Mr. Frank Daly:

Chairman and Deputies, we welcome this opportunity to discuss again the Comptroller and Auditor General's special report into the sale of Project Eagle. In his opening comments, the chief executive, Mr Brendan McDonagh, has addressed the major issue of the price achieved for the transaction. In my comments, I will focus on a number of other key issues.

Let me put the whole transaction and the activities of NAMA in context. There has been a lot of discussion of the detail of the sales process over the last few months but it is important not to lose sight of the overall context in which the Project Eagle sale took place. In January 2014, when the board decided in principle to sell the Northern Ireland debtor portfolio, NAMA had almost €23 billion in Government-guaranteed senior debt outstanding. Ireland had just emerged from the troika programme and there was significant uncertainty about the sustainability of the emerging economic, financial and fiscal recovery as the National Treasury Management Agency sought to raise funding in the bond markets to finance the Exchequer. As has been discussed here on a number of occasions, there was pressure to ensure that NAMA’s senior debt was repaid as quickly as possible, not least to enhance the financial position of the major Irish banks and to reduce the contingent liability or position of the State.

Up to that point, NAMA had redeemed €7.5 billion of its senior debt. An opportunity emerged in autumn 2013 - in the form of an offer from PIMCO to buy the Northern Ireland debtor portfolio - which would have enabled NAMA not only to lock down the value of one of the less attractive elements of its overall loan portfolio but also to generate cash proceeds equivalent to one fifth of the total senior debt that had been redeemed over the previous four years. It would have been extraordinary, in the circumstances, if NAMA had not given the offer the most serious consideration as it was obliged to do under sections 10 and 18 of the NAMA Act.

Three years later, that €22.6 billion contingent liability has been reduced to €3.6 billion and we hope to reduce this further before the end of the year. It is important that the committee – and indeed the wider taxpaying community - should appreciate that the €19 billion reduction in the State’s contingent liability could not have been achieved if NAMA had been unwilling or incapable of operating on a commercial basis. Operating on a commercial basis means that one takes advantage of a good opportunity now to sell assets unless one has reason to expect that a better opportunity will come along in two, three or five years’ time.

NAMA proceeds cautiously but a commercial mandate means that one can never allow caution to lapse into decision paralysis. To achieve that scale of deleveraging has required thousands of commercial decisions, none of which could have been made with any degree of certainty as to how prices would evolve in the future. Decisions can only be based on information available at a particular point in time.

Would NAMA have realised more if it had delayed all its sales by one year? Perhaps. Would it have realised more if it had delayed all its sales by two years? Perhaps. Would it have realised more if it had delayed all its sales by five years? Perhaps. One will never know and neither will anyone else.

What NAMA knows is that a combination of developments, including a recovering Irish property market and an influx of international investors into Ireland, provided it with an opportunity to deleverage its risk by selling loans and property collateral and to thereby accelerate the redemption of its senior debt. As of now, 88% of the senior debt has been repaid and NAMA expects that all of the €30.2 billion of guaranteed debt will be repaid by 2018.

If NAMA were operating to its original 2020 horizon to repay all the senior debt rather than to a 2018 horizon, would it have realised more cash from its loans? One will never know and I am not sure that there is much point in speculating. What NAMA sought to do, given the huge debt that it had to deal with, was to reduce that debt on an accelerated but phased basis as market opportunities allowed.

NAMA is now in the fortunate position of dealing with outstanding senior debt of just €3.6 billion, rather than €22.6 billion at the end of 2013. Bearing in mind the significant uncertainties ahead, that is a good position for the State to be in.

There is market speculation that the likely impact of the policies signalled by Mr. Trump is that interest rates will rise faster than expected up to now. That is likely to reduce the attractiveness of property assets to international investors. The flow of international investor funds into property in recent years has been partly due to the relatively high yields available compared to cash and bond yields. A narrowing of the yield differential is likely to reduce investor interest in property. In that context, the big question a commercially informed market analysis would ask is: “Did NAMA get its timing broadly right in reducing the huge contingent exposure of Irish taxpayers to property and has Ireland’s cost of funding benefited correspondingly in the bond markets?” I believe we did and that this has been reflected in the sovereign’s funding costs.

I will now talk a little about Britain. Contrary to suggestions made at earlier hearings, we did not claim that we had foreseen the outcome of the Brexit referendum. What we did was take advantage of favourable market conditions in Britain to reduce our risk exposure to that market on a prudent and commercially sensible basis. According to official statements, the UK economy, after the Brexit vote, appears to be heading for a period of lower growth and reduced investment. News reports last week indicated that land values in central London had fallen by over 10% in the last year and that house prices were 11% below their 2014 peak. Our own analysis suggests the fall in UK prices may be much higher than official estimates. Analysts are forecasting that prices will fall further in the coming years, partly in response to a weakening economy and the likelihood that companies will move staff overseas in response to Brexit. Nobody is suggesting we saw all of this coming; what we are entitled to claim is that our strategy since 2010 has been consistent in acting prudently and commercially and taking advantage of good market conditions when they have prevailed. For that reason, we do not now have to deal with the consequences of a weakening market. Our debtors have only about £800 million in assets located in Britain. At one stage in 2011 we had an exposure in excess of £12 billion to the British and Northern Ireland markets.

