Oireachtas Joint and Select Committees
Thursday, 14 December 2017
Public Accounts Committee
2016 Annual Report and Appropriation Accounts of the Comptroller and Auditor General
Chapter 3 - Cost of Bank Stabilisation Measures as at the end of 2016
Irish Bank Resolution Corporation Liquidation
Our meeting today is scheduled to deal with two matters: the Comptroller and Auditor General's report of 2016, chapter 3, on the cost of bank stabilisation measures at the end of 2016; and the Irish Bank Resolution Corporation, IBRC, liquidation. We are joined by the following officials from the Department of Finance: Mr. Des Carville, Assistant Secretary, head of the shareholding and advisory division; Mr. Gary Tobin, Assistant Secretary, banking division; Mr. Scott Rankin, deputy head of the shareholding and advisory division; Mr. Gary Hynds, principal officer, equivalent, shareholding and advisory division; Mr. Eoin Dorgan, principal officer, banking division; and Mr. David Tuohy, shareholding and advisory division. They are all very welcome.
I remind members, witnesses and those in the Public Gallery that all mobile phones must be switched off.
I advise the witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If they are directed by the committee to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person or entity, by name or in such a way as to make him, her or it identifiable.
Members are reminded of the provisions within Standing Order 186 that the committee shall also refrain from enquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies.
There is an item we wish to bring to witnesses' attention before we proceed. There were a number of items of correspondence this week on today's meeting that the committee noted earlier. One was received on Tuesday from the Department in regard to our consideration of the liquidation of IBRC. The Department advises us that the matter is now before the High Court. As a result, the Department informed us it could not discuss the liquidation and that because of the case, the liquidators would not be in attendance.
However, we wrote to the liquidators again yesterday, insisting that it should attend, but it has written to say that it is adhering to its legal advice and cannot attend at present. This will be an issue of concern for some members, so I propose that if members want to raise issues on those items of correspondence as part of their contributions they can be given extra time and latitude. We will not count it as a separate item but will deal with it in the contributions they make. Is that agreed?
Mr. Andy Harkness:
In response to the financial crisis in 2008, the State undertook a succession of interrelated measures to stabilise the banking system. The economic impacts of the measures are both complex and long term. Chapter 3 was compiled to provide an estimate, as at end-2016, of the net financial cost of the measures. The chapter updates a previous report which gave the position as at the end of 2014.
The sums involved in recapitalising banks, including covering their losses, are relatively straightforward to identify. Income accruing from the investments, and capital repayments or disposals of investments, are also generally clear. Less easy to identify are the costs incurred by the State in funding the investments, which are substantial. Estimation procedures are required to identify those funding costs, and in arriving at a valuation of the State's residual interest in banking assets.
The results of the examination analysis are summarised in figure 3.1 in the chapter. The overall investment in the banks, including the value of shares accepted in lieu of dividends, totalled €66.8 billion. That resulted in additional State borrowing and the utilisation of State investment funds, at an estimated cost of €14.8 billion up to the end of 2016. Against that were receipts totalling just over €25 billion from disposals of shares, income from the investments, fees for bank liability guarantees and related Central Bank surpluses.
By the end of 2016, the estimated net cost to the State of measures taken to stabilise the banking system was €56.5 billion. When the estimated value at that date of the State’s remaining shareholdings in the banks and NAMA’s projected surplus are taken into account, the estimated net outturn is a cost of around €39.9 billion.
After taking account of the estimated residual value of the State’s holdings in the financial institutions, the estimated net outturn, as at 31 December 2016, for each institution is as shown in figure 1.
We estimated that, up to 31 December 2016, support for the IBRC had cost the State a net €35.8 billion, support for AIB had cost a net €7.9 billion, support for Permanent TSB cost a net €1 billion, and there was a net surplus of €1.8 billion in respect of the State’s support for Bank of Ireland.
The projected €3 billion in receipts arising from the winding up of NAMA offsets a part of those net losses but cannot be attributed across the rescued institutions. I emphasise that all those estimates are at a point in time, and that the final cost of the measures will not be identifiable for some time to come. In particular, the cost of servicing residual banking-related State debt will be an ongoing economic cost. It is estimated that this cost will be around €1.7 billion for 2017. In the longer term, this cost is estimated at between €1 billion and €1.4 billion annually, if the State’s average cost of borrowing is in the range 2.5% to 3.5% a year. To put that in context, the NTMA’s average cost of borrowing was around 3% at end June 2017.
Of course, other factors will also be at play in determining the final overall cost of the stabilisation measures. These will include the amount the State ultimately realises from the disposal of its remaining bank investments, and the period for which the Central Bank continues to hold Government bonds related to redemption of the IBRC promissory notes.
Mr. Des Carville:
I would like to thank the Chairman and his committee for the opportunity to address them this morning. With me this morning are Mr. Gary Tobin, Assistant Secretary General in the banking division in the Department of Finance, Mr. Scott Rankin, deputy head of the shareholding and financial advisory division, Mr. Gary Hynds, senior banking specialist in the shareholding and financial advisory division, Mr Eoin Dorgan, principal officer in the banking division, and Mr. David Tuohy, banking specialist in the shareholding and financial advisory division.
I will focus on chapter 3 of the Comptroller and Auditor General’s report on the accounts of the public service 2016. Chapter 3 of this report deals with the cost of the banking stabilisation measures as at year end 2016. From its invitation to the Department of Finance, I understand that the committee particularly wished to discuss the special liquidation of IBRC and specifically the costs incurred as part of the liquidation. However, as per my letter to the committee dated 12 December 2017, having consulted with the Attorney General’s office, unfortunately we are not in a position to respond to queries concerning the costs associated with the special liquidation given that these matters are now the subject of dispute in the High Court awaiting determination. This is as a result of the Department of Finance being served with a plenary summons on 8 December 2017 seeking declaratory reliefs against the Minister for Finance with regard to a number of matters pertaining to the terms and conditions of remuneration and expenses of the special liquidators and their oversight by the Department. We have shared the plenary summons with the committee so it will appreciate its scope. While the special liquidators were due to attend with us today, their legal advice is that it would not be appropriate for them to be present. We have shared the correspondence between the Department and the special liquidators in this regard with the committee for full transparency.
