principles by which liquidators work and by which they are judged by the creditors, both secured and unsecured, to whom we owe our ultimate obligation, is judged by getting the best value we can for the assets. That is enshrined in the 1963 Companies Act, by which we are also governed.

Deputy Arthur Spring

Let me impress upon Mr. Wallace that saying we will legislate in the event that they do not comply is the same in valuation terms as making them comply now.

I ask Mr. Wallace to discuss this further with those who are bidding because no person putting a valuation together would see a difference at the moment but that would give security and protection to those who are purchasing.

I have a question regarding securitisation. Most of us are familiar with the concept of packaging a large number of mortgages in Ireland before selling them elsewhere. Where will the operations relating to the mortgages reside going forward?

Mr. Kieran Wallace

Our understanding of the bidders that remain in the process is that if they require any of the loan books, they will be serviced here in Ireland.

Deputy Arthur Spring

If they are serviced here in Ireland, would the mortgages not fall under the remit of how securitisation traditionally works here?

Mr. Kieran Wallace

I am not an expert in that field.

Mr. Eamonn Richardson

It is not a securitisation; we are selling the loan book.

Deputy Arthur Spring

I understand that but the fact it will be serviced in this country by an operator means that surely the loans will have to comply with Central Bank regulations the same as any other loan in the country

Mr. Antoine Mac Donncha

The person who will service the loan book will not necessarily be a regulated financial service provider. The servicing of a loan book in and of itself is not a regulated activity as matters stand. There are service providers in the market at the moment who are servicing loan books on behalf of other people and because they are not issuing credit on their account, they do not fall under the scope of regulation. They are acting on behalf maybe of a lender but they are not regulated.

Deputy Arthur Spring

So a loan book could be serviced by somebody within the State on behalf of a lender from outside the jurisdiction, which is not regulated by the Central Bank or the regulator?

Mr. Antoine Mac Donncha

If it was a lender from outside the State, which was issuing credit into the State, that would be regulated by the Central Bank but if someone has purchased a loan book and is not a regulated financial service provider, there are other service providers in the market who are not regulated financial service providers and who are in the business of managing those sort of loan books but they do not fall under the regulation of the Central Bank.

Deputy Arthur Spring

That is a grey area that should be cleared up. If they are servicing the loans in this country, they should be compelled to comply with Central Bank regulations.

Ms Nolan said that it was not envisaged in the IBRC liquidation that mortgages would be sold on. Could she elaborate on that? I acknowledge that the special liquidators are trying to do the best thing by the taxpayer and get the best price for loan book but they must have been told at the time of the liquidation what the strategy was for the work out of the mortgages. Were they told that the mortgages would not be sold into the market?

Ms Ann Nolan

No. Let me make it absolutely clear what I said was "it was not expected"; that is different from being envisaged. We knew the loan book was going to the market for sale; we thought it was more likely that it would end up with NAMA. It would be fair to say that the Irish economy has recovered in the past 12 months and the amount of interest in buying Irish assets has improved significantly in the past 12 months. We knew that some of the assets would sell but at the time we liquidated, it was not clear to us that there would be as much interest or that as big a proportion of the assets would sell to the private sector. One of the reasons we put in the NAMA arrangement was to make sure there was not a firesale because that would have left the Irish taxpayer very exposed, but all I said was it would have been our expectation that it was more likely that a bigger proportion of the assets would end up with NAMA than now appears likely.

Deputy Arthur Spring

It would have been appreciated if we, as legislators, on the night had a strategy presented to us. I understand that it had to be in place before 9 a.m. the following morning. This is a little reactionary. Almost 40% of the mortgages the special liquidators are dealing with are distressed. I am uncomfortable with the notion that somebody can come in and manipulate their mortgages to get the most money they can out of them and we need to put legislation in place to protect them to the best of our ability. I urge the Department and the liquidators to reconsider the need for legislation. Given what has been divulged, any valuer would understand that the Minister would legislate if they did not live up to the code of conduct. To safeguard the mortgages, the legislation should be introduced now rather than waiting for the loans to be sold on and on. A total of 970 borrowers are not engaging. Are they all PDH people or are they buy-to-let investors?

Mr. Kieran Wallace

They are all PDH.

Deputy Arthur Spring

I am comfortable with that. I refer to the IBRC employees. I know many of them, as I worked with them when I was in my 20s. They are in mortgage distress and they have all the problems that my generation is experiencing. Is it fair that they are being treated the way that they are in the wind down of the bank relative to how the previous employees were treated? What are the restrictions? Why has this not been worked out?

Mr. Kieran Wallace

We have had great co-operation from the IBRC employees. Their commitment and co-operation over the course of the liquidation has been exemplary. Mr. Richardson and I would like to publicly thank everybody in IBRC, particularly for the hard work they put into getting many of the loan books ready for sale. It has been an outstanding contribution by them. We worked pretty well with most employees over the period of time and we sought on many occasions to extend the contracts of employment with them as long we could. We recently announced an extension until late 2014. The other good news is we have not had occasion yet to make compulsory redundancies in respect of IBRC employees.

Deputy Arthur Spring

However, many of them have been re-employed without being subject to the terms of the normal statutory redundancy process. In addition, they are considered to have started new jobs and do not have entitlements they had built up previously. They have been disadvantaged following the liquidation and that must be acknowledged. I thank Mr. Wallace for acknowledging their hard work because the vast majority of people working for Anglo Irish Bank and Irish Nationwide Building Society were hard working and decent and that is not said half often enough. Is there not an injustice that people in the higher echelons who were moved for the purposes of cleaning up the bank were given a lucrative handshake while those who are still there cleaning up the messy loans and doing the hard slog are not being remunerated or looked after properly post-liquidation?

Mr. Kieran Wallace

We are trying to be as supportive as we can in the context of the liquidation with as many employees as we can and to continue where it is appropriate with employment for those individuals and to make sure that we are very open and transparent with them in respect of the duration of their employment.

Deputy Arthur Spring

We were assured that the employees would be looked after properly on the night of the liquidation.

Deputy Stephen S. Donnelly

I thank Mr. Wallace, Mr. Richardson and Ms Nolan for attending the meeting. KPMG was auditor of INBS in the time running up its collapse and KPMG advised the Government that it would have to pay north of €5 billion into the building society. Mr. Wallace, in reference to himself and Mr. Richardson earlier, stated: "We have no experience selling loan books whatsoever." He has no electoral mandate obviously to act in the public interest. Based on that, does he think it is appropriate that he should be making decisions that are harming tens of thousands of Irish citizens?

Mr. Kieran Wallace

To which decisions does the Deputy refer?

Deputy Stephen S. Donnelly

Specifically in this case not allowing mortgage holders to bid on their own mortgages.

Mr. Kieran Wallace

First, that decision follows independent advice from PwC. It is not a decision that Mr. Richardson and I made independently. It was following the receipt of professional advice having appointed independent advisers to provide that information to us. The other thing is that nowhere in the liquidation of IBRC have we allowed an individual borrower to singularly bid on his or her own loan without competition from another party.

That is important to note because I think it is forgotten in the detail. As I said earlier, many of the individual borrowers who have been allowed to bid for their own loans have not been successful in acquiring those loans. Hypothetically if we had decided, after receiving independent advice, that we would allow the borrowers to bid for their own loans, it would have been a quite difficult exercise because we would have had situations-----

Deputy Stephen S. Donnelly

I am sorry to cut across Mr. Wallace. My question is about his suitability rather than the process. KPMG was the auditor of the Irish Nationwide Building Society and gave it a clean bill of health. Mr. Wallace has said he has no experience in selling loan books and he clearly has no elected mandate to look after the public interest. In the context of those three facts, does he believe it is appropriate for him to make decisions that so seriously affect tens of thousands of Irish men, women or children?

Mr. Kieran Wallace

Yes, I do. In many cases liquidators go into a business where they have no prior experience. I am not saying that is an analogy here, but I am saying I think it is wholly and absolutely appropriate that we would make decisions based on advice from experts in a given field. The sale of the loan book that we are discussing is one aspect of the overall liquidation; it is not the entire liquidation itself.

Deputy Stephen S. Donnelly

I thank Mr. Wallace.

I come to the voluntary adherence to the CCMA. Mr. Wallace will be very familiar with the code of conduct on mortgage arrears, a copy of which I have here. I am sure he will be familiar with the sentence in Chapter 1 as follows: "Lenders are reminded that they are required to comply with this Code as a matter of law." At today's committee meeting we have learned that the IBRC or Irish Nationwide Building Society mortgage holders, rather than being protected by law as is the case under the CCMA, will be protected by a voluntary agreement that has no supervision, no Central Bank involvement, no sanctions, nothing in writing, no guarantee that mortgage holders can buy out their own loans and no access to the Financial Services Ombudsman. Does Mr. Wallace believe that mortgage holders should be satisfied with the voluntary agreement the special liquidators have secured on their behalf?

Mr. Kieran Wallace

That only applies in circumstances where the acquirers of mortgage books are unregulated entities. Mr. Richardson and I are not involved in the legislative aspect of the country. We can simply do the best we can in the circumstances, being conscious that our ultimate objective is to get the best price we can for the assets of the bank.

Deputy Stephen S. Donnelly

I appreciate that. I have just read back over part of the special liquidators' opening statement which stated: "We are satisfied that the voluntary nature of this arrangement strikes a fair balance between the interests of the mortgage holders as well as the interests of the creditors of IBRC." The creditor essentially is the State, the majority shareholder. Given the protections under law guaranteed by this code compared with a non-existent gentleman's agreement that no one is willing to write down, that has no oversight, no sanction and no enforceability, does Mr. Wallace believe that the Irish Nationwide Building Society mortgage holders would be satisfied with that agreement?

Mr. Kieran Wallace

I understand there is a difference between both. However, Mr. Richardson and I were pleased with what we had achieved by yesterday evening, having had two weeks' discussion with the potential bidders.

Deputy Stephen S. Donnelly

Would Mr. Wallace be pleased if he were an Irish Nationwide Building Society mortgage holder?

Mr. Kieran Wallace

That is a different question. I am just saying that from our perspective-----

Deputy Stephen S. Donnelly

It is a different question. I am asking him that question.

Mr. Kieran Wallace

All we can do is what we can do in the context of our role as liquidators.

Deputy Stephen S. Donnelly

I appreciate that. Would Mr. Wallace be satisfied if he were an Irish Nationwide Building Society mortgage holder?

Mr. Kieran Wallace

If the Deputy were judging us in our role as liquidators, yes, I would.

Deputy Stephen S. Donnelly

I wish to follow up on some of the questions Deputies have asked about it not being a binding agreement. Earlier, Mr. Wallace stated that it was his professional view that if it was a binding agreement it would lower the sale price. If bidders would lower their sales price if it was a binding agreement then they are de facto not serious about the voluntary agreement because they are lowering their sales price only because they will be forced to comply with this so-called non-existent voluntary agreement.

Mr. Kieran Wallace

There may be a slight subtlety in that. We have independent advice that if we made it a compulsory term of the sales contract it would impact value. From that perspective it opens up a potential issue for Mr. Richardson and me, as liquidators.

Deputy Stephen S. Donnelly

It does. However, in the past hour Mr. Wallace told this committee that it is his professional view that if these bidders were asked to sign a binding agreement rather than a gentleman's spoken agreement, it would lower the sales price. Does he believe it is reasonable therefore to infer that they are not serious about the voluntary agreement if they are saying they will pay less if they are forced to comply with the voluntary agreement?

Mr. Kieran Wallace

No.

Deputy Stephen S. Donnelly

Why? That is completely illogical.

Mr. Kieran Wallace

The Deputy is mixing two things together. First, we have professional independent advice that if we made it a compulsory term, it would impact on value which creates an issue for us, as liquidators. Having parked that to one side, what we tried to do - and achieved yesterday evening following two weeks of discussion with the potential bidders - was to get a voluntary agreement to the commitment to comply with the CCMA.

Deputy Stephen S. Donnelly

I thank Mr. Wallace.

The special liquidators' opening statement stated:

In this context it is important to note that the objective of the third party purchasers will be to make a financial return on their purchase. [We agree on that.] It is unlikely that this purpose could be achieved through actions which would make it more, rather than less, difficult for borrowers to comply with the terms of their loan agreements.

I put it to Mr. Wallace that in many cases that is rubbish. Let me give him an example. Let us consider a mortgage in arrears where there is equity in the house. Many of the domestic banks are offering split mortgages, which comes at a cost to the lender. If, as I agree, these hedge funds and whoever else is bidding are looking to make a financial return, then they are likely to evict the family, take possession of the house and secure their equity. Is that a reasonable assertion?

Mr. Kieran Wallace

Not if we have done a restructured deal with the borrowers prior to the sale and the borrowers ensure that they adhere to the terms of that restructure.

Deputy Stephen S. Donnelly

What if the special liquidators have not done a restructure?

Mr. Kieran Wallace

That is a possibility.

Deputy Stephen S. Donnelly

Why will the special liquidators not let the mortgage holders bid on their own mortgages?

Mr. Kieran Wallace

The Deputy cut me off a while ago when I was trying to start to explain that issue. In the opening statement we alluded to a number of issues which we have taken into account following independent advice on whether we would be in a position to allow mortgage holders to bid on their loans. Even if we decided to go down that road, there are two practical issues, parking all the other issues that have come into our decision-making process, as to whether we could contemplate individual mortgage holders bidding for their own loans.

