Sunday 17 December 2017

NAMA claims C&AG report on Project Eagle 'falls well short'

Left, Brendan McDonagh CEO of Nama with Ronnie Hanna. Photo: Tom Burke
Left, Brendan McDonagh CEO of Nama with Ronnie Hanna. Photo: Tom Burke
Cormac McQuinn

Cormac McQuinn

NAMA has claimed that the Comptroller and Auditor General's (C&AG) report on Project Eagle "falls well short" being supported by "convincing, formidable and sufficient evidence".

The remarks were made by chief executive Brendan McDonagh before TDs at the Dáil's Public Accounts Committee (PAC) this afternoon.

Nama chairman Frank Daly is also being quizzed this afternoon.

The C&AG Seamus McCarthy appeared before the Committee earlier where he made a robust defence of his office's report and expertise.

The C&AG’s report into Project Eagle - the sale of Nama's Northern Ireland loan book - found that agency incurred a potential loss to the taxpayer of £190m (€223m) in the deal.

Nama has rejected the findings claiming it’s based on an incorrect assumption of the discount rate used in the sale. It also criticised the C&AG probe saying it was carried out by staff with no market experience of loan sales.

Nama chief executive Brendan McDonagh today said it's "remarkable" that the C&AG report does "not form any view on value for money" but still says that "the decision to sell the loans at a minimum price of £1.3bn involved a significant probable loss of value to the State.”

He said he will focus on this remark "which NAMA very emphatically rejects".

He said that the C&AG’s view is that a discount rate of 5.5pc would have been appropriate to derive the market value of the Project Eagle portfolio.

Mr McDonagh added: "Not only does the report fail to provide any market or expert support for this view but it inexplicably ignores strong market evidence from international loan sales experts which would have supported the use of a discount rate in the 10pc-15pc range."

He said Nama's view is supported by expert market evidence from four internationally recognised loan sales experts.

"The positions on this issue are very stark: Nama and the loan sales market have one view on the appropriate discount rate; the C&AG report appears to be alone in its view.

"It would not have been difficult for the report’s authors to have consulted market experts on this crucial point – something the Nama Board requested them to do. For some reason, however, this was not done," Mr McDonagh said.

He said it would be "clearly absurd if Nama’s commercial activity were to be driven by accounting valuations rather than by real world values."

"In effect, the practical consequence of the position now adopted by this report is that Nama would never have sold the Eagle portfolio or any other similar loan portfolio if the market value failed to match Nama’s accounting value.

"It is worth bearing in mind that an accounting value is no more than a provisional estimate of value until confirmed or otherwise amended by evidence of market value."

He said it's difficult to understand why the C&AG did not use external expertise in examining the case of Project Eagle when it had done on previous occasions.

"The area of loan sales is very much a specialist area and is not one on which the C&AG’s staff could reasonably be expected to have detailed expertise. There would have been nothing wrong in acknowledging that fact," he added.

Mr McDonagh concluded his statement saying: "A report which is prepared to make such a resounding and serious comment must be properly supported by convincing, formidable and sufficient evidence.

"Evidence that is based on accepted market valuation methodology. Evidence that would be accepted by market experts. Evidence based on market comparators."

"Unfortunately, the evidence produced in this report falls well short on all of these counts."

Mr Daly said that Nama is satisfied now as it was in April 2014, that the £1.322bn sale price achieved for Project Eagle was "the best price achievable".

"If we were selling Eagle today, we would be very unlikely to match that price, " he added.

He said that there was “heightened political sensitivity” regarding Nama’s work in the North and there was a concern a fully open sale process which would “freeze activity” there for months.

Mr Daly referred to the minutes of a January 2014 phone call between Finance Minister Michael Noonan and politicians in the North in which Mr Noonan agreed that “confidentiality was important”.

"But it is clear also that from the beginning the Minister for Finance understood and supported Nama’s policy in regard to open marketing."

He also said he wanted to address "the suggestion that the Nama Board should have halted the sale when it became aware in March 2014 of Pimco’s proposed fee arrangement with Frank Cushnahan," a former Nama adviser.

He said this wasn't "a straightforward or easy decision."

Mr Daly said that on the one hand Nama had discovered that an individual who appeared to be respected in the business community in the north, who served on the agency's Northern Ireland Advisory Committee (NIAC) and was "strongly endorsed" by the Northern Ireland Government "was also involved with Pimco’s bid."

Pimco ultimately pulled out of the deal. Mr Cushnahan denies any wrongdoing.

Mr Daly said Nama had to "weigh up the potentially serious costs and consequences" for Nama, other State-owned banks and for the sovereign of halting a major loan sale, particularly at such a late stage in the process when investors were fully engaged and committed.

"Would Ireland’s reputation suffer if the first major loan sale by Ireland’s asset management agency were pulled?," he asked.

"Our judgement then, and one that we stand over, was that the interests of Irish taxpayers took precedence. Commercially, we considered that there was a compelling case for selling this portfolio," Mr Daly said.

The Nama chairman also defended Ronnie Hanna, the agency’s former head of asset management.

Mr Hanna was named in the Dáil by Independent TD Mick Wallace as one of two men arrested by the UK’s National Crime Agency (NCA) which has been probing the sale.

Mr Cushnahan was also arrested by the NCA. Both men deny the allegations against them. A BBC documentary broadcast a secret recording in which Mr Cushnahan claimed he was able to exert influence over Mr Hanna. Mr Cushnahan was recorded receiving a bag with Stg£40,000 from property developer and Nama debtor John Miskelly. He appeared to suggest Mr Hanna could help him extract loans belonging to Mr Miskelly out of Nama and divert them back to the Co Down businessman.

Mr Daly told TDs that none of those making allegations about Mr Hanna “has produced evidence to substantiate these allegations”.

The C&AG Mr McCarthy appeared before TDs this morning and made a strong defence of his report.

Mr McCarthy said that the £190m figure that the report came to represents a "probable loss".

He said it would be "impossible" to say for sure if it is the ultimate figure and that there is could be a "margin" around it.

He has insisted that the team he appointed are "all qualified accountants, with significant audit and evaluation experience, including audit of Nama."

He said it was led by John Riordan "who has worked on all my Office’s examinations of Nama since its inception."

"I am satisfied that the team tasked to carry out the Project Eagle examination had the requisite skills, knowledge, experience and expertise to do the required work," he added.

Fianna Fáil's Shane Cassells referred to what he described as the "unprecedented standoff" between the C&AG and Nama over the report.

He asked if Mr McCarthy was "standing firm" on its contents amid the "onslaught" against his office.

Mr McCarthy said: I'm happy with the report I've presented".

He acknowledged that there have been "disagreements" however he said he felt it was his "duty" to examine the matter and to publish the report.

Online Editors

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