We are very disappointed and frustrated that we are not able to discuss the costs of the liquidation as this is a topic in which we invest considerable efforts to ensure that the taxpayer is getting value for money. We warmly welcome the committee’s interest in this topic as we recognise that the absolute quantum of fees are, on the face of it, large. It was for this reason that in 2014 the first of four detailed reports were published to provide transparency on the work streams associated with the special liquidation and the associated costs of each of these work streams.
Mr. Des Carville:
Please be assured that the Department and the special liquidators will appear before the committee as soon as the litigation is resolved.
Returning to the Comptroller and Auditor General’s report on the accounts of the public service 2016, chapter 3 of this report sets out an estimate of the net outturn of the banking stabilisation measures taken by the State as at year-end 2016. The gross cost of recapitalising the banking system during the period 2009-2011 stands at €66.8 billion, which was funded through a combination of funding from the Exchequer and National Pension Reserve Fund. Taking into account the cost of servicing the debt to end of 2016 of €14.8 billion and the income earned on investments to the end of 2016 of €25.1 billion, the net cost estimated by the Comptroller and Auditor General was €56.5 billion as at the end of 2016. When the estimated value at that date of the State’s remaining shareholdings in AIB, Bank of Ireland and Permanent TSB - a combined €13.6 billion - and NAMA’s projected surplus of €3 billion are taken into account, the estimated net outturn at the end of 2016 is a cost of around €39.9 billion. This shows a reduction of approximately €3 billion since this analysis was last conducted at the end of 2014, which reflects additional receipts of €5 billion and the recognition of the estimated €3 billion surplus now expected when NAMA winds down in 2020. This was offset by the increase in the cost of debt servicing associated with these investments by €6.1 billion over the period.
At the end of 2016 the value in the State’s shareholdings in the three quoted banks was €13.6 billion. Since then the State realised €3.4 billion from the initial public offering, IPO, of AIB in June this year leaving it with a 71% remaining shareholding in that bank. The IPO of AIB was managed by the Department and was the second largest IPO globally in 2017, the largest in Europe in 2017 and the largest on the London Stock Exchange since 2011 as measured by the level of funds raised.
As of the close of business on 12 December 2017, the market value of our remaining investments in these banks stood at €12.4 billion, indicating a net increase in the value of our shareholdings since the end of 2016 of almost €2.2 billion when the proceeds from the AIB IPO are taken into consideration.
In respect of banking stabilisation-related Central Bank income, for the years 2009 to 2016 the examination by the Comptroller and Auditor General has estimated that in the region of €7.7 billion of the Central Bank's surplus income of €12.5 billion was attributable to financial instruments held as a result of banking stabilisation measures taken by the State. These financial instruments were in the form of exceptional liquidity assistance and Government bonds held by the Central Bank. The report estimates that 97% of the €7.7 billion portion of the Central Bank’s surplus income for the years 2009 to 2016 is attributable to transactions between the Central Bank and IBRC.
Subsequent to the liquidation of IBRC in February 2013, the Central Bank acquired just over €25 billion of floating rate notes, FRNs, and €3.46 billion of fixed rate treasury bonds. Between 2013 and 2016, the Central Bank earned net interest of €2.7 billion from the bonds and realised gains of €3.2 billion from the disposal of some of these bonds. The Central Bank stated in its 2016 annual report that it intends to sell the remaining floating rate bonds as soon as possible, provided conditions of financial stability permit.
As at 13 December 2017, the bank has so far disposed of €9.5 billion nominal of the floating rate notes, significantly exceeding its minimum targets outlined in 2013. While the pace of these disposals is significantly ahead of the minimum schedule, it is positive that the NTMA is locking in current low market rates now rather than some time in the future, at which point rates could be higher. Furthermore, the cancellation of these bonds will also increase the amount of Irish debt that the ECB can purchase in the sovereign debt markets, which should help in further reducing the cost of the State’s borrowing. Notwithstanding these positives, clearly this acceleration needs to balance the negative consequences of the purchase and cancellation which includes the potential creation of excess supply in the market and the forgoing to the State of ongoing Central Bank profits related to these bonds.
The debt-related cost to the State associated with the investments in the bank was in the region of €14.8 billion over the period 2009 to 2016. These costs are estimated by the Comptroller and Auditor General and reflect the additional annual debt servicing costs and other related costs incurred by the State as a result of the borrowings used to invest in the banks.
The Comptroller and Auditor General highlights that the Exchequer continues to incur the cost of servicing the debt associated with the net €56.5 billion cost of the investments in the banks and the report estimates that this cost is likely to be in the region of €1.7 billion for 2017 with over €1 billion of this in respect of IBRC and a further €0.6 billion in respect of AIB. The ongoing annual cost of servicing the debt associated with Permanent TSB is estimated at around €50 million per annum. The State has recouped its investment in Bank of Ireland and therefore incurs no ongoing debt servicing costs in respect of Bank of Ireland.
The long-term cost of servicing the debt associated with the bank investments will depend on a number of factors, including the amount the State realises from its remaining investments; the period for which the Central Bank continues to hold government bonds; and the cost of funding for the State as it refinances existing debt when it matures. The State guaranteed certain bank liabilities under three main schemes, namely, the deposit guarantee scheme, the credit institutions (financial support) scheme, and the eligible liabilities guarantee scheme. By the end of 2016, the State had received net income in the region of €3.7 billion under the schemes with the majority of this relating to the eligible liabilities guarantee scheme. Included in this figure is €280 million received as an interim dividend from the special liquidators of IBRC and it is expected a second interim dividend of €280 million will be received in the next few weeks following the announcement last week of a further 25% payment to admitted unsecured creditors of IBRC.
