Mr. Seamus McCarthy:

It was in June 2013, or six months before the paper was put to the board. The board had considered what was the appropriate level of discount to use. We have reproduced the relevant part of that paper on pages 42 and 43. When one reads that, one should consider it in the context of the reduction in NAMA's cost of capital. The tenor of the paper is to question why it was appropriate for NAMA to continue to use a rate as high as 5.5%, and why it should not be reduced, given that its cost of capital had fallen. It argued, for a number of reasons that are laid out in the paper in question, that it was reasonable to continue to use that rate for commercial decision-making by NAMA. We accepted that argument, which was presented to us when we queried why a 5.5% rate was being used.

I have already referred to page 146 of the paper that was put to the board in the context of NAMA's claim that a 10% discount rate should be used to arrive at a net present value for the workout option. That was not raised with us in the course of the examination until June 2016, when NAMA suggested that it would have been appropriate to use a 10% rate. The question that arises in that context is why such a rate was not used in the paper to the board if it was appropriate to use it. Having looked back over it, all previous documentary references to a 10% discount on asset values or to a 10% discount rate are in the context of how potential purchasers would value a loan portfolio and not how a seller should value such a portfolio. I have no difficulty with NAMA's argument that a potential purchaser of a portfolio of distressed assets would have arrived at a bid value based on a 10% or higher discount of asset value. A purchaser would need to have that space in order to make a profit. Equally, I accept that purchasers could have applied a 10% discount rate to their own projected loan cashflows, reflecting their typically higher cost of capital. In the report, we have tried to represent fairly NAMA's position in relation to that and how purchasers would go about valuing a portfolio of assets. We have included in the report all the expert advice that was received by NAMA in 2016, first of all from a number of loan sale advisers and then latterly from KPMG. We have no dispute with it.

The focus in all that advice relates to the use by purchasers of a relatively high discount rate. More recently and in the course of the evidence here, it was not something that was raised with us during the examination. NAMA has pointed out that it used a 10% discount rate in arriving at a fair value for its loans for disclosure in its 2012 and 2013 financial statements. That is absolutely correct but in that context, a fair value estimate is designed to reflect the price that the market would pay NAMA for all of its loans if it had to sell them on the balance sheet date. Again, it is 10% being appropriate when looked at from a purchaser's point of view.

I will conclude by making the following points. I do not accept NAMA's representation of this disagreement as a difference in accounting treatment. Rather, it is a question about economic decision making and the discount rate is relevant to that. It is about how we make choices between alternative ways of handling publicly owned resources. It is not just an esoteric accounting point. A paper which was submitted to the committee in the last week is relevant to this point. The reference is 167 B. This is a document that my office would have received from the chief finance officer when we were finishing the 2013 financial statements around April 2014. It relates to a matter that the Chairman raised when I was here originally, namely, whether there should have been a post balance sheet adjustment of impairment. That was something we discussed with NAMA at the time and this paper was NAMA's response. I wish to draw attention to the part of the paper where the chief finance officer points out that the future potential sale of the Northern Ireland portfolio as a portfolio loan sale was not considered in the impairment calculations at the reporting date, 31 December 2013. In estimating the cashflow of the Northern Ireland debtors, assets disposals would have been anticipated in periods from 2014 to 2020 in line with the existing strategy for NAMA. What NAMA is confirming there is that it had an alternative to selling the portfolio, which was to work out the assets. In the next paragraph of the document, NAMA is saying that the portfolio loan sale is anticipated to generate a loss, on disposal, of £160 million. The discount to carrying value reflects the impact of a sale of the entire portfolio of assets. This discount factor did not arise and would not have been considered as part of the year-end impairment asset as it was anticipated that the Northern Ireland loans would be held for the longer term in line with existing debtor strategies. Therefore, NAMA is of the view that the conditions that generated the loss on disposal did not exist at the reporting date. Effectively, what NAMA is confirming there is that it had a strategy to hold the assets and work them out and that it did not see that it needed to incorporate the loss into the impairment figure at the end of 2013.

Obviously, a lot of points have been raised with the committee around the discount rate. If members have questions relating to it, I would be happy to answer them.