Nama should have removed Cushnahan from 'seriously deficient' property deal
The biggest property deal in Northern Ireland's history was "seriously deficient", the Irish Parliament's Public Accounts Committees (PAC) said.
The £1.2 billion sale by Ireland's state-owned bank for bad loans following the economic crash, the National Asset Management Agency (Nama), led to a recorded loss for Irish taxpayers of £162 million.
PAC said the 2014 transaction was not well-designed and adviser Frank Cushnahan should have been removed.
It also said key elements of the sale were influenced by one of the bidders, US firm Pimco.
Sean Fleming TD, Chairman of the Public Accounts Committe,said: "I believe that NAMA was influenced by the PIMCO offer when deciding on the minimum reserve price and key elements of the sales process."
The PAC report said: "The sales strategy pursued by Nama included restrictions of such significance that the strategy could be described as seriously deficient.
Sinn Fein PAC member David Cullinane TD said: "Nama has been unable to demonstrate that by pursuing such a strategy that it got value for money for the Irish State in relation to the price achieved."
“Overall, the PAC Report into the sale of Project Eagle shows that we need to have a Commission of Investigation into Nama. It is Sinn Féin’s view this should proceed as soon as possible.”
The Committee concluded that:
• the sale of Project Eagle was not a well-designed sales process.
• Nama’s failure to effect Mr Frank Cushnahan’s removal from Nama’s Northern Ireland Advisory Committee, following his disclosures in relation to provision of consultancy services on behalf of a number of Nama’s Northern Irish debtors, was a failure of corporate governance by Nama.
• the Nama Board was not explicitly informed of the extent of the financial loss which would be recorded in Nama’s accounts as a result of setting the minimum reserve price of £1.3 billion.
• key elements of the Sales strategy were influenced by the firm, Pimco, which made the initial approach to Nama in respect of buying the Northern Ireland portfolio.
• the sales strategy pursued by Nama included restrictions of such significance that the strategy could be described as seriously deficient
• Nama has been unable to demonstrate that by pursuing such a strategy that it got value for money for the Irish State in relation to the price achieved.
The full report can be found here.
The report said Nama incurred losses on its Northern Ireland debts of €800 million from 2010 to 2014, including the sale known as Project Eagle.
The Irish state ultimately recovered only 36% of the original value of the loans.
Businessman Mr Cushnahan was a member of the Northern Ireland Advisory Committee (NIAC) to Nama. During 2011 and 2012 he admitted providing financial consultancy services, mainly on a non-fee basis, to six Nama Northern Ireland debtors.
PAC chairman Sean Fleming noted: "These debtors' connections accounted for approximately 50% by value of the Project Eagle loans.
"It is the opinion of the committee that Nama's failure to effect Mr Frank Cushnahan's removal from NIAC, following his disclosures in relation to consultancy services on behalf of a number of Nama's Northern Ireland debtors, was a failure of corporate governance by Nama."
Mr Cushnahan has consistently denied any wrongdoing in relation to the deal.
The PAC chair also said the committee considered it was not appropriate for Nama, as the contracting body, to meet Cerberus representatives the day before the Project Eagle bid closing date.
"It could have given the perception that Cerberus was benefiting from preferential treatment."
In a statement highly contested by the minister, Mr Fleming said it was not "procedurally appropriate" for Finance Minister Michael Noonan to meet senior Cerberus representatives the day before the Project Eagle bid closing date.
Mr Noonan said: "It is disappointing that unjustified and unfounded views have made their way into the final iteration.
"I refute absolutely the validity of any suggestion that I or my officials acted inappropriately in meeting with Cerberus in March 2014."
According to the PAC chairman, when the Nama board was deciding to set its minimum price for the sale, it already had an indicative offer on the table from Pimco.
Mr Fleming added: "When you compare the Pimco offer to the actual sales process approved by Nama, there are remarkable similarities in terms of sales strategy, sales price, sales process and financial conditions.
"I believe that Nama was influenced by the Pimco offer when deciding on the minimum reserve price and key elements of the sales process."
He said the confidentiality of the sales process was later lost through media reports and Nama refused entry to the competition to eight of 10 firms expressing an interest in joining the sales process.
Ultimately only two firms submitted bids.
Mr Fleming also said the decision to destroy contemporaneous notes of board meetings has undermined Nama's ability to explain and account satisfactorily to the PAC for its decision-making processes.
Nama released a statement in response to the report in which it said: “It was the board’s commercial and considered judgement, in full knowledge of the financial implications, that the sale of the Project Eagle loan portfolio provided a better financial outcome than any alternative monetisation strategy. That was the board’s view in 2014 and it remains the board’s view today”.
Nama was established in 2009 to take control of billions of euro of bad property loans which were undermining the finances of the Irish banks.
Many of the loans taken over from Irish debtors related to Northern Ireland property.
The entire Northern Ireland portfolio was sold to Cerberus, a US investment fund.
The PAC report follows parliamentary hearings prompted by a critical Comptroller and Auditor General report last year.
Key aspects of report by Sean Fleming T.D., Chairman of the Public Accounts Committe:
The focus of the Committee was to concentrate on the actual financial outcome and the actual losses incurred.
In evidence to the Committee the CEO of NAMA accepted that NAMA recorded a loss of STG £162m in its accounts on the sale of Project Eagle.
NAMA incurred losses in respect of its Northern Ireland debtors of €800m during the period of 2010 to 2014. This figure includes the loss of STG £162m on the sale of Project Eagle.
The Committee looked at the overall picture in relation to all the loans that were acquired by NAMA and the original par value of these loans.