In respect of NAMA, its board has approved a projected terminal surplus of up to €3 billion over the course of its life, which is dependent on favourable market conditions being maintained when realising remaining assets. This surplus will be paid to the Exchequer to reduce the overall cost of banking stabilising measures.
I thank the Chairman and committee for their attention. I hope members will appreciate that the stance adopted by the Department today is in the interests of protecting the position of the State in the proceedings that have been brought against it. I would welcome any follow-on questions.
I thank Mr. Carville and apologise that I was not here for the commencement of his statement. The first speaker indicated is Deputy Marc MacSharry, followed by Deputies Catherine Murphy, Catherine Connolly and David Cullinane.
We skipped over the correspondence on this so we would have an opportunity to go through it. Can my email be displayed on the screen? The initial correspondence from the Department of Finance to do with the legal issue came in on 12 December. There were two pieces of correspondence that came in after I had emailed my concerns on 13 December. What times on the 13th did they come in? There was one from the Department of Finance, I think, and one from IBRC, the joint special liquidators. Which one came at 15:57? Was that the one from the Department?
That is grand. The other letter came in on the 12th, informing us of the plenary summons seeking declaration reliefs. From my layman's point of view, and I stand to be corrected if I am wrong, a declaration relief is where the Minister is not being sued for money or such recourse. If the person wins the case, the court will make declarations to do with how the liquidation is going. Costs is what the State would lose in the event that the person wins the case. It is unfortunate they took it last Thursday.
When I wrote to raise issues, I wanted to know if we had invited the special joint liquidators individually. I think we did not do so, which is unfortunate. That was what I intended when I raised this last September. The Department of Finance replied on 12 December saying it that in light of developments, the special liquidators would not be coming either. Then we have this email going in and the timing of it. To me, it looks choreographed. I raised the question of why the Department is telling the special liquidators what to do. It is matter for them if they come in. They are not party to these proceedings. They are not named in the proceedings against the Minister. They should be here.
It was implied that the Attorney General was advising them and I raised that point. Then, lo and behold, we got a letter saying they had their own legal advice but they understood the Attorney General was advising the Department of the same. It looks grubby. It looks like there is collusion between the three. Frankly, as is so often the case these days, it looks like this is being used as a device for bodies that are audited by the Comptroller and Auditor General to opt not to answer questions.
While I appreciate on a personal level Mr. Carville's saying he is disappointed he cannot talk about this, I have steam coming out my ears when I hear him say so. The practice we see here is one of avoidance, with bodies saying they cannot answer our questions. Maybe Mr. Carville is being absolutely genuine and I will take him at his word. However, we had education and training boards, ETBs, coming in here saying they would not say anything because of legal advice. We had the Acting Garda Commissioner saying he would not talk about a liaison committee. We had a previous Garda Commissioner referring something to GSOC late at night to avoid answering questions on an issue here.
The Government may as well abolish the Committee of Public Accounts for the disdain and contempt with which it is frequently treated. Ultimately, our responsibility here is not votes. There are not many votes going for being on the Committee of Public Accounts. It is about putting in hours of reading and research to try to pursue things that have nothing to do with one's constituency.
It is about taxpayers' money and, in this instance, it is about €222 million of taxpayers' money as of the end of 2016. Mr. Carville is disappointed that the liquidators cannot come in. I am bound to conclude that there was collusion between the Office of the Attorney General, the Department of Finance and the special liquidators to come in today and say how disappointed they are that something cannot be discussed. There was no stopping whoever it was in the Department who yesterday rushed to tell the Irish Independentthat everything was perfect - a Department official was quoted in an article by Shane Phelan - yet nothing can be said today. I have a serious problem with this. The new way of avoiding questions when appearing at the Committee of Public Accounts is simply to say that one has legal advice and cannot say anything. It is a disgraceful abuse of that term in the Civil Service and in Departments. It is so often the practice. What would one say in here when explaining the expenditure of taxpayers' money that one would not say in the courts? The Department has its legal advice from the Attorney General. The joint special liquidators are saying they have their legal advice. I have mine too.
Notwithstanding what the Chair might tell me as we go, I will proceed to ask my questions. In the event that I am ruled out of order, I will be ruled out of order. However, I see no reason that any question I am about to ask the witness should not be answered. There is no reason whatsoever. I would like him to take that on board. I would also like him to bring back to Merrion Street that I for one, as a member of the Committee of Public Accounts for however long I will be here, will not be putting up with the constant disdain and contempt being shown for this committee, the only constitutional committee of the State where witnesses are under the auspices of the Comptroller and Auditor General and where it is our job to ask questions of them. I know the answer to this but, for the record, why is the Secretary General, the Accounting Officer, not here?
That is fine. We wish him well and a speedy recovery. I do not need a big preamble to justify the position. The committee received the Department's correspondence. Mr. Carville knows my view on it. I only have 20 minutes and I want to get through some pretty pointed questions.
Mr. Des Carville:
May I respond very quickly? We at the Department are hugely frustrated that we cannot talk about this. We did not instigate the litigation. The first we knew of it was when we read about it in The Sunday Business Post on Sunday. We heard something on Friday but we had not received anything formally. We caught up with the paperwork on Monday. We were frantically busy on Monday, Tuesday and Wednesday. First we had to receive the paperwork to understand the contents of the litigation. The committee has seen the plenary summons we received. It is a start. We do not know where this is going to go. We have not received the statement of claim. That will come in a few weeks' time. Putting in our appearances through the Office of the Chief State Solicitor is our next step. I do not know where this is going to go. We have a very good story to tell. I understand the questions the Deputy is asking and the concerns he has in respect of the costs of special liquidation. We absolutely share those concerns. This is a huge amount of money. That is why we published one of four reports back in 2014. That was my idea when I started in the Department in 2014. The Deputy is asking all the right questions and we have answers for them, it is just unfortunate that I cannot share those answers with the committee today.
Mr. Des Carville:
Perhaps. We are speculating. I do not know. I am not going to predict or show my hand in respect of how we will defend the litigation. What I said in my letter of 12 December was that I had requested the special liquidators to accompany me to the meeting. They told me that, in light of developments, they would not be attending. In hindsight, perhaps I could have worded this is a bit more clearly. For the avoidance of doubt, we did not instruct the special liquidators not to attend.
Mr. Carville's letter was specific. It said that in light of the developments the special liquidators would not be attending. It did not say that the Department had told the special liquidators that it was entirely a matter for them. It explicitly said that they were not coming.
I sent an email asking why they were not coming and, lo and behold, we got an email at 5.30 p.m. yesterday evening which had attached the letter the Department sent to them yesterday. At what time yesterday was that letter sent to the special liquidators? We got it at 5.24 p.m.
Again, it looks grubby. It looks like there is a conspiracy not to tell the Committee of Public Accounts anything until the witnesses and the liquidators have had enough time to gather whatever they need to gather up to ensure plausible deniability. That is what we get here repeatedly.
Mr. Carville may not personally, but the collective actions of a number of Departments and State agencies who are audited by and are under the remit of the Comptroller and Auditor General show that contempt. I do not mean Mr. Carville personally. This is not personal, but in practice this is what is happening. I have tabled a number of parliamentary questions in which I have asked for a copy of the contract between the Department and the special liquidators. The answer I received was that this was commercially sensitive information. What is so commercially sensitive about the contract?
The rates per hour were already provided in the response to a parliamentary question tabled by Lucinda Creighton when she was a Member. As that is the case, what would be in it that is commercially sensitive?
Will the witness give me an example? He could say, if there was a contract between Mary and Joe that contract might say X, which would be commercially sensitive. If we know the price per hour and the terms, what is commercially sensitive about the contract that I cannot see?
Will Mr. Carville give me an example of a contract that could be sensitive? Let us say that I am selling him goods and services. If the price is already known, what else could be in that contract which would be commercially sensitive?
I know that Mr. Carville will not tell me what is in the precise contract. That is why I am looking for the contract. I am a bit baffled, however, as to why something would be commercially sensitive. I can understand price being commercially sensitive, because competitors might offer a lower price, but what else in a contract could be commercially sensitive?
Mr. Des Carville:
I am jotting down some things here. Hypothetically speaking, the following could be commercially sensitive: the length of the contract; termination rights of the contract; the ability of one party to resile from the contract; the ability of the other party to resile from the contract; and dispute resolution, for example, if there is a dispute between us and the contracting party, how we arbitrate the dispute. There could be things in a contract around representations and warrantees and so on.
Mr. Des Carville:
That is correct. This is very important. We negotiate contracts with service providers, for example, investment banks. Let us use that as an example. It is a good example because it is similar to hiring an accountancy firm such as KPMG. If we agree certain terms and conditions for a specific contract, it could become a race to the bottom if that contract was publically available. The next investment bank or service provider coming to us would look for those terms and try to chip on those terms again. I am not convinced that is in the interests of taxpayers.
I can clarify that. Documents can be sent to this committee on confidential basis and on the basis that they are not published. We tend to publish much of the correspondence but we receive correspondence that we do not publish. People should be conscious of that.
I do not think it is. I thought Mr. Carville would say that the Department would consult with the Comptroller and Auditor General or legal advisers.
A contracting party is the public – that is the people. I believe they are entitled to know what is in the contract. For that reason, the committee would like to look at it on a confidential basis. It is nothing to do with the special liquidators. Is there a confidentially clause signed for them?
They are the customer of the State. Is that correct? We have engaged the liquidators to do a job. The people on this side of the contract, that is, John Q Citizen and others are entitled to know what the contract is.
None of this is personal. It is adversarial in terms of questioning but Mr. Carville happens to be the conduit for the Department of Finance. It is a matter for the collective and not Mr. Carville personally. Who will Mr. Carville check with?
I suggest - this is a formal proposal - that under the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 we seek to compel the Irish Bank Resolution Corporation joint liquidators to attend the committee after Christmas so that we can help the Department of Finance to ask them to make the contract available to the committee. That would allow us to look at it on behalf of the public. The public has paid €222 million up to the end of 2016.
That committee will decide whether to give us power of compellability.
You are not compelled to be here today, Mr. Carville. You are here in your capacity as an official in the Department. We have not invoked compellability powers. We have to get approval from the Committee on Procedure and Privileges.
Yes, does someone want to second that proposal or think about it whether to refer it to the Committee on Procedure and Privileges? That is the route we go to get compellability. We do not have the power as of right unless we get sanction.
I am making a statement. We are here on behalf of the people. Mr. Carville cannot answer a basic question.
In any normal liquidation – Mr. Carville referred to normal liquidations earlier on – these would be checked and controlled by a committee of inspection under the Companies Act. Is that not correct?
Mr. Carville can understand the frustration of the public with this. As I said, I believe this course has been taken because opportunistically. Since someone took a case last Friday, it has provided an angle for the Department and the liquidators to get out the gap. Given the nature of the case being taken, there is no reason why these questions cannot be answered.
Is there a risk that three accountants charge the top rate for repetitive low-expertise work when one lower-grade employee would suffice?
How would the Department know that? In a normal liquidation the committee of inspection could say that it sees three partners and two juniors working on a given tranche of work at so many hours and at such a cost. The committee may believe one junior would have sufficed for that work.
This is a basic question. Do we have oversight in the Department? Let me put it a different way. Is there expertise in the Department that could challenge something like that? Could someone in the Department decide that a team of three partners and two juniors on a case is too much and that one partner and one junior, or an accounts clerk or one basic chartered accountant would be enough? Does the Department have expertise to challenge that?