I will turn to the issue of PIMCO’s withdrawal from the sale process. Before doing so I wish to address its recent letter to the committee which was read at one of the meetings. It is dated 8 November 2016 and sets out a number of important facts, none of which was disclosed by PIMCO to NAMA in March 2014. The first fact which was not disclosed is that PIMCO was approached by Brown Rudnick and introduced to Mr. Cushnahan in April 2013. The second fact which was not disclosed is that Mr. Cushnahan was one of the organisers of a meeting in May 2013 at which PIMCO met the Northern Ireland First Minister and the Northern Ireland Minister for Finance and Personnel. The third fact which was not disclosed is that PIMCO was approached by Brown Rudnick in June 2013 about a success fee, one third of which was to be paid to Mr. Cushnahan. The fourth fact which was not disclosed is that PIMCO sought confirmations from Brown Rudnick in 2013 as to whether NAMA had been informed of, and had approved, the involvement of Mr. Cushnahan in PIMCO’s proposed transaction. PIMCO’s letter to the committee is materially inaccurate because it states it provided details of these matters for NAMA in a series of calls in March 2014. It did not provide these details for NAMA in March 2014 or at the time of its indicative offers in September or December 2013. At no stage during NAMA’s extensive engagement with it from September 2013 until 10 March 2014 did PIMCO inform it that Mr. Cushnahan was a potential beneficiary of the success fee arrangement proposed to PIMCO by Brown Rudnick. Only PIMCO can explain why it did not tell us about these details and we have written to it to ask why none of these details was disclosed to NAMA at the time.

I wish to outline again NAMA's state of knowledge at the time of the various calls to PIMCO in March 2014. PIMCO first informed NAMA during the conference call on 10 March 2014 of a proposed fee arrangement involving Brown Rudnick, Tughans and Mr. Cushnahan. It asked if NAMA was aware that Mr. Cushnahan was potentially a beneficiary of this arrangement. NAMA confirmed that it was not so aware. For the avoidance of doubt, NAMA only became aware on 14 October 2015, through evidence given by the Northern Ireland First Minister, that Mr. Cushnahan had been involved with PIMCO in the potential purchase of Northern Ireland debtor loans as early as May 2013. The NAMA board, at a meeting on 11 March 2014, considered that the proposed fee arrangement, in so far as it included Mr. Cushnahan, represented a significant issue for it. It requested that this message be conveyed to PIMCO and this was done in a conference call at 11 a.m. on that day. PIMCO was asked to reflect on the matter in view of the board’s view of the significance of the issue. Later on 11 March 2014, during a conference call at 5 p.m., PIMCO indicated that, having reflected on the matter, it was willing to withdraw and, in a call on 12 March 2014, confirmed its withdrawal, stating it believed it did not have any choice other than to withdraw gracefully. In my view, the board, once it was informed of the Cushnahan matter, knew that it was inevitable that PIMCO would have to leave the process and the board provided it with the space to reflect and withdraw. I am in no doubt that had it had made an effort to remain in the process, we would have had to formally remove it, but that did not arise, as by the time of the board meeting on 13 March 2014, it had signalled its withdrawal from the process. In the circumstances, we were pleased that it had.

I do not believe we have rnischaracterised PIMCO’s exit from the process, but even if we have, in our view, nothing turns on it. At its meetings on 11 and 13 March 2014 the board discussed PIMCO's disclosure of 10 March 2014 and whether it did, in fact, wish to remain in the process. On 10 March 2014 PIMCO asked if NAMA was aware of the Mr. Cushnahan fee and indicated that, if it was an issue for NAMA, it would have concerns about continuing to deal with Brown Rudnick, Tughans and Mr. Cushnahan. The only plausible reason for bringing this matter to NAMA’s attention was that PIMCO wanted to receive confirmation from NAMA either that it knew about it or that it was not an issue for it. Presumably, if NAMA had indicated that it had no difficulty with the proposed arrangement, it is likely that PIMCO would, at the very least, have pursued the matter further with the three potential beneficiaries. The board’s reaction to the proposed arrangement - the committee has heard it from various individual board members in recent weeks - was unequivocal. It decided on 11 March 2014 that PIMCO would have to go. I reiterate what I stated to the committee on 9 July 2015 that the board was of the view that if PIMCO did not withdraw, NAMA could not permit it to remain in the process. In other words, if PIMCO had not withdrawn, the board was minded to remove it and would have made a formal decision to that effect.

When it was made clear to PIMCO that the proposed arrangement involving Mr. Cushnahan was a significant issue for NAMA, the only residual question for it was the choreography of its withdrawal from the process. From the board’s perspective, it was preferable that PIMCO leave the process voluntarily rather than we having to make a decision to remove it. The manner of its exit suited both sides. Subsequently, we informed Lazard of PIMCO’s withdrawal, but we did not inform it of the reasons for it. Our key concern at that point was whether PIMCO’s withdrawal was likely to have a serious impact on the level of competitive tension in the process. Lazard advised us that there was sufficient competitive tension in the process with the remaining two bidders. In retrospect, I accept that it would have been better if Lazard had been aware of the real reason for PIMCO’s exit, but we did not regard it as a major commercial issue at the time, given that Lazard considered the post-PIMCO level of competitive tension sufficient. I do not believe the information would have materially changed its advice on the residual level of competitive tension in the process.

As we have repeatedly stated, our primary concern was to ensure that Mr. Cushnahan was not involved in a bid and PIMCO's withdrawal had the effect of achieving that outcome.

I now wish to refer to other options. One issue which has received some attention is the reference in the note of the second call of 11 March at 5 p.m. to a query from the head of asset recovery about other options and his query in respect of whether the deal could be "shaped differently for the arrangement fee to come out". Taking these references in isolation, there has been an attempt to suggest that the head of asset recovery was seeking to persuade PIMCO to remain in the process. That was not at all the case. In raising these queries, the head of asset recovery was following up on the question that PIMCO had raised during the call on 10 March 2014. During that call, Tom Rice said that if it was an issue for NAMA, then PIMCO would have concerns with continuing to deal with the three counterparties and would have to consider whether the business could proceed without the counterparties involved. In order to establish the outcome of PIMCO's consideration of whether the business could proceed without the involvement of the counterparties, the head of asset recovery asked about it in the second call on 11 March 2014. In their letter to the committee of 8 November 2016, PIMCO representatives make reference to NAMA's question on 11 March 2014 but, for some reason, fail to mention that the other options were originally canvassed by them on 10 March 2014. The question from the head of asset recovery was only to clarify, as a matter of fact, what PIMCO's decision was in respect of its consideration of whether the business could proceed as outlined by PIMCO on 10 March 2014.

I will now outline the position on NAMA's response to the report conclusions. There have been comments by a number of committee members to the effect that NAMA has been overly robust in its response to the Comptroller and Auditor General report. I admit that we have been robust and I think we have been subject to very robust questioning at this committee. The reason for our robustness is that we believe there is unfair commentary in the Comptroller and Auditor General report, that the report has questioned our competence and has implied that we failed in our obligations to taxpayers under section 10 of the NAMA Act. Its key finding implies that members of the board and the executive who have extensive commercial experience and expertise set a minimum price for this portfolio which had the effect of locking in a probable loss of £190 million on its sale. According to the Comptroller and Auditor General report, this loss could have been avoided if NAMA had held on to the loans and worked them out over the period to 2020. The NAMA chief executive has pointed out the numerous flaws in the hypothesis grounding the report's conclusion of probable loss. He draws attention again to the fact that the report's reliance on a 5.5% discount rate appears to be based on an incorrect interpretation of a NAMA board decision of June 2013.

The report also concluded that we authorised a sales process which may have failed to identify a market investor with the willingness and capacity to pay more than £1.322 billion for this portfolio. In reaching this conclusion, the report disregards the compelling evidence that the nine firms which were admitted to the sales process accounted for 88% by par value of all European commercial real estate loan sales of large portfolios in excess of €1 billion transacted over the period from 2013 to 2015. The report took no account of Lazard's opinion that there was no evidence that any other investors existed at that time, in quarter 1, 2014, who were as credible and as well qualified such that it appeared that they were in a position to pay a higher price to NAMA than that secured from Cerberus. The report took no account of Lazard's opinion that the process was open to the most qualified and credible potential counterparties. Lazard's view was that there were fewer participants in this process than in some other transactions because there were fewer investors that were sufficiently qualified and credible. I would suggest that the views of NAMA, Lazard and the Department of Finance, all of which have loan sales experience and expertise, should be treated as having strong evidential value in any review of a major loan transaction, especially if no market-based counter-evidence is offered.

We had serious concerns with the key contentions of the report and indeed our response has been robust, but appropriately so in my view. In the circumstances, how else could we have been expected to respond? We are entitled to defend our position. I hope it is not being suggested that NAMA is obliged to accept the conclusions of the report regardless of the agency's views, not to mention the evidence submitted by us and Lazard, which, we believe, casts serious doubt over those conclusions.

We have always tried to run our business to the highest professional and commercial standards over the past seven years and I do not accept the implication of this report that, on this one occasion, the board and executive suffered a major collective lapse in managing our responsibilities which resulted in a probable loss of £190 million of taxpayers' money. My view then and now is that the Project Eagle deal was the best available at the time and no one has come forward with any credible evidence to suggest that a better deal might have been available then or since. I note that Mr. Patrick Long of Lazard stated unequivocally to this committee on Tuesday that Cerberus paid the best price that was available in the market. Our view in 2014 was that the sale of Project Eagle was a good deal for Irish taxpayers and events since then have only reinforced that view.