First, across the entire portfolio of IBRC loans we have, less than 0.2% of the total of borrowers have had the opportunity to bid for their own loans. They have bid for their own loans in a very competitive environment, allowing other qualified bidders in to bid for those loans at the same time. We have had no examples right across any book - nor will we have any examples - where individual borrowers will be the only party bidding for their loan because that does not allow Mr. Richardson and me to fulfil our duty of getting - and standing over getting - best price.

Second, even if we got down to the point of allowing individual borrowers to bid for their own loans, parking everything else to one side, we would have a range of practical issues to deal with. Let us consider the hypothetical case of Mr. and Mrs. Murphy with their home on a particular road in a particular suburb of Dublin. All the information would then be available to anybody who actually qualifies as a qualified bidder - it is not that difficult to qualify as such. They would be able to go in and look at all of the information regarding Mr. and Mrs. Murphy's home, their payment records, the amount of the mortgage, the level of their arrears, when they stopped paying and all of the details around their mortgage. We believe an incredible range of practical difficulties would arise even if we got to the point of getting the advice indicating it is practical to allow individual mortgage holders to bid for their own loans.

Deputy Stephen S. Donnelly

It would be possible to create an auction process whereby individual mortgage holders had the option to bid for their own loans at whatever discount might be offered to other people who ultimately will buy their loans. That is an eminently achievable auction process. Was any effort made to model that auction process?

Mr. Kieran Wallace

Consideration was given, as we had in any of the portfolios we had put for sale, as to whether there was room for individual borrowers to be placed on their own in a separate tranche. That consideration was given here, as we did in respect of any portfolio. As we indicated in our opening statement, we corresponded with every mortgage holder prior to commencing the sales process. We received 1,224 responses, and Mr. Richardson and I, along with PricewaterhouseCoopers, PwC, personnel, read them and took them into account in forming final views on how this portfolio should be sold.

Deputy Stephen S. Donnelly

On the basis that many of the replies from the individual mortgage holders asked for the opportunity to bid on their own mortgage - the mortgage holders are in no way being allowed to do so - how exactly did the witnesses take the feedback into account in designing the process?

Mr. Kieran Wallace

There were not as many as the Deputy might think who sought to put in bids for their mortgages. We took a number of issues into account, including the cost of running a process, timing and independent advice from PwC. Nowhere else in the process had we a position where only the borrower would bid for the loans. We had to account for confidentiality of personal information and execution risk in following through the process. I do not want to harp on about it but we also had an obligation to get best price for assets from a company loan perspective.

Deputy Stephen S. Donnelly

Is there anything in the design of the existing process which reflects the express wishes of mortgage holders to bid for their own mortgages?

Mr. Kieran Wallace

No.

Deputy Stephen S. Donnelly

I thank the witness. I will give an example of a gentleman who has been outside the gates of Leinster House and was keen to see the witnesses this afternoon. He owes €220,000 on his family home and is in arrears of €20,000. I assert that the non-performing loans - the example I give is one - could be sold for a discount of 50%. We do not know if that is the case and the witnesses cannot say, but they could easily be sold at a 50% discount based on international prices for these types of loan books. This person's home is in positive equity but he cannot pay the €220,000 mortgage. It is likely that his mortgage will be sold to a hedge fund for approximately €110,000 and the fund, as it is completely unregulated, is likely to knock on his door or write to him informing him of an intention to initiate repossession proceedings. It is likely that he, his wife and his children will be evicted from that home.

The special liquidators could have designed a process that sold him and his wife their mortgage for €110,000 or even more than the price that will be agreed with the random hedge fund that buys such things. He would stay in his house along with his wife and children. What can the witnesses say to him and the thousands of other mortgage holders looking at that type of scenario?

Chairman

I will allow the response before moving on.

Mr. Kieran Wallace

It is a difficult set of circumstances for the individual and if he is not getting traction from IBRC I would be happy to speak to the Deputy afterwards. If he is in the process of getting a restructure done we would be happy to expedite that if it helps the man.

Deputy Stephen S. Donnelly

What do the witnesses say to the fact that they will sell his mortgage at a price he could afford to somebody else but not allow him bid?

Mr. Kieran Wallace

We have taken independent advice on how to sell the mortgage book and we must rely on it, taking everything into account. As liquidators we have a duty and believe we have done the right thing in that context.

Deputy Stephen S. Donnelly

May I have a final comment? If there is time we can revisit the PwC report in the next round. I appreciate the Chairman's indulgence. Mr. Wallace is in a very tough position and in the same way I believe the liquidators are hanging 13,000 Irish families out to dry, the Minister, Deputy Noonan, conspicuous by his absence, is hanging the liquidators out to dry. They are not helping themselves as they have made the wrong decision, which will cause much unnecessary pain and suffering in this country. If we have time later, we can come back to the fact that the liquidators have refused to release a redacted version of the PwC report to the committee.

Chairman

Before bringing in Deputy Higgins, will the witnesses clear up an issue regarding potential sales? Whether the people are with IBRC, Irish Nationwide, Ulster Bank or AIB, there is a difficulty in trying to get refinanced in order to buy a loan and get out of an existing mortgage. There may be a coterie of people who can find the financing and the liquidators could have dealt with such a group. Was there an expression of interest from people who wished to buy the mortgages?

Mr. Kieran Wallace

Yes.

Chairman

What percentage of the mortgage book was that?

Mr. Kieran Wallace

From the 1,224 responses we received, it was approximately 10%.

Chairman

Did that come from performing mortgages or, as described by Deputy Donnelly, parties with distressed loans or in a pre-resolution process?

Mr. Kieran Wallace

I cannot recollect that split.

Chairman

If the group of people, whether holding performing or distressed loans, were moved from the sale currently taking place, would the book be made more or less valuable? Would it be more susceptible to a vulture fund?

Mr. Kieran Wallace

We assessed each of those propositions with regard to valuation of individual mortgages and if there was a likelihood that individuals could refinance mortgages.

Deputy Joe Higgins

The way liquidation works in this State, and often the way liquidators act, often constitutes the most ugly face of capitalism. I understand the liquidators are operating for a political boss or master in the form of the Minister for Finance but I am not surprised they are therefore throwing vulnerable home owners to the wolves. That is often done with workers, for example, when companies are liquidated as workers are often the last to be looked after. Who are the current bidders in the process for the approximately 13,000 mortgages?

Mr. Kieran Wallace

As we indicated earlier, because of commercial sensitivity reasons, we cannot disclose the bidders.

Deputy Joe Higgins

When will that be disclosed?

Mr. Kieran Wallace

It will happen when the process is finished.

Deputy Joe Higgins

Is that when the sale is completed?

Mr. Kieran Wallace

Correct.

Deputy Joe Higgins

Is that not an incredible position? Even a slave in ancient Rome knew who was bidding to take him or her into bondage and if the slave was shifted from one master to another, he or she might know to where they were going. Is even that courtesy not being afforded to the more than 13,000 partners or families now experiencing this stress? Is that acceptable?

Mr. Kieran Wallace

It is the process we have under way in respect of the sale of each of the portfolios and it is what we have implemented in our previous two sales involving the Evergreen, Rock and Salt portfolios. Given the volatile nature of the bidding process, it is very hard to determine who will come through as a final bidder until very close to the bidding date.

Deputy Joe Higgins

Why can we not be told all the bidders?

Mr. Kieran Wallace

For competitive tendering reasons, it would be inappropriate for us to disclose the names of the bidders and their numbers for each of the portfolios.

Deputy Joe Higgins

When I was a young fellow at the Dingle fair we brought in the cows and several jobbers bid for them. We knew who they were. What is the difference and why would naming the parties be anti-competitive?

Mr. Kieran Wallace

Mr. Richardson and I have decided that we will not disclose the bidders until after the sales process is complete.

Deputy Joe Higgins

Do the witnesses realise the arrogance of their position in dealing with Irish citizens in this way? They will not give elected representatives the most basic knowledge. Are the parties involved international vulture capitalists, or venture funds, as the witnesses might call them?

Mr. Kieran Wallace

I have answered the question.

Deputy Joe Higgins

I am asking a new question. What is the nature of the bidders? Are they based in Ireland or outside the country?

Mr. Kieran Wallace

A number of them have operations in Ireland.

Deputy Joe Higgins

Where are their headquarters?

Mr. Kieran Wallace

Their headquarters are outside Ireland.

Deputy Joe Higgins

Outside Ireland is a very big place. Could Mr. Wallace be more specific?

Mr. Kieran Wallace

That is as far as I am going on that issue, again for commercially sensitive reasons.

Deputy Joe Higgins

Has Mr. Wallace looked at their track record of what they have done when they have acted as vulture capitalists in other situations, the type of profits they have made and how they have acted? Has he looked at their track records, at least?

Mr. Kieran Wallace

Yes, I have and I am very satisfied with their track records.

Deputy Joe Higgins

What does that mean?

Mr. Kieran Wallace

I have experience of how they have dealt with other situations and they have dealt very well with similar borrowers in similar situations.

Deputy Joe Higgins

Judging by the morality of the financial markets, shadow banking and so forth, and the standards that apply there, the standards of those operators might be good, but they are not good from the point of view of ordinary people. In regard to the PricewaterhouseCoopers report, the Minister told me in the Dáil last week that he would ask the witness to give us that or a redacted version of it, but the witness is refusing to do that. Why is he keeping elected representatives in the dark about the advice he got? We might have something to say on it. Were different options given, for example?

Mr. Kieran Wallace

No.

Deputy Joe Higgins

The only option given by PricewaterhouseCoopers is to put 13,000 mortgages on the market for vulture capitalists.

Mr. Kieran Wallace

Yes, that was the recommendation.

Deputy Joe Higgins

Did the witness look for any other options?

Mr. Kieran Wallace

Yes. We asked PricewaterhouseCoopers to give us their professional view as to how they thought the loans should be sold.

Deputy Joe Higgins

They came back with one.

Mr. Kieran Wallace

Yes, they came back with a clear recommendation.

Deputy Joe Higgins

Why will the witness not give it to us?

Mr. Kieran Wallace

For commercially sensitive reasons I cannot give it to the Deputy at this juncture. We looked at redacting it, but it would have made it incomprehensible for the Deputy given the level of detail we must redact.

Deputy Joe Higgins

Mr. Wallace has referred several times to so-called independent advice. Is PricewaterhouseCoopers part of that process?

Mr. Kieran Wallace

Yes.

Deputy Joe Higgins

Does Mr. Wallace realise that many of these institutions have zilch credibility among ordinary people? PricewaterhouseCoopers, for example, were the accountants for GAMA Construction Ireland Ltd. and were forced to resign when we exposed a massive worker exploitation scandal to which they had turned a blind eye. What faith can the mortgage holders in IBRC have in these insiders in this process?

Mr. Kieran Wallace

As I said previously, we went to competitive tender seeking the appointment of independent advisers regarding the sales process and PwC was the successful candidate.

Deputy Joe Higgins

In the same way as Irish Water tendered, it is an inside track along the line. The Minister told us that contractual terms will not change for the mortgage holders. Does Mr. Wallace agree with that?

Mr. Kieran Wallace

That is the mortgage holders where we have deals agreed with them.

Deputy Joe Higgins

What can change for the 12,700 mortgage holders under the new owners of their mortgages?

Mr. Kieran Wallace

Nothing. Whatever is agreed with IBRC will follow through to the new acquirers of the loans.

Deputy Joe Higgins

Can the new owners increase interest rates?

Mr. Kieran Wallace

If the terms of the agreement with the borrower provide for that, it is possible.

Deputy Joe Higgins

To maximise their gamble, which is what these people do, they can increase interest rates at will on their mortgage clients.

Mr. Kieran Wallace

I do not think it is at will. It is only in circumstances where the provisions of the agreement with the borrower come up for review or renewal at a particular point in time.

Deputy Joe Higgins

Does the witness accept that mortgage holders in difficulties or in a difficult arrears situation can come under enormous pressure from these vulture capitalists?

Mr. Kieran Wallace

It is not my experience on the ground with regard to the two other loan books that have been sold in Ireland in recent times. Two other loan books of a similar nature have been sold in Ireland recently. Being an insolvency practitioner, it is not my experience that they take a tougher line.

Deputy Joe Higgins

What type of assurance is that for the future?

Mr. Kieran Wallace

The Deputy asked me for my own view.

Deputy Joe Higgins

I know some dogs that are very nice because I know them, but if a new dog arrives on the block, it might be quite vicious. How can Mr. Wallace say that they will not act in a brutal fashion in pressuring people with arrears out of their homes, if it suits them?

Mr. Kieran Wallace

The Deputy asked what my experience was and I outlined my experience in that regard.

Deputy Joe Higgins

However, the witness can give no assurance in regard to how these entities will act to the mortgage holders who are now under much stress as to what is coming down the line.

Mr. Kieran Wallace

I can just reflect my experience of what I see happening on the ground.

Deputy Joe Higgins

That is no guarantee of future performance.

Mr. Kieran Wallace

Yes, I have been clear on that.

Vice Chairman

The Deputy must conclude in 30 seconds.

Deputy Joe Higgins

We hold the Minister for Finance and the Government primarily responsible for this mess and all that is involved here, but did Mr. Wallace or Mr. Richardson at any stage consider the option of maintaining those mortgages in forms of State ownership to protect mortgage holders, reassure them and allow them to continue to live in peace on reasonable terms?

Mr. Kieran Wallace

To be fair, we did not consider that.

Vice Chairman

Deputy, your time is up.

Deputy Joe Higgins

Is it not amazing? The witnesses are so fused with the ethos of the capitalist marketplace they cannot even consider such an option.

Vice Chairman

This slot is concluded. I will now call on the next speaker, Deputy Boyd Barrett.

Deputy Ciarán Lynch took the Chair.

Deputy Richard Boyd Barrett

The witnesses have justified their approach to this by saying they have a legal imperative to get the best value for the IBRC mortgage book and that if it was a condition of the sale that the purchaser was forced to sign up to the consumer code, MARP and so forth, it would potentially impact on what they might be willing to pay and therefore the public would not get the best value. Is that not essentially their argument?

Mr. Kieran Wallace

Yes.

Deputy Richard Boyd Barrett

At the same time, they have never ascertained what the impact might be on what they might be willing to purchase. They never asked them.

Mr. Kieran Wallace

No, but we have taken advice from PwC.

Deputy Richard Boyd Barrett

However, the witnesses did not ask the bidders whether it would make any difference to the bids they might make.

Mr. Kieran Wallace

No.

Deputy Richard Boyd Barrett

So it is complete speculation.

Mr. Kieran Wallace

It is not speculation. It is advice we received from our independent adviser.

Deputy Richard Boyd Barrett

We can all take independent advisers with a pinch of salt at this stage. Is there not a big contradiction between that assertion, which has informed the witnesses' approach to this, and simultaneously trying to claim that a voluntary commitment, with no legal standing, is something from which we and the mortgage holders should take comfort? At one point the witness said he would stake his reputation on it. If they are voluntarily willing to abide by the codes and regulations, why would obliging to them to do so make any difference to what they are willing to pay for the mortgages?

Mr. Kieran Wallace

That is a question for them-----

Deputy Richard Boyd Barrett

It is a big contradiction in the witnesses' approach. They cannot have it both ways. They cannot tell us that if they forced them to comply with the consumer code and MARP, it would affect the purchase price they might be willing to pay and on the other hand say they will voluntarily do it anyway, so we need not worry and that nobody has anything about which to be concerned.

The two things do not add up. Does Mr. Wallace not accept that there is a major contradiction in these two things?

Mr. Kieran Wallace

No, I do not.

Deputy Richard Boyd Barrett

Why would it affect the purchase price?

Mr. Kieran Wallace

The Deputy must park the two things separately for a moment. We have taken independent advice on setting up the sales process and how to manage that sales process for the mortgage side of IBRC. We took the advice from PwC's loan portfolio team. There were a number of different parties within the first phase of this particular sales process but the issue becomes even more pertinent in the second phase because it did not apply to some of the parties in the first phase.

The advice that we have taken says that if we include it as a definitive term then it will impact on value. That is a very live issue for us. Two weeks ago there was a case in the US where the judge refused to confirm a particular sale regarding IBRC because he thought there was better value available in respect of that sale. It is a pertinent issue for us, as liquidators, that we get best value.

Deputy Richard Boyd Barrett

The delegation cannot quantify what the difference in value is, yet they are telling us there is no difference at all from the point of view of the mortgage holders. That is what Mr. Wallace has implied because last night, in the late hours of the night, they had not signed up to some voluntary commitment. That is a big contradiction. It cannot be both things. Either the assurances Mr. Wallace has tried to give are worth nothing or it would have made no difference whatsoever if it had been made a condition of the sale that the purchaser had to sign up to the code.

Mr. Kieran Wallace

We have had two weeks of discussions with the bidders. We would not have done that if we thought it meant nothing.

Deputy Richard Boyd Barrett

Although the special liquidators did not ask the purchasers and cannot quantify the difference, presumably.

Mr. Kieran Wallace

I am not going to put a number on the table but there is a material difference and that came from the advice that we got from PwC.

Deputy Richard Boyd Barrett

It does not add up but I have made my point. I seek clarification on the issue of the mortgage holders being allowed to buy back their own mortgages in or around the same sort of discount the vulture capitalists will get when they purchase the mortgage books. Mr. Wallace has said it would have been too costly, taken too much time and so on to do it that way. Is that correct?

Mr. Kieran Wallace

No, I do not think that is a fair reflection of what I said. I said that cost and timing came into the decision-making process, but I do not want to go over old ground. I am speaking from the perspective of ensuring Mr. Richardson and I can stand behind our obligations as liquidators. Therefore, we have not allowed any individual borrower to be the only party bidding for their own loans. There is competitive tension in the less than 0.2% of all the loans of IBRC that we have allowed to be put out on their own as individual loan sales. We have not, in any particular party of IBRC, allowed an individual borrower to be the only party bidding for their loan.

Deputy Richard Boyd Barrett

How many of the people who bid for their own loans does he anticipate will get their own mortgages?

Mr. Kieran Wallace

Does the Deputy mean get their own loans back?

Deputy Richard Boyd Barrett

Yes.

Mr. Kieran Wallace

At the moment the percentage is up by 60%.

Deputy Richard Boyd Barrett

What is the reason the others are not getting it?

Mr. Kieran Wallace

People other than them have outbid them for the loan.

Deputy Richard Boyd Barrett

We have heard reports of people saying they were willing to discuss the matter with the special liquidators and possibly improve their bid.

Mr. Kieran Wallace

To clarify, I am talking about commercial loans and not mortgage loans.

Deputy Richard Boyd Barrett

Yes. I refer to individual home owners.

Mr. Kieran Wallace

There are no individual home owner loans out on their own. My apologies again to the Deputy.

Deputy Richard Boyd Barrett

Mr. Wallace has said the reason the special liquidators are not doing so is due to cost.

Mr. Kieran Wallace

I have not said that. I am saying that cost is a factor. There are a combination of factors, including the independent advice we received from PwC, the team that is in this business every week; the timing of trying to achieve a situation where individual mortgage holders are bidding for their own loans; the practicalities around the disclosure of information and confidentiality; the execution risk; getting best price; and the cost involved in trying to run such a process. Quite a number of factors went into the overall decision as to whether we could entertain individual mortgage holders and allow them to bid for their own loans.

Deputy Richard Boyd Barrett

There is nothing in the legislation to prevent the special liquidators from doing so. Is that correct?

Mr. Kieran Wallace

No.

Deputy Richard Boyd Barrett

Is this just a cold and calculated decision to get the most money back?

Mr. Kieran Wallace

It is not cold and calculated.

Deputy Richard Boyd Barrett

It is cold and calculated from the point of view of the people who are now being handed over to people who are not regulated, can sell on their mortgages and where they have no legal guarantees they would be subject to the same standards and protections from which other mortgage holders benefit in banks that are regulated.

Mr. Kieran Wallace

I and Mr. Richardson want to do whatever we can to alleviate the concerns. One of those issues was getting the agreement yesterday evening. The second issue, as I said earlier, is to encourage borrowers to co-operate and to get the information to us in order that we can get restructured deals done with those borrowers prior to sale.

Deputy Richard Boyd Barrett

Mr. Wallace has admitted there are review clauses spanning one year, three years or whatever in their contracts where the new purchaser could review a restructuring arrangement that might have agreed and, potentially, just tear it up.

Mr. Kieran Wallace

That is incorrect. I am saying it depends on the circumstances of each and every borrower as to what restructure plan they agree with the bank. Many of the plans I have seen are well in excess of 12 months.

Deputy Richard Boyd Barrett

Many are shorter and are subject to review for whatever the specified period is - one year, three years or five years.

Mr. Kieran Wallace

I would have said that less than 12 months is the exception rather than the norm.

Deputy Richard Boyd Barrett

Whatever the timeframe is, they are subject to review. My next question is for the Department. Does it accept that mortgage holders have significant reason for anxiety, particularly when one looks at the attitude of banks that are based outside this country? They are not the banks we bailed out. Those banks have taken a different approach to the loans they own. They have displayed an attitude of getting whatever money they can regardless of the consequences for the person who had the loan and in a way that is not true because of the political and public pressure that might be on banks based here.

Ms Ann Nolan

I would not have the information that would allow me to draw the conclusion that there is an enormous difference between banks that are based outside of Ireland and those within Ireland. The same Central Bank rules apply across the board for all mortgage protection and to all banks whether they operate inside or outside of Ireland. I understand that where the loans are sold, there is an issue and we talked about it earlier. For banks themselves, the same legal protections apply regardless of whether those banks have been bailed out by the Irish Government.

Deputy Richard Boyd Barrett

For what it is worth, the dogs on the street could tell Ms Nolan differently and state there is a very different attitude.

Chairman

I have been flexible with the Deputy's time so I ask him not to abuse it. I call Senator Barrett.

Senator Sean D. Barrett

Do I take it from what Mr. Wallace has said to my colleague that we will not see the PwC report?

Mr. Kieran Wallace

Not at this juncture.

Senator Sean D. Barrett

I object to that and I want it noted on the record. Too many redacted documents are coming to committees of the Oireachtas, which is an elected Parliament. We have received them on health and on the insurance industry. We are a Parliament and a Legislature and I think it is unlawful for Mr. Wallace to refuse to disclose information to people who have been elected to represent the people in this case. I want Mr. Wallace to convey my comment to his seniors that this is not a way to treat Parliament and that we live in a parliamentary democracy.

With regard to the independent advice received from PwC, how was PwC chosen?

Mr. Kieran Wallace

By competitive tender in which a number of parties were asked to tender documents setting out their experience, qualifications and how they would approach the special liquidation of IBRC.

Senator Sean D. Barrett

Did Mr. Wallace check if PwC was associated with the financial institutions at the core of this?

Mr. Kieran Wallace

Yes, we cleared conflicts.

Senator Sean D. Barrett

The conflict is that PwC was accountant for the governor and the company of Bank of Ireland and is being investigated by the Irish Auditing and Accounting Supervising Authority. Mr. Wallace went ahead anyway.

Mr. Kieran Wallace

Conflicts were assessed in respect of the work it would be doing on the loan sales for IBRC.

Senator Sean D. Barrett

Mr. Wallace should have ruled out all accountancy firms associated with the bankrupt banks for a start. Is that not a conflict of interest?

Mr. Kieran Wallace

We cleared conflicts of interest at the time.

Senator Sean D. Barrett

With yourselves? With other accountants?

Mr. Kieran Wallace

Not with ourselves. We made an assessment of whether conflicts of interest arose in respect of the work that would be carried out by PwC.

Senator Sean D. Barrett

I do not accept that, given that the entire bill to the taxpayer is €64 billion and may end up at €75 billion. The same set of accountants were involved, with PricewaterhouseCoopers auditing the Bank of Ireland, Ernst & Young auditing EBS and Anglo Irish Bank, and KPMG auditing Allied Irish Banks and Irish Life & Permanent, Postbank Ireland Limited and the Irish Nationwide Building Society. All of them are under scrutiny by the authority in charge of regulating the area. People are their CVs and when there are CVs like this, they should not have been on the list.

Mr. Kieran Wallace

It went out to competitive tender and we reviewed the tenders. In retrospect, for the work done, they have done a very good job.

Senator Sean D. Barrett

People are their CVs. We had the same problem with Irish Water. An individual applies for a job and he is what is on his CV. When accountancy firms get together, they ignore what is on the CV.

Mr. Kieran Wallace

This morning we announced the sale of Project Rock and Project Salt, in which PwC was involved. It is a €7 billion par value book and the advice of PwC was instrumental in allowing us to get the book sold. It was sold entirely on the open market and it was a good success for the taxpayer. PwC has done a very good job working on that and assisting us in ensuring a transparent and good sales process for the loans.

Senator Sean D. Barrett

On the contrary, I think those companies are at the core of the collapse of Irish banking. At this stage, their advice is useless given the source. If they had been awake in 2008, along with other firms mentioned, we would not be in this situation. There are a lot of books to be written on the inner circle of closed accountancy firms in this city. I am appalled by what I hear.

Chairman

That concludes the contributions of committee members. We will move on to those who are in attendance at the committee, who can speak for five minutes before we have a wrap-up of composite questions. We will hear from Deputy Michelle Mulherin, followed by Deputy Luke 'Ming' Flanagan and Senator Healy Eames.

Deputy Michelle Mulherin

Mr. Wallace described his satisfaction at the discussions with non-Irish regulated bidders over the past two weeks that culminated in last night's announcement that they would voluntarily subscribe to the Central Bank code of conduct on mortgage arrears. These bidders have been asked for this commitment because they are based outside the country. Mr. Wallace was satisfied as to their bona fides but we know what is happening in this country with venture capitalists. Ireland has become a magnet for international hedge funds. They see pickings here and come in like vultures and sell on. They have no interest in hanging on to loans and being challenged on the commitments they gave to Mr. Wallace. We are also dealing with an unknown quantity, possibly based outside the country, that will not come under the code of conduct to which financial institutions in this country must subscribe. Mr. Wallace indicated to one of the members that he will disclose the bidders at the end but it is meaningless because we will never know the bidders if the loans are sold on at the rate hedge funds can sell them on.

Chairman

I am pushing the Deputy to put a question because we only have five minutes for replies.

Deputy Michelle Mulherin

We know there are people with families who are concerned they will be thrown to the wolves in the hedge funds and their vulture-like activities. Even if Mr. Wallace can give a legally binding commitment from current bidders, nothing will save them from something else further down the line. This is empty, notwithstanding the two weeks work. It means nothing to these people. We must be straight with people because we are talking about their lives.

Mr. Wallace stated that if there was an enforceable stipulation in respect of the code of conduct on mortgage arrears, it could put the loan sale at a disadvantage in respect of the sale price. Have any bidders pulled out? I assume the answer is that they have not.

Mr. Kieran Wallace

Yes, they have.

Deputy Michelle Mulherin

Was this on foot of the commitment being required of them?

Mr. Kieran Wallace

No, but they have pulled out between phase 1 and phase 2.

Deputy Michelle Mulherin

I am talking specifically about pulling out arising from the commitment in which Mr. Wallace is putting a lot of faith. Have bidders pulled out when required to commit to it?

Mr. Kieran Wallace

It was our professional judgment that the most appropriate time to start dialogue with relevant bidders was when we felt the bidders were serious bidders in the process. We hope the bidders will continue in the process.

Deputy Michelle Mulherin

I take it the answer is "No". It raises the question of why there must be public outcry for consumer protection for mortgage holders and their family homes and principal residences to come into effect at the 11th hour.

With regard to the new owners of the loan full portfolio when the sales process has been completed, can Mr. Wallace set out the penalties people in arrears might face? We are talking about an interest rate increase, which is a possibility. Could there be penalty interest charges? Are these people on their own if the loans are sold to financial institutions not regulated by the Central Bank?

Mr. Kieran Wallace

They are not on their own if they continue to work with us and get a restructure done prior to the sale.

Deputy Michelle Mulherin

What about after the sale?

Mr. Kieran Wallace

I cannot comment on what might happen after that.

Ms Ann Nolan

The Minister has said that, in the event that people who purchase this do not abide by the agreement, he will legislate. We are looking at the possibility of legislation to apply the code of conduct on mortgage arrears.

Deputy Michelle Mulherin

What does that mean when the loans can be sold on the next day by any successful bidder? It means nothing if they are based outside the country.

Ms Ann Nolan

If the Minister legislates, it will apply to whoever buys the loan.

Deputy Michelle Mulherin

We are not going to bring in legislation the next day.

Ms Ann Nolan

No, not the next day.

Deputy Luke 'Ming' Flanagan

In letters to the mortgagors of IBRC, the liquidators stated the special liquidators' objective of maximising sales realisations in the public interest under section 3(h) of the IBRC Act 2013. The liquidators refused to allow the mortgagors to bid for their loans. As far as I can see, the liquidators are acting illegally by excluding potential bidders. The normal answer we get is that it is impractical to deal with individual mortgage holders but I cannot understand it because this is untrue. How is it practical to set up these mortgages in the first place? It takes a lot more paperwork to set up a mortgage than to pay it off in one go. The liquidators have shown they can communicate with the mortgage holders because they wrote to them individually in August 2013 and looked for submissions.

As far as I can see, all that has to be done is to ask each mortgagee what he or she wishes to bid, to put the lot on a spread sheet and to tot it up to get the mortgagee bids. Will the liquidator act in the best interests of taxpayers and allow all interested bidders to bid or will it continue, as far as I can see, to act illegally by excluding interested bidders?

Mr. Kieran Wallace

We will continue with the sales process we have undertaken, following the receipt of independent legal advice. We certainly do not believe we are acting illegally.

Deputy Luke 'Ming' Flanagan

Mr. Wallace reckons the liquidator is getting the best price, but it will not let certain people bid. If I went to the mart to buy an animal and if certain people were excluded, that would inevitably affect the price. How is Mr. Wallace sticking by the special liquidator's objective of maximising sales realisation in the public interest without taking all potential bids?

Mr. Kieran Wallace

The process, which is a consistent one across all loan portfolios, has proved to work extremely well.

Deputy Luke 'Ming' Flanagan

For whom?

Mr. Kieran Wallace

For the taxpayer and the creditors of IBRC. Some 84% of Evergreen was sold on the open market, which meant we got above the valuation of the individual assets. We were very pleased with the values we had obtained. Today we announced the sale of €7 billion worth of loans at par, again above our independent valuation; therefore, the sales process we are applying across the portfolios is fulfilling our obligation of getting the best price and delivering the best return for the taxpayer and the creditors of IBRC.

Deputy Luke 'Ming' Flanagan

Mr. Wallace has mentioned that approximately 1,200 people contacted the liquidator and that approximately 10% wanted to purchase their mortgages. Is that correct?

Mr. Kieran Wallace

That is correct.

Deputy Luke 'Ming' Flanagan

Was any of the bids higher than the liquidator's valuation?

Mr. Kieran Wallace

I think that is commercially sensitive information and do not think we-----

Deputy Luke 'Ming' Flanagan

It would be, would it not?

Mr. Kieran Wallace

We are not able to discuss that matter.

(Interruptions).

Mr. Kieran Wallace

I know the answer and it is extremely few.

Deputy Luke 'Ming' Flanagan

What is it?

Mr. Kieran Wallace

Extremely few.

Deputy Luke 'Ming' Flanagan

A few people bid a higher figure than what the liquidator is getting. Is that correct?

Mr. Kieran Wallace

Yes.

Deputy Luke 'Ming' Flanagan

How does Mr. Wallace satisfy himself that the special liquidator's objective of maximising sales realisation is in the public interest? It is obviously not getting the best price. If PwC held up a black card and told Mr. Wallace it was white, would he contest it?

Mr. Kieran Wallace

Absolutely.

Deputy Luke 'Ming' Flanagan

From what Mr. Wallace said, it seems like he takes it lock, stock and barrel, no matter what it says to him.

Mr. Kieran Wallace

It gave us independent advice and we challenged it, where appropriate. To go back to the Deputy's previous point, in the few instances where there was a higher bid, there was no proof of funding and nothing was provided to show that the bid could actually be seen through.

Deputy Luke 'Ming' Flanagan

Did Mr. Wallace ask for proof of funding from the other bidders?

Mr. Kieran Wallace

Yes.

Senator Fidelma Healy Eames

I thank Mr. Wallace and the other delegates. It is nice to be here and to have stuck with it so far. As Mr. Wallace knows, property rights are deeply ingrained in the Irish people's consciousness. Some 100 years ago we were subject to absentee landlords and it now looks like we are back in that space again. If Mr. Wallace's home loan was being thrown to the wolves without there being any opportunity for him to buy it back, would he be happy?

Mr. Kieran Wallace

I would be doing everything possible to co-operate with liquidators in situ to-----

Senator Fidelma Healy Eames

Would Mr. Wallace like to have the opportunity to buy it back? Will he answer "Yes" or "No"?

Mr. Kieran Wallace

I would prefer to have a restructure and my loan on an even footing. If I was in arrears, I would like to feel I could actually-----

Senator Fidelma Healy Eames

If Mr. Wallace could bid for it at the same discount rate being offered to a foreign bidder and make some money for his family, would he like to have that opportunity? Will he answer "Yes" or "No"?

Mr. Kieran Wallace

Opportunity is one thing; the ability to actually-----

Senator Fidelma Healy Eames

Is the answer "Yes" or "No"?

Mr. Kieran Wallace

I would prefer to have a restructured mortgage which I could actually afford to pay.

Senator Fidelma Healy Eames

My next question is for Ms Nolan. The Master of High Court, Mr. Honohan, said we had to look at the reality that many mortgages would be sold in the secondary mortgage market and that we needed to regulate same. Ms Nolan has said the Department is looking at legislation. Given all of the concerns shared at the committee today, does she think it is time for emergency legislation to be introduced protect the homeowner who could be thrown to the wolves?

Ms Ann Nolan

I reiterate what the Minister said last week. It is very important that we do not talk ourselves into an emergency where we do not have one. The fact is that much of the worry being created for homeowners is unfounded. The bulk of people bidding for these loans will abide by the CCMA and the-----

Senator Fidelma Healy Eames

For the person who is not in arrears, there is no protection because the CCMA does not apply to him or her.

Ms Ann Nolan

For the person who is-----

Senator Fidelma Healy Eames

Will the Department consider introducing emergency legislation?

Ms Ann Nolan

No buyer of any mortgage can take any action against a person who is keeping to his or her mortgage agreement. The mortgage agreement stands if the person is not arrears.

Senator Fidelma Healy Eames

I thank the delegates.

Deputy Peter Mathews

I welcome our guests. I have been given a couple of questions to ask and have a couple of my own.

Mr. Wallace has acknowledged that PwC was appointed by the liquidator to value the entire loan book. How many of the partners, executives or staff members of PwC appointed by KPMG to conduct the valuations were also partners and senior executives responsible for conducting PwC's Project Atlas - Anglo Irish Bank Corporation plc? This report in the middle of September 2008 found that significant security was in place to minimise the bank's loss through default. Anglo Irish Bank management, subsequently relying on this report, told the Government that just €300 million in additional capital was required for the bank. The figure turned out to be €30 billion.

When assessing due diligence of who should be appointed for the valuation and loan sale preparation process, did the liquidator take account of past experience in the assessment? Does the liquidator agree that, objectively, it is hugely astonishing that the same people who undertook such an appallingly bad original valuation of Anglo Irish Bank in 2008 were hired again and, presumably, paid millions of euro for the privilege?

For how many years was KPMG auditor for Irish Nationwide Building Society, an entity which was subsumed by IBRC and for which KPMG is now the Government appointed liquidator? There is the question which arose in the American courts recently that there was embedded fraudulently charged interest on some of the commercial loans in the Anglo Irish Bank loan book for a long number of years. This has been shown as fact. It was not a once-off case but an experience that was systemic. It implies that any rolled up interest, the subject of such fraudulent charges, contaminates the cumulative loans that are the subject of a sale and that the buyers of such loans are buying loans with toxic or embedded fraudulent charges. How has the liquidator dealt with this issue?

People who took out mortgages, whether in the Irish Nationwide Building Society or, to a smaller degree, in what was Anglo Irish Bank, entered into a series of covenants under headings which included the term of the mortgage loan, the amount of the loan, the repayments, the interest charges and their basis. Even though there may have been some small print licence to sell on or securitise these loans, their essence is a relationship extending over 25 years. I agree with Senator Fidelma Healy Eames that when a loan is sold, even if it is performing-----

Chairman

As I will have to allow time for a reply, I ask the Deputy to wrap up.

Deputy Peter Mathews

-----the basis of the interest charges essentially is undermined under new ownership.

Mr. Kieran Wallace

I apologise if I miss any of the Deputy's questions. He might have to refresh them as he asked them at quite a rapid pace. The first issue was related to PwC and conflicts in people being involved with Project Atlas.

The PwC team that we deal with is led from PwC in London. We were quite clear that any PwC people from Dublin could not have had a prior relationship with IBRC.

Deputy Peter Mathews

So Mr. Wallace is categorically saying that none of the partners, executives or staff involved in Project Atlas had anything to do with the valuation work ---

Mr. Kieran Wallace

The partners leading the valuation work were from PWC in London.

Deputy Peter Mathews

What about all the senior staff? London people would not necessarily know how to value Irish loans.

Mr. Kieran Wallace

That is a separate question, Deputy.

Deputy Peter Mathews

I know from experience ---

Chairman

I am being flexible but Deputy Mathews is way over time. I will allow the witness to respond to his questions and then we must move on.

Mr. Kieran Wallace

The second question referred to past experience but I am not clear on the precise question.

Deputy Peter Mathews

The question is in the same vein and refers to the people who presented a report on the valuation that was incorrect to the tune of €29.7 billion ---

Mr. Kieran Wallace

The track record that we have recently seen in respect of the sale of the loan books would indicate that PwC's valuation methodology and work has been very good in terms of setting the values.

Deputy Peter Mathews

My confidence is low because Oliver Wyman said that Anglo Irish Bank was the best banking model in the world but that same organisation is about to undertake the eurozone banking stress tests, which is extraordinary.

Mr. Kieran Wallace

The Deputy asked about the number of years KPMG had been auditing INBS but I do not know the exact number of years. The entity that currently is INBS is not in liquidation. It has an independent board and there is a Central Bank requirement set down whereby we are not allowed to deal with the affairs of the regulated entities in the course of the liquidation. That entity acts entirely independently of IBRC in liquidation.

Regarding the ---

Deputy Peter Mathews

INBS as an entity is outside of the liquidation process in operational terms. Is that correct?

Mr. Kieran Wallace

Yes. On the issue of fraudulently-charged interest, it is my understanding that this is only an allegation in court. Interest was incorrectly charged to customers prior to liquidation and not while we were in the bank. We have reviewed the work done in the US courts ---

Deputy Peter Mathews

It is now in the federal courts.

Mr. Kieran Wallace

Yes, which is where I was, in the US bankruptcy court. I said at that time that we would review the work done by the board regarding the cost of funds and the interest which was inappropriately charged. Many of the customers involved received a refund in full and final settlement of their claims and is it not an issue, as we see it, that affects the buyers of the loans in any shape or form.

Deputy Peter Mathews

That was a different type of fraudulent charging than the one that is the subject of the federal courts ---

Mr. Kieran Wallace

It is still an allegation, rather than a ---

Deputy Peter Mathews

It has been evidenced.

Mr. Kieran Wallace

It has not been tried ---

Deputy Peter Mathews

It has been evidenced, though.

Chairman

We are just dealing with the questions, Deputy Mathews. We are going to wrap up now and while I am taking the wrap-up, I wish to clarify some matters. I understand that as an official it is not Ms Nolan's duty to give opinions on policy direction and so forth but perhaps she would explain, in legislative terms, what mechanism exempts buyers of mortgages from Central Bank regulation. What is the mechanism that puts such people outside regulation by the Central Bank?

Ms Ann Nolan

It is not a question of what puts them outside regulation but rather what puts them under regulation. The Central Bank Acts puts them under regulation but if they are not a regulated entity under those Acts, then they are not in regulation as such. If one buys a loan and one is not a regulated entity, then one falls outside the scope of regulation, as I understand it.

Chairman

As I understand it, there are exceptions like retail credit firms and so forth, which are outside the scope of the code of conduct.

Ms Ann Nolan

This is what we are looking at. We could extend the regulation and are looking at doing so.

Chairman

There are some people exempted from it. Are the current IBRC and Irish Nationwide exempted from existing regulation?

Ms Ann Nolan

No.

Chairman

They are currently within the regulation? Is that correct?

Ms Ann Nolan

Yes.

Chairman

We have a potential situation whereby people currently inside regulation will, through the process of sale, find themselves outside regulation. I ask the witnesses to clarify an issue for me. Let us take a resolution or restructuring process which results in a contractual arrangement between borrower and lender, that is, a legal agreement. Where does that legal agreement stand at the other side of the sale?

Mr. Kieran Wallace

Again, I wish to give a commitment that in any sale process we go through with any third party we will be asking that third party to acknowledge and comply with any restructuring arrangements that we made with borrowers in IBRC.

Chairman

I wish put a hypothetical case to the witnesses for clarification. Let us take a person who has a property worth €300,000, with €100,000 of that in security against a loan from IBRC. A payment of €60 per week is being made, as part of a deferred resolution process. The person in question is retired with no means of resolving the debt. The person is paying €60 per week and has permission to stay in his home. IBRC will take what it is owed when the person dies or the house is sold. That is the contractual arrangement in place at the moment. What is the status of that contract?

Mr. Kieran Wallace

Regarding any terms that have been agreed with a borrower to restructure a loan by a credit committee in IBRC - which is the normal process by which such agreements are made - we will be inserting a clause into the sales contract asking the buyers of those loans to commit to ---

Chairman

Will the liquidators be insisting or asking?

Mr. Kieran Wallace

We will be telling them. We will make it a requirement of the sale.

Chairman

Therefore, anybody who is in a resolution process at the moment will be protected. Is there a shelf-life on that? Will such contractual arrangements be subject to a review after 12 months, for example?

Mr. Kieran Wallace

It depends on the terms of each and every ---

Chairman

It depends on the current terms.

Mr. Kieran Wallace

Yes.

Chairman

Ms Nolan referred earlier to retrospective legislation. At other side of the sale, there is the contractual nature of the sale of the actual loan. It was implied that the purchasers of loans could adopt a belligerent attitude which could affect people adversely because they are on variable rate mortgages. Most variable interest rate loans are tied, somewhat, to the ECB rate. The rates tend to move around that space. If we saw a departure from that general approach to the variable interest rates being applied on the current loan book that is being sold and there was an increase of 1% or 2% with no material change in the ECB rate, that could be deemed to be very belligerent behaviour by the purchaser. Ms Nolan indicated that such behaviour might give rise to legislative action, not on the sale itself but on how the contract is operating. Is my understanding correct here?

Ms Ann Nolan

I was talking about the CCMA but the CCMA does not cover interest rates.

Chairman

Okay.

Ms Ann Nolan

I do not have enough insight into the actual contractual interest rates that Irish Nationwide, which is the originator of most of these loans, had in place. I am not clear as to what conditions exist that would allow the purchaser of the loans to increase interest rates. Obviously, it would be a matter of concern if a very aggressive line was taken but I could not speak to whether or what we could or should do about that or whether ---

Chairman

Perhaps it was Mr. Mac Donncha who dealt with this earlier. I thought the situation was that action could not be taken on the actual sale of the loans but that we could look, from a legal perspective, at how the loans were being operated. In other words, the operational rather than the sale aspects of the loans could be examined

Ms Ann Nolan

As a general principle, there are no legal rules about what interest rates people can charge on loans. Banks can charge different interest rates for different loans, depending on the risk appetite, the length of the loan, the financial position of the borrower and so forth. Indeed, there are non-banks which also charge different interest rates for different types of loans. There is usually something governing the interest rates in the loan agreements themselves but there is no legislation governing interest rates on loans.

Chairman

That brings me back to the question I asked Mr. Richardson and Mr. Wallace earlier. I will put it to Ms Nolan. Yesterday evening's announcement that everybody in the phase 2 bidding process is in verbal agreement to adhere to a voluntary code of conduct means there is a flat-line position between all of the phase 2 bidders, even if we might not call it a level playing field. Does this change the Department's thinking about the legal advice it received previously regarding imposing conditions on the sale that would have an adverse effect on the value of the loan book? Now that everybody is actually in that space, has it been considered that it could be possible to put a legislative framework around this that would not have an adverse effect on creditors?

Ms Ann Nolan

As I said earlier, if we put a legislative framework into this space, it is likely that it will not be specific to the IBRC. Indeed, there would be no particular reason for legislation to apply to these loans but not to other loans that might be sold in the Irish market.

Chairman

Could Ms Nolan flesh that out for me so I can understand it?

Ms Ann Nolan

Bank of Scotland (Ireland), for example, sold its mortgage book. Its mortgagees, or the individuals who own those mortgages, are entitled to the same protection as IBRC mortgagees will be entitled to. It would be quite unusual to have bespoke legislation for this sale and not for other sales. I cannot see any particular reason to change the legislation on the sale of loan books in such a way.

Chairman

If one were to travel in that direction, would it mean that the current exemptions from Central Bank regulation would be reduced to facilitate these groups to come in?

Ms Ann Nolan

That would be the sort of approach we would be looking at. That was certainly the sort of space we were examining in our initial discussions with the Attorney General and the Central Bank.

Chairman

Okay.

Deputy Michael McGrath

I would like to ask a few supplementary questions. Can I ask Mr. Wallace how many direction orders have been issued by the Minister to the special liquidators under section 9 of the Act so far?

Mr. Kieran Wallace

Three.

Deputy Michael McGrath

To what did they relate?

Mr. Kieran Wallace

One of them related to-----

Mr. Eamonn Richardson

There was one general order at the commencement of the liquidation, giving various instructions about the liquidation. There was a further order in May, issuing some clarification about the valuation methodologies. There was also a third order, clarifying certain language within the Act itself.

Deputy Michael McGrath

There was no order relating to the sale of the mortgage book.

Mr. Eamonn Richardson

No.

Ms Ann Nolan

I should mention, for the information of the committee, that those direction orders were laid before the House.

Deputy Michael McGrath

I understand that. When it is expected that the sale of the mortgage book will be concluded? I am aware that a deadline of 14 March applies to the making of bids. When is it expected that the sale will conclude?

Mr. Kieran Wallace

We would expect it to conclude towards the end of April or at the beginning of May.

Deputy Michael McGrath

Will there be a public statement at that stage?

Mr. Kieran Wallace

Following the choice of preferred bidder or bidders in late March, we will certainly announce who they are. The completion of that process is likely to take place between four and six weeks later.

Deputy Michael McGrath

I would like to ask about the methodology that is being used to sell the loan book and to divide it into four separate bundles. Are there any standard discounts that are applying? Is it all essentially a function of the bidding process? Do any standard discounts apply in the prospectus and in the way these have been marketed?

Mr. Kieran Wallace

Two discounts have been included in the valuation methodology that we are applying across all of the different loan portfolios. There is a discount of 4.5% in relation to cashflows. There is also a legal security discount of 2.32%.

Deputy Michael McGrath

Is that relevant to the mortgage book?

Mr. Kieran Wallace

Yes, it is.

Deputy Michael McGrath

Is the combined discount of approximately 6.8% the standard discount that applies in respect of the mortgage-----

Mr. Kieran Wallace

I would not say it is a standard discount. It could be called a maximum discount.

Deputy Michael McGrath

How does that relate to the bidding process?

Mr. Kieran Wallace

That is fed into our independent valuations, which are carried out by our independent valuer.

Deputy Michael McGrath

The bids could come in higher than that.

Mr. Kieran Wallace

Correct.

Ms Ann Nolan

The discount affects the price that NAMA would be willing to pay.

Deputy Michael McGrath

Yes. It is the benchmark point.

Ms Ann Nolan

It gives us a bottom line. If any of the portfolios are to be sold to the private sector, they have to out-bid that.

Deputy Michael McGrath

Okay. I would like to make a couple of brief points. I am looking for clarification on the number of mortgage customers. The numbers that have been provided today are somewhat different from the numbers that have been provided in response to parliamentary questions. Page 3 of the witnesses' submission referred to a total of 11,825 individual residential mortgage customers. I take it that this figure relates to principal dwelling houses and buy-to-let properties.

Mr. Eamonn Richardson

That is correct.

Deputy Michael McGrath

Does the witnesses have a split of that?

Mr. Eamonn Richardson

Yes, we do.

Deputy Michael McGrath

We would like to have the official figures for the record. The figure that was mentioned is different from the figure that was provided in replies to parliamentary questions. Those replies indicated that over 13,000 customers-----

Mr. Eamonn Richardson

We have had some redemptions as well. We have had over 420 redemptions for people who have repaid their loans back at par.

Deputy Michael McGrath

Unfinanced-----

Mr. Eamonn Richardson

Yes, indeed.

Deputy Michael McGrath

Okay. If we could have the split of the 11,825 figure-----

Mr. Eamonn Richardson

The development number is 12,702. That is the number of mortgages. The split is between 10,622 principal dwelling houses and 2,080 buy-to-let properties.

Deputy Michael McGrath

Okay. The number of customers would be slightly smaller than that. The customer could have two accounts in some cases. I would also like to ask about development bonds for residential developments that the IBRC held at the point of liquidation. Have the liquidators quantified the cumulative value of those bonds? How many such bonds exist? I know this has been raised in the House during a Topical Issue debate. Parliamentary questions have also been asked. The liquidators are in discussions with the Department and the local authorities. I am not sure we have a handle on the potential exposure of local authorities for bonds in respect of unfinished developments.

Mr. Kieran Wallace

The bond exposure is in excess of €60 million.

Deputy Michael McGrath

How many developments is that across?

Mr. Kieran Wallace

I do not know. I can get the details for the Deputy.

Deputy Michael McGrath

Perhaps Mr. Wallace can send them on.

Mr. Kieran Wallace

That is no problem.

Deputy Michael McGrath

Their status is essentially that of a non-secured creditor.

Mr. Kieran Wallace

That is correct.

Deputy Michael McGrath

What is the likelihood of some of that money-----

Mr. Kieran Wallace

It is too early in the process to make a determination on what the prospects are like.

Deputy Michael McGrath

Okay, but there is a potential exposure of €60 million in relation to bonds offered by developers.

Mr. Kieran Wallace

That is correct.

Ms Ann Nolan

The €60 million is the maximum possible exposure, but that is not-----

Deputy Michael McGrath

To be drawn down-----

Ms Ann Nolan

Not all of that will relate to something where the bond will be called on. Some of those are bonds which will not be called on.

Deputy Michael McGrath

If an estate has been completed satisfactorily-----

Ms Ann Nolan

Exactly. We are trying. We are working with the local authorities to try to get an estimate of how much we think their exposure is likely to be, as distinct from the figure of €60 million. That is why the Deputy has got such vague answers in response to some parliamentary questions

Deputy Michael McGrath

Experience would tell us that where there is an unfinished estate and there is a bond in place, the bond is insufficient to cover the value of the outstanding works.

Ms Ann Nolan

Yes, that is quite possibly true.

Deputy Michael McGrath

If we could be given an update-----

Ms Ann Nolan

The Deputy will understand that some of those estates could be finished. The builder could still be in situ and could finish them out and the bond might not be called.

Deputy Michael McGrath

Yes. I ask the Chairman to ensure we get up-to-date information on that.

Chairman

Yes.

Deputy Michael McGrath

I assume KPMG would have been acting as a receiver appointed by IBRC in respect of some IBRC assets under IBRC debtors prior to the liquidation, or prior to the appointment of the special liquidators. How has that worked out since the appointment of the special liquidators? Where stands the interaction between their role as receivers for certain assets and their role as special liquidators under the legislation?

Mr. Kieran Wallace

The Deputy is correct to suggest that there are certain circumstances in which we act as receivers to certain individual borrowers in IBRC. We agreed at the time that when such cases come back to the credit committee in the normal course of events, myself, Mr. Richardson and Mr. Hansen - another colleague of ours who sits on the credit committee - would step down from the credit committee for those cases and would not be part of the quorum. It was agreed that in such circumstances, the credit committee would assess them independent of us.

Deputy Michael McGrath

The credit committee of-----

Mr. Kieran Wallace

Of IBRC.

Deputy Michael McGrath

How many such cases were there? I refer to cases in which the liquidators had active receiverships under KPMG when they were appointed.

Mr. Kieran Wallace

I would have said that there were between eight and ten such cases.

Deputy Michael McGrath

Okay.

Chairman

I remind the Deputy that the witnesses were invited to this meeting in their role as representatives of the IBRC.

Deputy Michael McGrath

I appreciate that.

Chairman

I do not intend to open a discussion on the broader stuff. Some of those matters are germane to this afternoon's business, but they are not under discussion.

Deputy Kieran O'Donnell

I would like the witnesses to clarify a number of points, the first of which relates to the inclusion in the bid of a provision suggesting that a legal commitment would be provided on the code of conduct.

The Minister stated that he would legislate if the buyer did not abide by the code of conduct once the sale had been completed. A voluntary understanding has been reached with the bidders, two of which are Irish institutions that are subject to the code of conduct.

Mr. Kieran Wallace

No.

Deputy Kieran O'Donnell

Did Ms Nolan not indicate that the two of the bidders were regulated institutions?

Ms Ann Nolan

I do not know who the bidders are.

Deputy Kieran O'Donnell

Did Ms Nolan not make reference to two of them?

Ms Ann Nolan

No. I stated that of the two loan books sold previously, one was bought by a regulated organisation and the other-----

Deputy Kieran O'Donnell

I thank Ms Nolan for the clarification. If the bids are allowed to proceed without a legal commitment in respect of the code of conduct and the Minister subsequently introduces legislation to require adherence to the code of conduct, could the bidders sue the liquidator of IBRC? The bidders have opted into the voluntary code of conduct and are aware that the Minister will introduce legislation on the code of conduct. On the grounds of certainty and the potential cost to taxpayers, should the liquidator not consider requiring bidders to comply with the code of conduct for mortgage holders?

Mr. Kieran Wallace

While I am not a lawyer, based on my experience in insolvency, the bidders would have very little chance of being able to sue us. There has been full disclosure on all of the issues the Deputy raised. For that reason, I am not concerned about them suing me or Mr. Richardson.

Deputy Kieran O'Donnell

This is not a normal liquidation because taxpayers effectively own IBRC. The price is clearly factored into the voluntary commitments. If the liquidators allow bids to be made on the basis that they will be required to comply with the code of conduct, they will flush out individuals who are seeking to flip the loans on rather than comply with the code of conduct. Would it not be best practice and good governance for the liquidator, acting on behalf of taxpayers, to implement such a requirement now to bring certainty to the bidding process?

Mr. Kieran Wallace

Mr. Richardson and I are very comfortable with the process we have put in place. We believe it will deliver the best return for taxpayers.

Deputy Kieran O'Donnell

How much of the IBRC loan book, in terms of value, does Mr. Wallace expect to be moved to NAMA? On what date was the independent valuation conducted? What does Mr. Wallace anticipate will be the return to the taxpayer from the sale, or will the IBRC liquidation impose a cost on taxpayers? What are the current projections?

Mr. Kieran Wallace

I will answer the final question first. I cannot predict today what will be the outcome of the liquidation. What Mr. Richardson and I are trying to do is the best job we can to ensure there is not a cost to the Irish taxpayer. We need to see the rest of the sales processes follow through before we can make a determination as to what will be the ultimate outcome.

Deputy Kieran O'Donnell

Have any of the sales made to date been completed at a price significantly higher than the independent valuation?

Mr. Kieran Wallace

They have been above the independent valuation on both occasions. In the first portfolio, 84% of the assets were above the valuation, while 16% were not. All of the latest tranche of assets - I refer the €7 billion par value that we concluded contractually today or last night - were above the independent valuation.

Deputy Kieran O'Donnell

How many of the loans will end up moving to NAMA?

Mr. Kieran Wallace

The indication we have given up to now is that we anticipate between €5 billion and €6 billion of loans at par maximum transferring to NAMA. That seems to be fairly-----

Deputy Kieran O'Donnell

That would be just short of 30% of the loans.

Mr. Kieran Wallace

Given that we started with assets of €25 billion, it is approximately 20% of the loans.

Deputy Kieran O'Donnell

How much was anticipated to move to NAMA at the start of the process?

Mr. Kieran Wallace

We anticipated that a larger number of loans would go to NAMA.

Deputy Kieran O'Donnell

What was the level?

Mr. Kieran Wallace

It was hard to judge at the early stages.

Deputy Kieran O'Donnell

On what date did the independent loan valuations take place?

Mr. Kieran Wallace

The Sand valuation was completed on 11 November 2013.

Deputy Kieran O'Donnell

When were the other valuations completed?

Mr. Kieran Wallace

They were all completed on various dates before 30 November 2013.

Deputy Kieran O'Donnell

Could one make the case that the independent valuations were too low and the buyers are getting bargains, given that 80% of the loans will be sold on the open market and 20% are expected to move to NAMA?

Mr. Kieran Wallace

That is categorically not the case from the information we have seen in respect of the valuations that have been placed on the assets and the bids that have come in. In particular, one gains a great deal of insight when one sees bids coming in from multiple parties on the same asset. This gives one a very good indication as to whether the value range for the assets in question was appropriate. This is something we are very conscious of in respect of each of the loan sales we do. As I stated, and this is as true of the loans we sell to third parties as it is of the mortgage book, it is of vital importance that we secure the best value for taxpayers and the creditors of IBRC. From the information we have seen to date in this process-----

Deputy Kieran O'Donnell

I hope the margin will be above the independent valuation.

Mr. Kieran Wallace

I am not trying to avoid the issue, but given that we are still in different sale processes, it would be inappropriate to give such guidance at this stage.

Deputy Kieran O'Donnell

Will Ms Nolan give the background to the reluctance, prior to the sale, to amend the legislation to require the buyer to comply with the code of conduct?

Ms Ann Nolan

I am reluctant to recommend to the Dáil that it pass legislation that would be specific to this process because it would leave the State open to being sued by the creditors. Even if there was no difference in the price one got, people could make out that there was a difference and it could be difficult to prove that such legislation did not make any difference.

Deputy Kieran O'Donnell

What is Ms Nolan's position on the possibility of introducing a general change applicable to everyone prior to the completion of this sale? Ultimately, this relates to people's lives.

Ms Ann Nolan

The timing of legislation is a matter for the Government. The Minister stated that he would consider this matter with a view to introducing legislation, if necessary, over a period. It is difficult, even if we were not involved in the IBRC liquidation, to pass legislation that covers existing contracts or persons. We must take careful legal advice in drawing up such legislation.

Deputy Pearse Doherty

How quickly could legislation be drafted that would provide protection for mortgage holders whose loans are being sold to unregulated entities, as promised in the programme for Government? If the Minister for Finance were to telephone Ms Nolan after this meeting informing her that the drafting of such legislation was a priority, how quickly would the legislation come before the House?

Ms Ann Nolan

It is difficult for me to state how quickly it could come before the House because there are many other priorities in the Government programme. The legislation is on the C list, which is for 2015, but we are carefully monitoring the position and it could move up the list.

Deputy Pearse Doherty

I understand that.

Ms Ann Nolan

Other than that, it is a political matter.

Deputy Pearse Doherty

IBRC was liquidated overnight, albeit with a little work. We all remember the shenanigans associated with the relevant legislation in the Dáil Chamber. The consequence of that is the sale of the loans of 13,000 mortgage holders. My focus is not solely on those mortgages, because mortgage holders with the Royal Bank of Scotland are in exactly the same boat and do not have any protection. That issue was not the subject of much attention. Ms Nolan stated that her only interest was to ensure Royal Bank of Scotland was not bailed out by the State. I am interested in the citizens who hold mortgages provided by that bank.

Ms Ann Nolan

I stated I was interested in the citizens but not in what price Royal Bank of Scotland secured.

Deputy Pearse Doherty

I am also interested in corporate governance. For example, if a partner in a company that is providing advice ends up buying the book of an entity that is regulated by the Central Bank, Ms Nolan, as a senior official, should be interested. That is not my focus, however, so I will cut to the chase.

Please correct me if I am wrong. The Government's stated position is that it wants to ensure that unregulated entities who purchase loan books from regulated entities in the future will come under the code of conduct of mortgage arrears on a statutory basis. Is that correct?

Ms Ann Nolan

Yes.

Deputy Pearse Doherty

It would be the Government's desire that the 13,000 mortgage holders in IBRC would have that same protection as its stated objective for all mortgage holders in the future.

Ms Ann Nolan

Yes.

Deputy Pearse Doherty

The Government has within it, and the Minister has, the ability to issue a directional order to IBRC's liquidators to cease the sale of the 13,000 mortgage holders. Is that correct?

Ms Ann Nolan

Yes.

Deputy Pearse Doherty

And the Government then has the ability to carry out its stated intention which is to bring in legislation across the board to protect not only the 13,000 mortgage holders but everyone else who could be in the same position.

Ms Ann Nolan

I would like to reiterate what the Minister said to the Deputy.

Deputy Pearse Doherty

Could-----

Ms Ann Nolan

The Minister has made it very clear last week, when answering the Deputy's parliamentary questions, that the reason he did not do this - and it was a decision not to issue any such direction - is because it could impact on the value of the book. That was his primary concern.

Deputy Pearse Doherty

The Minister is not here to answer the questions I am asking Ms Nolan as an official. If the Minister wants to come in and defend himself he is more than welcome. He was invited but he refused to appear before the committee. The Minister can do that. I am asking about the powers vested in him. Obviously the answer is right. Now we will go to the point Ms Nolan has raised. The issue that the Minister has raised in terms of the potential legal threat is, as Ms Nolan has stated on several occasions before this committee, that if one was to take an action in isolation - at no time have I suggested during this thread of conversation that we take an action in isolation.

To reiterate, what Ms Nolan has confirmed is that the Government's stated intention is to provide protection on a statutory basis to all mortgage holders, including the 13,000 in IBRC, that the Minister has the power to issue a directional order to the liquidators of IRBC to cease with the sale at this point in time. The Minister has the power to bring forward the legislation that he has already stated he intends to bring forward and if it is brought forward on a unilateral basis that does not specifically deal with this sale, then the issue of legal action is diminished or does not exist. If this is what we all want, why do we not do it? Instead of the Minister saying he will introduce legislation if they will not agree with this voluntary code, why not just issue a directional order to IBRC liquidators to stop the sale at this point in time? The sale was supposed to be complete by the end of last year but it is not. Stop the sale at this point in time. Let us bring forward the legislation. As one of the main parties in Opposition, I have offered to work with the Government and the Minister to bring forward legislation. Deputy Michael McGrath has put his suggestions forward in the form of legislation. If we are genuinely serious about not shafting the 13,000 mortgage holders why can we not take that course of action?

Ms Ann Nolan

I certainly do not think that selling the mortgage book is shafting the 13,000 mortgage holders. I understand there is concern that the bidders - we will have to see who they are - may not do what they have promised to do. We will take action if they do not keep to the promises they have given to KPMG. I do not think I could count the sale of the mortgage book as shafting the 13,000 mortgage holders.

Deputy Pearse Doherty

Okay, why do we not issue a directional order to stop the sale and bring forward the legislation which the Government has agreed to bring forward and then proceed with the sale again? Why cannot we just do that?

Ms Ann Nolan

I have just been given this note. The Minister can only give directional orders if it is necessary for meeting the purposes of the IBRC Act, not if it is necessary for the general public interest. So it would be quite difficult to justify stopping the sale half way through on the basis of legislation which he can pass after the sale is over in any case.

Deputy Pearse Doherty

I take with a pinch of salt the commitments that the officials and the Government have given in this issue. Despite the fact that the Minister issued a statement last night saying he will legislate, and Ms Nolan has reiterated those points, she has not been able to confirm to the committee that the legislation the Minister is thinking about introducing could affect the new owner of those 13,000 mortgages, whether the owner decides voluntarily to sign up to the code of conduct on mortgage arrears or if that is sold on. There is no clarification as to whether such legislation could actually impact on the person who buys these mortgages on 14 March. That is where I take serious issue with the commitments the Government is giving at this point in time.

Ms Ann Nolan

My understanding is that we can issue such legislation but I have not got a stamped copy of legislation from the Attorney General. Until I get it, I cannot say it definitively. I do not work for the Attorney General's office. I would like to have a stamped copy before I could assure the House that this is perfectly okay. I have no reason to think we cannot, and I believe we can.

Deputy Pearse Doherty

I want to ask the special liquidators two questions. I presume the liquidators are on course to meet the targets for loan disposals. How many people - if the liquidators do not have the number they can supply it to the committee or to me at a later stage - bought their loans directly from IBRC in the competitive tender and so would have got a writedown, and what was the overall reduction in those loans? They may not be able to give out the individual overall reduction but across the board.

Chairman

The Deputy's time-----

Deputy Pearse Doherty

I will finish on this. The other issue is on the former CEO of Anglo Irish Bank, Mr. Mike Aynsley, IBRC. He is a joint defendant in regard to the racketeering cases going on in New York. I understand the liquidators have provided a statement saying Mr. Mike Aynsley may well look to the bank for his costs. He is still a company director at the Companies Registration Office in Ireland and may look to the bank to cover his costs. Why is he not being taken off as a former director if there is an exposure to IRBC and liquidation of the legal costs of the former CEO? Will the liquidators reassure the committee that no deal was done with the former CEO where he withdrew legal action against IBRC and liquidation for the fact that the notice period of one year was not paid out to him when his appointment was quashed when IBRC went into liquidation?

Mr. Kieran Wallace

Let me take those questions in reverse. I can give the Deputies and the Chairman a categoric assurance that no payment has been made to Mr. Mike Aynsley or any sweetheart deal done with him, nor do we intend to make any payment. Mr. Aynsley voluntarily withdrew that litigation. On the costs being covered in the potential US court case, there is a slight confusion. The meaning of what was said was that we may have to cover his legal representation costs at the hearing, whether he is director or not. There are quite a number of people named in that litigation who are not directors of the bank who may still have to cover the costs of that. We intend filing an objection to that litigation for the very reason that there was a stay on all IBRC litigation in the US and that it would join us by the backdoor in that litigation if we had to cover all those costs. On his resigning as a director in the companies office, that is a matter for him. We have corresponded with him but that is an issue for him, not an issue for us. We cannot unilaterally do that.