That is not ok at all. I asked all of these questions in the parliamentary questions I tabled in September. I got no answers in terms of scrutiny, and this was before any case. That led me to believe there was no scrutiny, particularly without a committee of inspection. I have no reason to think the situation has changed despite the fine expertise of KPMG, the same firm as the liquidator. It is a great firm. The Minister responded and stated should the officials have any queries related to the professional fees associated with the liquidator or other costs incurred the matter would be raised during these update meetings. There are update meetings with the liquidators. Is that correct?
Mr. Des Carville:
We can do more than that. We can issue directions to the special liquidators. My understanding from memory is if we have a problem with a fee we can issue a direction. We are effectively like the High Court or the Taxing Master. That is my understanding. The reason I am slightly hesitant, and perhaps a little too vague for the Deputy's liking on this, is that such a situation has not arisen. If a situation like that had arisen I would be able to articulate it more definitively.
There has been no such direction. I am sorry to conclude this, because I know Mr. Carville did not want to answer the question. There has been no direction to say the Department is not paying that fee because it did not want three partners working on it and it only wanted one.
Mr. Des Carville:
That is the forum. When we are looking at issues, and I am talking not just about fees but the entire special liquidation, if something pops up that is time sensitive we deal with the special liquidators straight away and we communicate with them. For example, the issues about litigation this week are time sensitive. We obviously cannot wait for the next scheduled meeting. We discuss things on a more formal basis at the regular scheduled meetings. It would be natural to expect that to include fees.
Can I ask formally that all minutes of any meetings that took place between a Minister and the officials of the Department on the issue of the costs of the liquidators be provided to the committee, on a confidential basis if this case prevents us from having them publicly? How am I doing?
I do not know Mr. Carville cannot. I have legal advice and he has legal advice and the IBRC has legal advice. It seems to me whatever advice one wants one can get, particularly on something like this. There was a rebate referred to in the liquidator's report for 2016. How was that calculated and negotiated?
Mr. Des Carville:
I am not sure I would characterise it in those terms. When they were appointed, the liquidators had expectations or budgets on costs, and when I think back the work was actually much more complex than any of us envisaged. As the Deputy can appreciate, it is a highly complex and highly involved liquidation. Early on in the liquidation process we asked for a rebate and we received it.
I understand that. It is not the rates per hour. We know those. It is about how many people are working at those rates and who is checking the amount of people per task. How many people are involved and how many hours are they putting into particular tasks, and who is checking that and scrutinising it? In the absence of a committee of inspection I am not sure anybody is. The case being taken prevented me getting the answers I wanted last Friday. I received waffle answers to the 20 parliamentary questions I asked on 9 and 11 September, about having regular updates and meetings and if the Department has issues it can raise them there, and about commercially sensitive stuff that the people are entitled to know, even though we only know the cost per hour. Because of the amount of money involved in this the public is entitled to an awful lot more, and the complexion and choreography of correspondence this week does not give me any confidence that there is not something to see here. What have we got to hide?
The Department had an opportunity, through the Minister, the answer parliamentary questions in September and it did not do so. There is an element of consistency to the position Mr. Carville has taken today and the Department's position then, notwithstanding a case that has intervened in the meantime. I promise I will conclude. Have there been any other rebates?
Mr. Des Carville:
I would like to go back and remind the Deputy that we are very conscious of the level of fees. That is why we have produced four very detailed reports. If there was a committee of inspection, one would not get the equivalent level of information and detail. As a Department, we are very keen on transparency and openness, which is why we have published four reports.
On the issue of transparency and openness, the Department seems to know everything and we know nothing. That is a problem when so much public money is involved. The complexion on this is that the liquidator is paying itself from recoveries and sales. It is writing its own cheque which the Minister signs off after the fact. I know an informal process may exist involving a degree of horse trading on fees but Mr. Carville is telling the committee no direction to reduce fees has been issued to the liquidators. They really pushed the boat out in terms of the bounds of their charitable instincts and give us a rebate of 2.5% on €222 million. I have serious problem with this and I would like to make a further contribution on it.
I reiterate that nothing I have said is personal. Mr. Carville is the conduit on behalf of the Department and I have a job to do on behalf of citizens. He should not take anything personally.
Arising from the exchanges in the past few minutes, I will make a few comments which may help as the meeting proceeds. Mr. Carville stated that €280 million was received in 2016 as an interim dividend, a further 25% payment will be made to the admitted unsecured creditors of IBRC and a further interim dividend of €280 million will be received in the next few weeks. This is all set out in the opening statement. The intention to pay an interim dividend is in the public domain and the witnesses are able to discuss that issue. However, they cannot discuss other matters. Mr. Carville will accept that members of the public may have difficulty understanding the Jesuitical approach being taken. I would like to tease this matter out with him. I note from a letter received from the special liquidator yesterday that representatives of IBRC have been advised not to attend the committee. The Department's letter essentially states that it is advised that officials from the Department will be available to discuss any other matter today. Mr. Carville has been advised not to discuss the issue that is before the courts.
Is he precluded from discussing the issue? Has he been advised that it would better not to discuss it or has he been precluded from discussing it? There is a big difference between being advised not to do something and being told one may not do something. The Department has used the word "advised". My interpretation is that the Attorney General has not told the Department it is precluded from discussing the matter. I take the same reading from the letter from the special liquidator which refers to advice being given not to attend the meeting. There is no indication that he is precluded from attending. Some weeks ago, the chief executive of Wicklow and Kildare Education and Training Board indicated to the committee that he had received advice not to answer questions. The legal adviser to the committee stated that while the chief executive may have received advice to that effect, he was certainly not precluded from answering questions. Is Mr. Carville in the same category of having received advice but not being precluded from discussing the matter or has he been precluded from doing so? Does he understand the difference I am making between being advised and being precluded?