When NAMA acquired its Northern Ireland debtors’ loans in 2010 and 2011 they had a par value of €5.38 billion. 46% of these were acquired from Anglo Irish Bank and the remainder from the other banks.
The €2.75 billion discount on the original par value of these loans was a cost borne by the State. This €2.75 billion loss was realised prior to the loans coming under the control of NAMA.
When this figure is added to the €800m losses incurred by NAMA, the total combined losses on these loans borne by the State was €3.55 billion. The State ultimately only recovered 36% of the original par value of these loans.
Cerberus, a private investment firm based in New York, was the successful bidder for Project Eagle.
Cerberus went on to make further purchases from NAMA. Up to the 22nd December 2016 Cerberus had purchased €14.4 billion of assets from NAMA: This is 20% of the total par debt of €74 billion acquired by NAMA.
Cerberus, is the biggest purchaser of NAMA assets having bought more than the next 4 largest purchasers combined.
Mr. Frank Cushnahan was a Member of the Northern Ireland Advisory Committee. During 2011 and 2012 Mr. Frank Cushnahan submitted 6 disclosures of interest stating that he was providing financial consultancy services, mainly on a non-fee basis to 6 NAMA NI debtors.
These debtors’ connections accounted for approximately 50% by value of the Project Eagle loans.
It is the opinion of the Committee that NAMA’s failure to effect Mr. Frank Cushnahan’s removal from NIAC, following his disclosures in relation to consultancy services on behalf of a number of NAMA’s NI debtors, was a failure of corporate governance by NAMA.
The NAMA Chairman and CEO met with the Cerberus Chairman on the day prior to the bid closing date for Project Eagle.
The Committee is of the opinion that the Board should have been informed of this meeting when the Board met on the 3rd April 2014 and agreed to sell Project Eagle to Cerberus.
The Committee considers that it was not appropriate for NAMA, as the contracting body, to meet with Cerberus representatives the day before the Project Eagle bid closing date. It could have given the perception that Cerberus was benefiting from preferential treatment.
The Committee considers that it was not procedurally appropriate for the Minister for Finance to meet with senior Cerberus representatives the day before the Project Eagle bid closing date. This could have given the perception that Cerberus was benefitting from preferential treatment.
NAMA first became aware of interest in its Northern Ireland loan portfolio when it received a letter on 4th July 2013. Subsequently NAMA received a letter from PIMCO expressing interest in purchasing the portfolio. On the 4th December 2013 PIMCO submitted an indicative bid to NAMA of STG £1.1 billion to STG £1.3 billion subject to due diligence.
The Comptroller and Auditor General stated that he arrived at the figure of a probable loss of STG €190 million arising from his analysis of the cash flow projections which had been created by NAMA. He indicated, however, that the figure could have varied, up or down.
In his report the C&AG raised concerns in relation to a number of assumptions used in arriving at estimates of the net present value of the loans as presented to the NAMA Board. These concerns are highlighted in Paragraphs 116 and 117. Table 7 on Page 48 gives a concise reconciliation of NAMA’s and the C&AG’s valuations.
However, it must be stated that the overall actual loss incurred on the sale of Project Eagle was STG €162 million.
The NAMA Board was not informed of the extent of the financial loss which would be recorded in NAMA’s accounts as a result of setting the minimum reserve price of STG £1.3 billion.
When the Board was deciding to set its minimum price they already had an indicative offer on the table from PIMCO. When you compare the PIMCO offer to the actual sales process approved by NAMA, there are remarkable similarities in terms of: sales strategy, sales price, sales process and financial conditions.
I believe that NAMA was influenced by the PIMCO offer when deciding on the minimum reserve price and key elements of the sales process.
On the 13th February 2014 there were media reports on PIMCO’s approach to NAMA. Following this loss of confidentiality, NAMA/Lazard refused entry to 8 of 10 firms expressing an interest in joining the sales process.
It should be noted that Fortress was one of the two firms admitted into the process at that time and ultimately only Fortress and Cerberus submitted bids for Project Eagle.
The NAMA Board on the 3rd April 2014 considered a paper comparing the two bids from Cerberus and Fortress. The Fortress bid was £155 million below the reserve price. The Cerberus bid was £11 million above the reserve pric. The Board agreed to continue negotiations with Cerberus with a view to closing the Project Eagle sale.
Lazard, NAMA’s loan sale advisor, provided a report to NAMA which referred to a number of restrictions on the sales process. This combined with Lazard’s limited role has to be taken into consideration when reading the letter of comfort that Lazard ultimately provided to NAMA in relation to the sales process.
In relation to market valuations NAMA provided a letter in May 2016 which included definitions of market value from three reputable bodies. All three definitions shared a common theme that the market value ultimately requires willing participants and a well-designed sales process.
The Committee is firmly of the view that the sale of Project Eagle was not a well designed sales process and accordingly these definitions of market value are not relevant to the sale of Project Eagle.
It is the view of the Committee that the sales strategy pursued by NAMA included restrictions of such significance that the strategy could be described as seriously deficient. It is, therefore, the opinion of the Committee that NAMA has been unable to demonstrate that by pursuing such a strategy that it got value for money for the Irish State in relation to the price achieved.
NAMA is accountable to the Public Accounts Committee.
Accordingly the level and standard of public accountability is determined by the Public Accounts Committee and not by NAMA.
For there to be satisfactory public accountability it is essential that the Public Accounts Committee be provided with information on the reasoning and factors taken into consideration when decisions were arrived at regarding the sale of Project Eagle.
The decision to destroy and not retain contemporaneous notes of Board meetings has undermined NAMA’s ability to explain and account satisfactorily to the Public Accounts Committee in relation to its decision making processes.
The full report can be accessed here: