Project Eagle has opened can of worms for Nama
When two arms of the State go head to head, inevitably it's damaging. Both can't be right. But it's difficult to know who to believe when opposing views are advanced, and public confidence is undermined by the conflict.
The clash arises in relation to the Project Eagle sale, when a swathe of Ireland's assets was bought by a US investment fund.
Did we receive a fair price under prevailing conditions - or were we fleeced?
Rightly or wrongly, the public's instinct is to smell a rat with the vendor acting on the State's behalf, the National Asset Management Agency (Nama).
A certain unease about Nama predates this critical review of the Project Eagle deal. And the reason centres on Nama's secrecy policy.
Nama is the bad bank with good intentions: to flog off sour loans and funnel cash into the Exchequer. But how can trust truly be given to an agency where we don't know what goes on behind closed doors? 'Nama knows best' is its default position.
The report by the Office of the Comptroller and Auditor General (C&AG) claims the State lost some €220m because Nama sold Project Eagle loans cheap to US fund Cerberus in 2014. It also questions how the deal was marketed, saying competition levels were reduced.
Springing to counter-attack, Nama suggests the C&AG lacks the competency to assess the deal - Nama's single biggest one - and should have used international expertise.
If the C&AG believes a huge property portfolio was sold for a knockdown price, it has a duty to say so. Nama's retaliatory hostility reflects how destructive this review is to the asset management vehicle's credibility.
The C&AG is questioning the discount rate applied to the property portfolio, set at 10pc. It says the usual markdown was 5.5pc. Nama insists the 10pc discount was appropriate because market conditions in the North were less enticing to buyers compared with England and the Republic.
At the crux of the dispute is a concept called 'time value of money' - more easily understood as weighing a bird in the hand versus two in the bush. That's a judgement call depending on prevailing circumstances, and Nama may well have cut a good deal by achieving around €1.6bn for properties with a €6bn book value, all things considered. Some say Nama shouldn't have sold Project Eagle en bloc but broken up the assets. Again, that's a judgement call.
But Nama is on shaky ground over its former advisor Frank Cushnahan. He is under investigation for illegally receiving a £7m fixer's fee from Cerberus (princely spoils by anyone's standards) and on suspicion of driving down the price realised for Northern Irish properties.
The Belfast businessman is a friend of senior DUP politician Sammy Wilson, who put him on Nama's Northern advisory board set up to allay Stormont fears about a property fire sale.
Nama says Mr Cushnahan was not privy to commercially sensitive information. But it ignored a red flag hoisted about him before the Project Eagle sale was agreed.
Comptroller and Auditor General Seamus McCarthy criticises Nama's lacklustre response when it learned Mr Cushnahan stood to receive a fee from one of the bidders. He should have been removed in disgrace from the advisory board - instead he stayed on and transferred his services to another bidder, Cerberus.
Nama mismanaged that conflict of interest. Which begs the question, any other red flags overlooked in different deals? We're back to the opaque nature of the agency's transactions.
A statutory investigation into Project Eagle will now be undertaken here. Project Eagle is also being probed in the US and UK amid allegations of financial impropriety. Nama insists if there was wrongdoing, it happened on the buy rather than sell side.
However, public readiness to believe the worst of Nama is a reminder of how peculiarly disliked is this arm of the State. To my mind, that's down to its lack of transparency. It operates like a bank citing customer confidentiality, while conducting its business with State assets and money.
The public has never been allowed sight of how much Nama lost on developers' loans. It didn't become subject to Freedom of Information until 2014, and even now won't release what it deems to be commercially sensitive information.
This does not mean it is automatically in the wrong over Project Eagle. Nama's chair Frank Daly maintains Ireland was fortunate to sell the portfolio of some 850 commercial properties pre-Brexit and achieve the price it did. He has a point.
In the aftermath of the 'leave' vote, commercial property is stagnant in Britain and Northern Ireland is not exempt. Commercial property is particularly vulnerable to economic uncertainty. Of course, the only way to really test Mr Daly's good value assertion is by putting the assets on the block again.
However, let's remember Nama's brief was to take bad loans off banks' balance sheets to put a floor under the freefalling property market. It would then offload loans for the best achievable price and raise desperately-needed revenue for the State. Its mandate was to put assets on the market quickly, not sit on them waiting for an economic recovery, or act as the landlord of an enormous letting agency.
It started by selling US and UK property loans, where markets were healthier. When the Irish market began recovering, it sold Irish assets. In the sense of revenue generation, Nama has worked. The arguments now are about whether it sold too cheaply. Ah, hindsight.
Although Nama's secrecy is troubling, I believe its chief executive Brendan McDonagh is a diligent public servant. While he is well paid, receiving in excess of €350,000, he manages a portfolio with an original face value of €70bn (Nama bought the loans for €30bn). The agency is expected to return a healthy profit - €2.5bn by current estimates -when it winds up in 2020.
So, the C&AG report is not an investigation into corruption but inefficiency, which depends on a property market reading. But the repercussions spread far beyond Project Eagle.
Here's the rub. If Nama is found to have misjudged that sale, where else was value for money not achieved? Now there's a can of worms.