Mr. Des Carville:
I think I do but I am not a lawyer or solicitor and I do not have a legal background. The Chairman used the word "Jesuitical" and I would almost think, in response, that the distinction the Chairman is making is somewhat Jesuitical, with respect. I would have to go back and check the exact form or wording used in the written advice we got from the Office of the Attorney General but it was very clear to me, as a layperson reading it----
I am asking Mr. Carville to have someone immediately check with his office and have a copy of the letter sent to him if he does not have one in front of him. I would be surprised if he came to the meeting without a copy but if he does not have one to hand, he should get somebody to email it to the secretariat or the officials present. Mr. Carville has cited legal advice all morning. We want to know if he has been precluded from discussing the issue or if he has been advised not to do so.
Mr. Des Carville:
My colleague is, if the Chairman will pardon the pun, advising me that the expression used was that we were advised that the interests of the State would be best protected, so "advised" rather than "precluded" is the word used. I am not going to go against legal advice and the Department is not going to go against legal advice from the Attorney General's office.
We would like to be satisfied that the Department has received legal advice not to come but has not been precluded from attending. There is a difference between the two. The education and training board also informed the committee last week that it had been advised not to answer questions, even though there was nothing to preclude it from doing so. This is the second time exactly the same phraseology has been used by witnesses appearing before us. There is a difference. Mr. Carville gets the point.
The legal advisers may have said they had taken charge of the case and Departmental officials may not discuss it. If I was in a car accident, my insurance company would take charge of the case and tell me not to discuss it. That is the insurance company taking charge. We understand the position.
I referred to the second sum of €280 million. Why is Mr. Carville free to discuss these commercial aspects of the liquidation when he is not free to discuss other aspects of it? Where has the Department drawn the line between what it can discuss commercially and what information it can and cannot place in the public arena.
Mr. Des Carville:
In profit and loss terms, I guess it almost the difference between a debit and a credit. The €280 million which we received last year is a receipt from the special liquidators to the State as an unsecured creditor. We are an unsecured creditor to about €1.1 billion or €1.2 billion. The special liquidators have stated they intend or that their expectation is that unsecured creditor claims which are validly accepted by the special liquidators should expect to receive between 75% and 100% of that claim in due course. This is subject to a whole raft of assumptions behind that.
I understand commercial sensitivity, which is a phrase used here all the time. Will Mr. Carville explain why this contract is commercially sensitive? I know it is a commercial contract but I would like an explanation of the reasons it is commercially sensitive.
Mr. Des Carville:
Again, if I can talk in hypothetical terms, any contract like this, particularly for a very large job like this, would be keenly negotiated between the two parties. I think it prejudices our position if we were to make that available because the next person doing something broadly similar would just look for the best possible terms and then try to chip us on other terms. That becomes a downward spiral for us.
I am delighted Mr. Carville said that because it is the gist of what he said the first time. He gave the example of investment banks. His principal rationale for claiming this is commercially sensitive is that there may be another liquidation or something major of this scale in future and he does not want to disclose this information in case it prejudices the State's negotiations the next time around. This is a once-off case for which special legislation was introduced in the Oireachtas and on which the Minister has powers to supersede the normal creditors' committee. Let us hope for everyone's sake that we do not have another one of these cases in our lifetimes. I expect the Department will ensure this does not recur.
The rationale is that this commercially sensitive but there is nothing commercial sensitive. It is commercial and there is no sensitivity involved because the fees are publicly available and the amounts to be paid should also be publicly available. It does not have a knock-on effect because I cannot envisage a similar case arising again, whereas Mr. Carville can envisage another such case where this case could be used as the benchmark. Is the reason this is commercially sensitive that another project of a similar scale could arise and releasing information now could jeopardise negotiations at a future date? It is hardly the case that Mr. Carville is aware of such a case and we are not aware of it.
Mr. Carville must accept that the point on investment banks is not valid because it is a recurring issue. There could be recourse to investment bankers for the sale of more shares in other projects down the road. This is different.
Mr. Des Carville:
There are certain parts of a contract like this that are specific and germane only to this special liquidation, but there are other swathes within the contract that would be common to similar contracts. When I use the phrase "similar contracts", I mean where the State is contracting a third party such as an accountancy or law firm or investment bank. The other side has very sophisticated legal advisers behind it. It is always trying to drive the best deal that it can get. That is fine, because that is what it is entitled to do. Our job and that of our legal advisers is to try to protect the interests of the State, and I believe that disclosure would-----
As of now, Mr. Carville is saying that his job is to protect. That sounds high and mighty, but no one can verify his statement that the Department is protecting the interests of the State by taking this approach, as information is not being published in the public arena. All we have is his uncorroborated word for it. I am not doubting the Department of Finance's word, but we only have its opinion that it is doing its best in its handling of the situation. There is no external verification of that statement.
It sounds light. The Department is protecting the interests of the State, yet we are now hearing that there is a maximum of two whole-time equivalent, WTE, staff dealing with this issue. We waited up all night in the Oireachtas to pass this special emergency legislation for the largest liquidation ever in the history of the State. I examined the figures this morning. The public sector employs 320,000 people across the HSE, education sector, the Civil Service and so on, yet Mr. Carville is telling us that the Department of Finance believes that monitoring this project is worth two WTEs.
Mr. Gary Hynds:
Many of those staff continued that work for some time after the liquidation was enacted. Through 2013 and 2014 when the majority of the special liquidation work was completed, there would have been more staff as well. At this point in time, though, the level of assigned staffing is probably adequate to deal with the day-to-day issues that we are encountering.
I will hand over, but I have other questions to ask first. Mr. Carville mentioned that he would be able to provide us with further information once the litigation process was over. When does he expect that process to end?
Mr. Des Carville:
We are trying to figure that out ourselves. When the plenary summons landed, that was one of the first questions I had as well as the question of what would happen next. Within our team, we have a full-time qualified solicitor who spends an estimated 20% of her time on IBRC. However, I take the Chairman's point. I am moving from two to three with that statement. I have no idea-----
One hundred and seventy-five. We just want the public to be aware that the loss of the liquidation process will be met through the liquidation. The liquidator's first call on everything is his or her own fee. The total cost of the liquidation will be met 100% before any final dividend is paid to the State. The greater the cost, the less the dividend to the State. Now Mr. Carville is telling me that there are 175 cases pending that, depending on their outcomes, will incur a cost for the taxpayer in terms of the dividend the State receives and that the Department has two staff members plus one solicitor working on this matter.
Mr. Carville must understand that, from where we sit, there is a prima facielack of supervision compared with what we would have expected for something involving 175 cases, a liquidation of this scale and all costs being met before the taxpayers get their final dividend. The Department only has two WTE staff and maybe a solicitor working on it. Even if Mr. Carville tells me that one and a half solicitors are working on it, that does not change the complexion from where we sit. He is telling us that everything the Department is doing is to protect the interests of the State in this liquidation, but the staffing complement gives us zero confidence that those interests as they relate to cost are being adequately protected.
I want Mr. Carville to take the point. This is probably the first bit of external scrutiny. Mr. Carville has been congratulating the Department on how well it has been protecting the taxpayer, but my confidence in its ability to do so is diminished if that is the number of staff working on the issue.
Mr. Des Carville:
To be crystal clear, if I believed that I did not have enough staff, I would make my views on it known within the Department. I am satisfied that we have enough staff to deal with what we must do.
The 175 cases are managed by the special liquidators and legal advisers. That was the number at the end of last year. I will cite two figures. One hundred and forty-three cases were pursued against the bank rather than the other way around. As of yesterday, the 175 cases have decreased to 119. The special liquidators are doing their job, that is, managing the way through to litigation. From memory, the figure prior to 175 might have been as high as 500. I have in mind a figure of 350. The number has decreased rapidly.
I mean in the Department, not the liquidator. Five officials are present today. I would have expected someone in the Department to have sufficient knowledge of what was going on to protect the taxpayers' interests and be able to say that, for example, there were ten, 80 or 119 cases in the courts. However, we cannot even be told how many are before the courts. I ask Mr. Carville to get that information.
What is the total gross value of the claims in the cases before the courts? If the cases are before the courts, the claims are published. I would have expected the Department to be a ready reckoner and be able to add the potential cost of the cases up to €X billion. We hope that it will not cost that much. The Department must know the gross contingent liability to the State if all of those cases are successful. Does Mr. Carville have that figure with him?
If the Department is monitoring this and protecting the taxpayers' interests as it claims, he should know the current state of play as regards the gross monetary value of the cases were they to be successful.
If Mr. Carville cannot provide the information today, we will want the details. They are in the public arena if the cases are before the courts. The Department should have them if it is actually protecting the taxpayer. If all of the witnesses can attend this meeting without someone being able to access that figure, Mr. Carville cannot expect us to accept his statement that the Department is protecting the taxpayer when he does not know the extent of the cases.
Mr. Carville gets our point. Based on what is beginning to emerge, we are disappointed with the level of scrutiny and oversight of the process.
My apologies to Deputy Catherine Murphy for cutting in there but as Chairman, I just had to clarify that.
I also want to register serious concern about the committee not being able to discuss this issue today. This has been on our work plan for some months. When one looks at the Comptroller and Auditor General's report, not that one would need to, the one organisation that jumps off the page is IBRC in terms of the totality of what we are dealing with here. We all know and accept that. It is pretty exceptional and if it is ever repeated, I think I will be long gone. One thing that was said around the time of the beef tribunal was that there would have been no need for that tribunal had questions been replied to. I am looking at what has been sought in the courts - monetary remuneration, a transparent process, monitoring the remuneration and expenses sought for and paid, protecting the interests of the taxpayer, properly and effectively assessing and-or monitoring remuneration of the joint special liquidators' expenses sought and paid etc. That is what we are looking for. I do not know how the State can be protected by elongating that process, which is essentially what is happening. If those issues were addressed, the case before the courts would be moot. There would be nothing to answer. I do not understand how the State is protected. The length of time this will take in the courts is indeterminate but judging by the length of time it takes for cases to go through the courts, particularly a case like this one, we are likely to be looking at least 12 months during which time we will not have oversight. The period could be even longer. If this was addressed now, is the State not protected by virtue of the fact that we have transparency and we understand how remuneration is monitored? I really do not understand the logic of that legal advice. In the question posed by the Chairman regarding taking advice and whether the Department was restricted in terms of answering, there is real merit in coming back and actually answering those questions because it may short-circuit the process through the courts and engender far more confidence that the Department is dealing with this matter. That is a comment as opposed to a question but will the Department at least undertake to go back and consider that point with legal advisers because it is not obvious what is being served by delaying this except that the Department answers the questions in the court that it will not answer before the Committee of Public Accounts? Will the Department at least go back and have that discussion with its legal advisers and perhaps with the Minister?
Mr. Des Carville:
In respect of the Deputy's first comment and the general endorsement of claim - I think there are ten different items - I will pick one of the points made. I am trying to be helpful because we must defend this in due course. I agree with things like the declaration that the each and all of the defendants have a duty to ensure there is a transparent process for accounting for the remuneration. There are other ones where the State is accused of failing to do various things. I disagree absolutely with those. The Department is hugely frustrated because we really want to answer the committee's questions. We have a really good story to tell here and we are hugely frustrated that we cannot communicate this today.
In respect of the second point, as this case evolves, we will continually reassess what the legal position is. Let me try this hypothetical scenario. Supposing the plaintiff was thinking of filing this claim today and had an opportunity to hear what we had to say before this committee today, I would like to think that the plaintiff might not file the case tomorrow because they would be satisfied today. Unfortunately, the cart and horse just got transposed in a rather unfortunate way.