The first question was on the details of the loans bought by individuals. I am happy to confirm the general details to the committee but not on the quantum at this juncture for commercial sensitivities because we are still in sales processes going down the track.

Deputy Pearse Doherty

With your indulgence, Chairman-----

Chairman

The Deputy is indulging.

Deputy Pearse Doherty

-----on the conversations the liquidators had with the potential bidders on the voluntary acceptance of the code of conduct did they ask the bidders at any time during those discussions for a legal guarantee? Was that every pursued on behalf of the mortgage holders?

Mr. Kieran Wallace

No.

Deputy Pearse Doherty

The witness never asked.

Mr. Kieran Wallace

No.

Deputy Pearse Doherty

Mr. Wallace never asked. Does he intend to ask?

Mr. Kieran Wallace

No.

Deputy Pearse Doherty

Why not?

Chairman

I call Deputy Spring.

Mr. Kieran Wallace

May I answer the question of "Why not?". The reason is that we have been told by those bidders that the voluntary agreement is as far as they are willing to go.

Deputy Arthur Spring

I will pick up from there. Ms Nolan alluded to the fact that the Department was given legal advice that it might impinge on the valuation if there was a stipulation that they had to abide by the codes of conduct. Did she say that?

Ms Ann Nolan

What I said was that if we were to make it a prerequisite that it might expose us to legal risk.

Deputy Arthur Spring

So there is legal advice to that effect.

Ms Ann Nolan

I have spoken to my legal people.

Deputy Arthur Spring

What is the basis for those parameters? Can Ms Nolan explain why this is the case?

Ms Ann Nolan

The State is always vulnerable to being sued. The fact is that apart from the other creditors the liquidator mentioned earlier, such as some of the staff, suppliers and so on, there is also the question of those involved in the case the IBRC lost in the UK courts on the sub-debt. Those people, the sub-debt people we burnt earlier, are very litigious and if they could find a way of getting the money out of the State, something they have made clear they want to do, they would do so.

Deputy Arthur Spring

On what legal grounds is the advice being provided?

Ms Ann Nolan

It is not in order for us to share our legal advice, but I have two in-house legal advisers, one from the Office of the Attorney General and one commercial legal adviser. I also have access to the Office of the Attorney General.

Deputy Arthur Spring

The Office of the Attorney General tells us that if we make this a prerequisite and it has a negative effect on the value of the portfolio -----

Ms Ann Nolan

The advice is from my in-house legal advisers, one of whom is on loan from the Office of the Attorney General and the other is a commercial lawyer.

Deputy Arthur Spring

Could we seek advice on going one step further from the Office of the Attorney General? Would that be prudent?

Ms Ann Nolan

In general, the Attorney General advises on constitutional and legislative issues and I do not feel she would be comfortable in giving advice on litigation. It would be more appropriate for my commercial lawyer to give me that advice.

Deputy Arthur Spring

Working within the parameters of the committee, if the Department is going to legislate for this in 2015 - as provided in the legislative programme - why is it not exposing itself to be sued by those creditors?

Ms Ann Nolan

There is a difference between my intervention in a process which is taking place under normal company law, for which the Department of Finance has no hand, act or part in the sales process other than setting a floor to ensure we are not completely -----

Deputy Arthur Spring

I am sorry, but Ms Nolan has intervened. She has said the Department will legislate for this in 2015 and this is known by the purchasers.

Ms Ann Nolan

Let me finish. There is a difference between intervening directly and indirectly.

Deputy Arthur Spring

I know.

Ms Ann Nolan

Any legislation I am likely to suggest to the Government and that it is likely to propose to the House will have a general application and will not apply specifically or only to the IBRC.

Chairman

I would like to intervene here. I am bringing the discussion to an end shortly. I want to give everybody their share of the time, but will not keep the meeting going for ever. I need members to be succinct. There are to be no fishing exercises here. Once a question has been answered, we must move on to the next question. I ask members to have their questions ready.

Deputy Arthur Spring

It was said that multiple people were involved in the bidding process. Please tell us how the bidding process took place and how interest in it was attracted.

Mr. Eamonn Richardson

First, our valuers, either PwC or UBS, would have taken market soundings. They would have spoken to buyers in the market throughout the world who buy loan books and would have taken market soundings in respect of the interest in the various loan portfolios in IBRC. KPMG would then have made calls to interested parties who would have bought loan books previously in other jurisdictions. We would also have had a significant number of inbound inquiries, over 300, on our appointment or shortly thereafter, expressing interest in various parts of the loan book or in specific loans. We collated the interest from all of the interested parties.

Deputy Arthur Spring

How many of those the liquidators have been dealing with are interested in the portfolios?

Mr. Eamonn Richardson

Approximately 300.

Deputy Arthur Spring

Therefore, the interest has been extensive. Has a cost been incurred by the liquidators in getting people interested?

Mr. Eamonn Richardson

We have spent time discussing the loan books with the various parties.

Deputy Arthur Spring

Did the liquidators commission people to promote the sale of the portfolios?

Mr. Eamonn Richardson

No, we did not.

Chairman

I have just one question. How much was PwC paid for the advice on selling the mortgage book?

Mr. Eamonn Richardson

I do not have that information with me. We will come back to the committee with that information.

Deputy Stephen S. Donnelly

I have a question for Ms Nolan. She said the Government's position is that if the successful bidder does not adhere to the CCMA, the Government will legislate to force it to adhere to the CCMA. How will the Department know whether it has adhered to it?

Ms Ann Nolan

Obviously, we will keep in contact with the successful bidder, but more importantly, if it does not keep to the CCMA, I imagine the mortgage holders will write to us. That is normally what people do. They will also write to Deputies such as Deputy Donnelly and he will write to us.

Deputy Stephen S. Donnelly

Two loan books have been sold so far, relating to the GE money and the Bank of Scotland-Ireland loan books, to Pepper and an affiliate of Apollo. These have both said they will adhere voluntarily to the CCMA and I hope they are doing so. Is there any oversight of that and has any data come into the Department on their adherence to the CCMA?

Ms Ann Nolan

We are not an oversight body. The Department does not have oversight. If these come under the CCMA, the Central Bank will fulfil that role. The way the political system works, and it works quite well on this, is that if there is a significant problem in these areas, we tend to hear about it because people write to their Deputies and their Deputies tend to refer the issues to us. I could not swear we have not had any representations on this, but we have not had large numbers of representations on it.

Deputy Stephen S. Donnelly

I have a question regarding draft legislation. The GE book was sold to Pepper about two years ago, in April 2012. Therefore, this has been an issue for about two years and we have had unprotected mortgage holders in the country for that time. Has any draft legislation been prepared during the past two years as a result of this, such that the legislation could be brought forward quickly?

Ms Ann Nolan

I understand the GE brand is still covered by the CCMA.

Deputy Stephen S. Donnelly

So the GE is regulated?

Ms Ann Nolan

Yes, but that is not the case with the others.

Deputy Stephen S. Donnelly

Therefore, the Pepper book is still a regulated book.

Mr. Gary Hynds

Our understanding is that Pepper bought the branch and that retained the cover.

Deputy Stephen S. Donnelly

In regard to a voluntary agreement to abide by the CCMA, the trade says the sale is down to a two-horse race and I understand the liquidators cannot comment either way. The trade magazines are saying it is down to Oaktree Capital and Lone Star Funds. Oaktree Capital's own description of itself states it emphasises an opportunistic value-oriented and risk controlled approach to investment in distressed debt. Lone Star Funds states that it invests globally in distressed debt. If these two bidders, or ones like them, are the successful bidders, they are debt collectors. They may be reputable and extremely respectable and professional firms - in no way do I suggest they are not - but they are not banks. They are professional investors in distressed debt. On the basis there is no written voluntary agreement, if when the successful bidder emerges it says it never agreed to adhere voluntarily to the CCMA, will we have any proof it did?

Mr. Kieran Wallace

KPMG has e-mail traffic confirming their agreement.

Deputy Stephen S. Donnelly

Have they confirmed that in writing by e-mail?

Mr. Kieran Wallace

Yes, by e-mail.

Deputy Stephen S. Donnelly

The last thing I want to touch on is the PwC report. The committee asked for a redacted version of the report and the liquidators suggested that they would have to redact it so much that it would be meaningless. Will they leave that judgment to us and, as soon as possible after this meeting, send us the redacted version of the report so as to allow us decide whether it is meaningless to us?

Mr. Kieran Wallace

We will do that.

Deputy Stephen S. Donnelly

Mr Wallace stated earlier that the report contains one proposed sales process.

Mr. Kieran Wallace

I believe what I said was that it has a clear recommendation.

Deputy Stephen S. Donnelly

Did it compare options?

Mr. Kieran Wallace

No, it simply gives the recommendation.

Deputy Stephen S. Donnelly

Did it allude to the mortgage holders being allowed to bid for their own loans?

Mr. Kieran Wallace

Yes, because, as we alluded to before, PricewaterhouseCoopers also read the representations and responses.

Deputy Stephen S. Donnelly

Did the report analyse that option versus the recommended option?

Mr. Kieran Wallace

It provides a clear recommendation but it does go through several other issues.

Deputy Stephen S. Donnelly

Did it provide an estimated euro amount difference in the total sales value? I am referring specifically to a process which would allow IBRC mortgage holders to bid. Within that context, did it do everything to get the best sales value and the option Mr. Wallace has chosen to go with?

Mr. Kieran Wallace

No.

Deputy Stephen S. Donnelly

Is it possible that whatever the difference between the two, it would be more than compensated for in terms of Exchequer returns by benefits to the families themselves and, therefore, to be extended economy?

Mr. Kieran Wallace

I understand where Deputy Donnelly is going. However, the unfortunate position for us is that if there was any instance during the course of the liquidation under which we could be held to have sold assets at under value then we would be opening ourselves up to legal action by creditors in the liquidation.

Deputy Stephen S. Donnelly

I appreciate that and I appreciate that Mr. Wallace is in a difficult position. Moreover, I appreciate that some of his legal obligations may be entirely contrary to what he would like to do as a citizen. I altogether accept that this may be the case, that he has a tough job and that he has come in for some harsh questioning. However, there are a great many men, women and children whose futures are at stake. Therefore, it is our job to try to protect their interests.

Acting Chairman (Deputy Kieran O'Donnell)

Did PwC give a recommendation or was it on the basis of the administrative procedures, which have been referred to as rather cumbersome, rather than a financial assessment in respect of mortgage holders being able to purchase their own mortgages?

Mr. Kieran Wallace

There is a clear recommendation.

Acting Chairman (Deputy Kieran O'Donnell)

On what grounds?

Mr. Kieran Wallace

It was the best process, as PwC saw it, to sell the mortgage loans in IBRC.

Acting Chairman (Deputy Kieran O'Donnell)

Was it non-financial?

Mr. Kieran Wallace

No, there are financial issues involved as well.

Acting Chairman (Deputy Kieran O'Donnell)

Did PwC provide hard figures to state why it was recommending that? Mr. Wallace is basing the recommendation all the time on the requirement to get the best return. Did PwC use criteria as part of the recommendation to the effect that the liquidators should get the best financial return by not allowing individuals to bid for their mortgages?

Mr. Kieran Wallace

Yes.

Acting Chairman (Deputy Kieran O'Donnell)

Did PwC back that up empirically?

Mr. Kieran Wallace

There are no direct numbers but that does formulate part of the PwC conclusion and recommendation.

Deputy Stephen S. Donnelly

Are there orders of magnitude suggested in the difference? Let us suppose there are two scenarios, the scenario which the liquidators are going with and the scenario which I am keen to have evaluated against what is happening, that is to say, a scenario whereby the mortgage holders in some way get to bid. Has any indication been given to the liquidators on the estimated difference in total sales value from those two scenarios?

Mr. Kieran Wallace

I alluded to an issue in the United States recently whereby the difference in net terms of the liquidation was less than €500,000 but the judge saw an issue in what we were doing. At issue is a €1.8 billion par value book. I have no wish to make it seem unimportant but, from our perspective, whether it is €100 or €1 billion it remains the same principle in that we have not got best value.

Deputy Stephen S. Donnelly

That may be the case for the liquidators. However, from our perspective, as legislators, it is a completely different issue. Let us consider the example provided by Mr. Wallace in which the difference was €1 million. I realise that is not the case. Let us suppose PwC did the analysis - I do not believe the firm has done it - and it came out that the difference was €1 million. Let us suppose PwC made a stab at total sales value under the recommended process and the firm also did an estimate of the sales value under alternative scenarios, particularly one in which the mortgage holders are allowed to bid. I hope the firm did this. Anyway, let us suppose that total difference was €10 million. We, as legislators, and the Minister for Finance, Deputy Noonan, as the guardian of the public purse, could then decide to let the bidders do what they are going to do while we, the State, would make up the difference, therefore protecting any question of a challenge from the creditors because the total amount of money available to the creditors does not go down. Under that scenario we could potentially avoid thousands of families being unnecessarily evicted.

Deputy Ciarán Lynch took the Chair.

Mr. Kieran Wallace

That is a very interesting concept but the problem is that if I was any other creditor in the liquidation - there are significant other funds on a global stage - I would be knocking on the Government's door asking to do exactly what Deputy Donnelly has suggested for the mortgage holders.

Deputy Stephen S. Donnelly

That is fine. Has any number been provided to quantify the estimated difference in sales price by letting the mortgage holders bid for their own mortgages?

Mr. Kieran Wallace

What we have been clearly told as part of independent advice is that if we went down that road, we would not deliver best value.

Deputy Stephen S. Donnelly

I appreciate that but will Mr. Wallace answer the specific question I am asking?

Mr. Kieran Wallace

The number is only a factor of the valuation and what we get in as bids at the end of the day. I believe asking PwC to put an exact number on it is probably unfair to PwC, to be honest. However, what PwC has is experience in selling loans books and the knowledge from the representations and all the other information around the sales processes in IBRC. PwC has clearly given us a recommendation that we are following.

Deputy Stephen S. Donnelly

Can I take it from Mr. Wallace's response that the liquidators have not been provided with an estimate of the difference in total sales value by letting the IBRC mortgage holders bid on their own mortgages?

Mr. Kieran Wallace

We have been provided with clear advice on how to get the best price-----

Deputy Stephen S. Donnelly

This is not a trick question. It is a very simple question. Have the liquidators not been provided with an estimated figure?

Mr. Kieran Wallace

To be honest, we asked PwC to provide us with advice on the best process to get the best value for the loans. In terms of the summary report, there is no absolute number but there is a clear recommendation.

Deputy Stephen S. Donnelly

Does Mr. Wallace know whether PwC modelled both scenarios to come up with an estimate?

Mr. Kieran Wallace

Yes, the firm modelled a number of scenarios.

Deputy Stephen S. Donnelly

Did one of those scenarios allow mortgage holders to bid for their own loans?

Mr. Kieran Wallace

Yes, it was considered by PwC.

Deputy Stephen S. Donnelly

Was it modelled by PwC analytically?

Mr. Kieran Wallace

It was certainly considered by PwC.

Deputy Stephen S. Donnelly

Does Mr. Wallace know whether it was modelled by the firm?

Mr. Kieran Wallace

I do not.

Deputy Richard Boyd Barrett

Mr. Wallace mentioned a figure of 60% earlier when I was asking questions. There was some confusion because Mr. Wallace thought my question pertained to all mortgages but I was primarily concerned with residential principal private dwellings and so on. I am seeking clarity because given the rapid fire of questions backwards and forwards taking in the import of what Mr. Wallace said has taken some minutes. Mr. Wallace should correct me if I am wrong but I understood he said 60% of all mortgages he had were sold back to the original mortgage holder. Is that correct?

Mr. Kieran Wallace

No, that is incorrect.

Deputy Richard Boyd Barrett

What was the 60% figure?

Mr. Kieran Wallace

There are 33 loans which have been put out as individual loans for sale through all of the sales processes in IBRC. Some of those 33 have already been through the sales process and some have not. Of those which have gone through the sales process, the average is approximately 60% of borrowers acquiring their own loans back.

Deputy Richard Boyd Barrett

Is Mr. Wallace referring to the 33 borrower groups?

Mr. Kieran Wallace

It is not the full 33 because not all 33-----

Deputy Richard Boyd Barrett

Mr. Wallace is referring to those which have gone through. These are not principal private dwellings. They are not residential mortgages. Is that correct?

Mr. Kieran Wallace

That is correct.

Deputy Richard Boyd Barrett

Therefore, it would be fair to assume that most of these are commercial and property loans. Am I right?

Mr. Kieran Wallace

Yes, some are trading businesses and some are property and commercial.

Deputy Richard Boyd Barrett

Therefore, Mr. Wallace has decided that if a person is a developer he can buy his own loan back, but if a person is a home owner dealing with the roof over his head for him and his family then he cannot. That is the recommendation Mr. Wallace has made in the best interests of the public.

Mr. Kieran Wallace

From recollection I do not think that to date any developers have bought their loans back. That is not what we have decided. We have taken the independent advice.

Deputy Richard Boyd Barrett

Let us say, if it is a commercial or corporate interest.

Mr. Kieran Wallace

We decided that 33 loans out of the entirety of almost 25,000 loans in IBRC-----

Deputy Richard Boyd Barrett

It says borrower groups here.

Mr. Kieran Wallace

We have 24,632 loans for sale. Of them only 33 are for sale on their own. That is less than 0.2% of all loans we have for sale.

Deputy Kieran O'Donnell

Is there a loan limit?

Deputy Richard Boyd Barrett

These are corporate and commercial loans.

Mr. Kieran Wallace

Correct.

Deputy Richard Boyd Barrett

They have been allowed. They have been given the option to buy back their own loans and Mr. Wallace considers that is okay but he decided not to give the people dealing with the mortgage for the roof over their heads, their family home, that option. Mr. Wallace’s decision is based on one law for the family trying to keep a roof over their head and another one for corporate and commercial interests.

Mr. Kieran Wallace

I would not put it like that. If that was the case, we would have many more individual loans for corporate and commercial borrowers out on their own.

Deputy Richard Boyd Barrett

I am absolutely confused. Mr Wallace has said PwC told him that having considered it all, with no models or figures, as we discussed earlier-----

Mr. Kieran Wallace

I am sorry but I would like to stop the Deputy there. That relates to Project Sand, which is the mortgage book.

Deputy Richard Boyd Barrett

I understand.

Mr. Kieran Wallace

PwC did not give us all the advice on the rest of the 33 individual loans. That came from a combination of advisers, not just PwC.

Deputy Richard Boyd Barrett

Mr. Wallace took that advice, without figures, without quantifying it-----

Mr. Kieran Wallace

I have to stop the Deputy there. There was a second question.

Deputy Richard Boyd Barrett

Would Mr. Wallace let me get the question out so that I can clarify-----

Mr. Kieran Wallace

I was asked a specific question on Project Sand. There is a different valuation report in respect of each portfolio of assets we have to sell.

Deputy Richard Boyd Barrett

I am talking about Mr. Wallace and the decisions he has made. He is dealing with all these portfolios. Is that right?

Mr. Kieran Wallace

Yes.

Deputy Richard Boyd Barrett

He might be getting advice from all sorts of people but he says he took the advice of PwC, which told him he should not consider the option of selling back mortgages to individual mortgage holders in respect of family homes. Is that right?

Mr. Kieran Wallace

That is correct.

Deputy Richard Boyd Barrett

Mr. Wallace took that advice, saying it would be bad value for money and IBRC should not consider that option. Maybe he got advice on the other tranche of loans, commercial and corporate loans, from elsewhere, and decided it was something to consider.

Mr. Kieran Wallace

Correct.

Deputy Richard Boyd Barrett

In the decisions Mr. Wallace made, one set of rules applied to people trying to keep a roof over their heads and talking about the mortgages on their family homes, and another set of rules applied to commercial and corporate loans.

Mr. Kieran Wallace

I absolutely disagree with the Deputy. We have used a consistent set of criteria across all the loan portfolios. We have not applied one set of rules here and another set there. That is not correct.

Deputy Richard Boyd Barrett

I just want to make this clear for everybody. An individual home owner dealing with the mortgage for his or her home cannot buy it back but a corporate or commercial interest might be able to buy their own loan back at a discount. That is the decision Mr. Wallace made.

Mr. Kieran Wallace

That is true of 0.2%.

Deputy Richard Boyd Barrett

That is the decision Mr. Wallace made.

Mr. Kieran Wallace

Yes, following independent advice.

Deputy Richard Boyd Barrett

That is the problem. We have established the Government is disposed towards bringing in legislation that will make these loans subject to the consumer code, the mortgage arrears resolution process, MARP, and so on. We do not know when but it has indicated it will do so at some stage. At the same time we have been told that it cannot be a condition of the sale because it will impact on the price. I do not understand how we can commit ourselves to do something down the road, which presumably will have the same impact on the price, when we cannot do it now because it will have an impact on the price. Why will it not impact on the price further down the road if it impacts on it now? I do not get it. If we can do it down the road, why can we not do it now?

Chairman

This question has been answered a few times but I will ask for it to be answered once more.

Ms Ann Nolan

I have already explained this. We do not want to tie any action of ours to the sales process because if we get involved in the sales process at all, we run the risk of leaving the Department of Finance and the State vulnerable to being sued by the other creditors, if they are in a position to make out that anything we did interfered with the value that went to their loans.

Any legislation we bring in will apply to any mortgage book sold and not specifically to the-----

Deputy Richard Boyd Barrett

That is the point I want to get at. It seems to me there is another option. I understand the mortgages for principal private dwellings have not been sold yet. Is that correct?

Mr. Kieran Wallace

That is correct.

Deputy Richard Boyd Barrett

Is there any reason we could not amend the IBRC Act 2013 to make it a condition of the sale of any principal private residences, and the mortgages pertaining to them, that they be subject to MARP and the consumer code? Is there any reason that simple amendment to the IBRC Act 2013 could not be made and inform what the special liquidators do in the sale of that book? Is there any reason that could not happen?

Ms Ann Nolan

The very reason I gave a minute ago, which is that if we do something very specific to the sale of the IBRC book, we will leave ourselves open to being sued by other creditors.

Deputy Richard Boyd Barrett

Not if it specifies principal and private residences, which have not yet been sold because the IBRC has not sold any principal private residences.

Ms Ann Nolan

They will say the change we made changed the value and they will make out it changed the value far more than it did do.

Deputy Richard Boyd Barrett

The IBRC has not sold them yet.

Chairman

The Deputy will have to allow the witness respond, regardless of the response he gets.

Deputy Richard Boyd Barrett

I do not see the connection between the two things.

Ms Ann Nolan

There is a connection if we interfere with the sales process before it is finished in such a way as to provide a legislative change that could possibly change the value. How much it changes is moot but that is not the issue. If we bring in the legislation now, the other creditors can say we took some of their value and can sue us. It would be better to bring in the legislation in a more general way that is not related to IBRC. That applies to all the other mortgage holders and would also be fairer to other mortgage holders whose mortgages have been sold.

Deputy Richard Boyd Barrett

Is there any reason it could not be done? Ms Nolan has expressed her opinion on why it might be better. We can agree to disagree but is there any reason it cannot be brought in, that the amendment cannot be made?

Ms Ann Nolan

As I have said, it cannot be made because it would leave the Department and the taxpayer vulnerable to being sued by other creditors.

Chairman

The Deputy may not agree with the response or may have a different interpretation of the matter but the response has been given and I would like to bring this to a conclusion.

I want to clear up one matter and ask one question before bringing the meeting to an end. In his presentation Mr. Wallace said that in total there were 15,734 borrower groups comprising 24,632 loans for sale across the six portfolios as described, 33 of these borrower groups, representing 0.2% of total borrower groups, having been or being offered for sale on a stand-alone basis. We know for a fact, as every Deputy has repeated today, no borrower has been provided with an exclusive opportunity to buy back his or her loan at a discount. Did the 33 loans have a certain value? For example, were they above €1 million, €5 million or whatever? What were the criteria that put those people into that space?

Mr. Kieran Wallace

It was a combination of three main points: the advice from our independent sales adviser, which could have been PwC or UBS, the letter of representation from the borrower, and the evidence they could execute a deal.

Chairman

It was not the value of the loan.

Mr. Kieran Wallace

No.

Chairman

There is one final question that people who have stuck with these proceedings this afternoon will ask themselves. There is a crossroads ahead for the residential mortgage book. It will either be sold or go into NAMA, regardless of codes of conduct, mandatory, voluntary or whatever. When can we expect that determination or decision to be made?

Mr. Kieran Wallace

We expect the decision on the mortgage portfolios to be made sometime towards the end of March.

Chairman

So come the start of April, people who at present are on the loan book, whether they are performing or in resolution processes, will be sold to another company or will be in NAMA.

Mr. Kieran Wallace

No, we will make a decision as to who are the preferred bidders. Thereafter, there will be a period in which they still will be corresponding with IBRC prior to completion. It depends on those who become preferred bidders but completion is likely some time towards the end of April to perhaps mid-May.

Chairman

So come the summer, people will be in one resting place or another.

Mr. Kieran Wallace

Correct.

Deputy Kieran O'Donnell

Just a tiny-----

Chairman

No.

Deputy Kieran O'Donnell

It is just a tiny addendum.

Chairman

Some of my colleagues here remind me of Columbo saying "just one more question". It is never just one more question.

Deputy Kieran O'Donnell

It is very short.

Chairman

No, I am concluding.

Deputy Kieran O'Donnell

It pertains to the 33 borrower groups and is relevant.

Deputy Arthur Spring

This is important.

Chairman

Very well, be quick.

Deputy Kieran O'Donnell

Of the 33 borrower groups, the liquidators referred to advice, representations and to them having money available. What is the profile or what type of customer are those concerned? Are they commercial?

Deputy Arthur Spring

In addition, how could representations made have an effect on the decision that they can buy their own loans and that it be done publicly, that is, those concerned are not the only people who could tender for that?

Chairman

I said one question but members go on and on.

Deputy Arthur Spring

This is important.

Mr. Kieran Wallace

The representations feed into the decision as to whether a loan goes out as a single sale or as a portfolio sale. Once that decision is made, anyone can ask to become a qualified bidder in respect of the actual bidding on those loans. Members should not hold me to this as I do not have the precise detail to hand but the majority of the aforementioned 33 are trading-type businesses.

Deputy Arthur Spring

With employees?

Mr. Kieran Wallace

Yes. While there are a few individual exposures there with large borrowers, there also are a number of significant trading businesses that offer significant employment nationwide.

Deputy Arthur Spring

That is good to hear.

Chairman

That brings proceedings to a close and in so doing, I thank all the witnesses for their contributions to this meeting and for adding to the discussion.

The joint committee adjourned at 5.52 p.m. until 2 p.m. on Wednesday, 5 March 2014.