It seems to me that the Department's answer is to write down words and ensure it does not answer the questions. When I come back in, I am going to put all the parliamentary questions to Mr. Carville.
I have had a fairly similar experience with regard to another matter in front of an inquiry regarding not answering questions. There is an issue with transparency. Will the Department will go back and talk to its legal advisers and perhaps the Minister about reconsidering the approach it is taking with the committee? If the Department has a good story to tell, why would it not want to tell it? Why would it not want to make the case in court a moot point? Will the Department go back, reconsider this and come back to the committee?
Mr. Des Carville:
I give the Deputy a commitment that we will do so. When the statement of claim is filed by the plaintiff is filed, I hope we will have a better insight into where this is going and what the allegations are. That is the next staging post in terms of the litigation. When we have better visibility regarding that, we will reconsider. I would imagine that we will communicate with the Office of the Attorney General again and receive updated advice.
I will move on to oversight. Mr. Carville said that it involved the equivalent of two people at the moment. It was then stated that prior to that, at the height of it, it involved ten people. I received documents from the Department under the freedom of information process. They were heavily redacted but from what I could make out of the pieces I could read - this goes back to 2014 and 2015 - some of the terminology was that a number of very large transactions were poorly executed. That was after the fact so there was history here relating to how things were handled. The Department sought to put its own person on the board at that stage. Then, of course, the liquidation happened. There was some forewarning of the kind of supervisory role that should have been in place. When the liquidation happened, and some of us were here until whatever hour of the morning it was dealing with the legislation which was very rushed, did the Department consider an oversight provision, for example, the same way as the Comptroller and Auditor General is embedded in NAMA? Was that kind of thing considered or was the special liquidator the only thing that was considered?
Mr. Gary Hynds:
The Deputy asked about the level of oversight given our experience leading up to the liquidation.
The approach adopted by the Department was to ensure there was a liquidation process equivalent to that which the High Court would oversee, with the exception that the Minister is responsible for the oversight provisions rather than the High Court. The role of the special liquidator does not differ from that of a normal liquidator. His responsibility is to deliver the best value for all creditors in a liquidation. That is a tried and trusted structure that is in place. The liquidator stepped into the role of running the bank and effecting transactions from that point on with that in mind, as well as that he has responsibilities to creditors. We cannot get into the detail of the oversight or what the Department does on a day-to-day basis for the reasons set out in the statement of claim.
It had an oversight function in regard to IBRC before that. Documents I received relating to that period indicate that several very large transactions were poorly executed. The Department did not cover itself in glory in respect of its supervision in that regard. Mr. Hynds can understand why consideration might have been given to ensuring some added protection, even for the Department. Was that considered?
Mr. Gary Hynds:
There was a sea change whereby oversight was formerly governed by a relationship framework between the State and the board of management of IBRC, as it was. That completely changed on the date of liquidation, when a liquidation phase began, a liquidator was appointed and our oversight changed in that respect. It is difficult to compare the two periods in that manner. The relationship framework no longer existed and the special liquidators, whose role was akin that of a normal liquidator governed by the High Court, were appointed. Our role was to oversee that rather than the courts for reasons we will get into in due course but currently cannot because of the ongoing case.
I understand that and appreciate that people may have retired or moved on but Mr. Carville is representing the Department and I must, therefore, ask him these questions because I cannot ask those who were responsible at the time. If documents state several large transactions were poorly executed and the Department had a supervisory role at the time, one would think there would be a double protection to ensure that this could not be said of the Department again.
I want to move on to practical matters. According to Mr. Carville's opening statement, "it is expected a second interim dividend of €280 million will be received in the next few weeks following the announcement last week of a further 25% payment to admitted unsecured creditors of IBRC". Is that all unsecured creditors? How many or which creditors were admitted and what was the basis for that?
Mr. Des Carville:
That is a good question. There is a very involved process when a creditor puts in a claim. Special liquidators must ensure that every claim is valid and that all of the paperwork stacks up and so on, which protects the interests of taxpayers. I have the figures to hand in that regard. The liquidators accepted 1,200 claims, rejected 1,000 and 800 are in progress. Those figures are slightly rounded. The most recent update report, issued at the end of February, indicated that 3,000 claims were received and I am just updating those numbers. For the 1,200 accepted claims, if that is the accepted level as at the record date when the special liquidators decide to make the second payment, the creditor will receive 25% of its accepted claim. Some creditors were not accepted when the first payment was made and will receive a catch-up payment to bring them to the 50% level. As soon as a case of the 800 that are in progress is accepted, it will receive a catch-up payment to the 50% level.
Mr. Des Carville:
No, of unsecured creditors. There are two terms. Perhaps the Chairman is thinking of subordinated debt. In the waterfall of creditors, there are unsecured creditors, including the State. If and when all unsecured creditors are paid, the next swathe in the waterfall consists of subordinated debt holders.
Mr. Des Carville:
Sorry. I should have said €300 million. I confused it with the figures in respect of NAMA. There is €300 million in that tranche. After that, the final party in the waterfall is the State as shareholder in the bank.
I apologise for interrupting Deputy Murphy but I want to get clarity on the issue. In terms of money owed, be it unsecured bonds or anything else, there is €1.3 billion owed to unsecured creditors, with the State being owed €1.1 billion of that.
In terms of the €1.3 billion owed to unsecured creditors, €1.1 billion is owed to the State, leaving €200 million. A large chunk of that is owed to various local authorities and the Revenue Commissioners. Let us say that 50% or €100 million is owed to other arms of the State and 50% to external unsecured creditors. Some €300 million is due to unsecured bond holders or whatever phrase Mr. Carville used.
Mr. Gary Hynds:
We cannot get into the detail of the cost of liquidation but secured creditors were ahead of those creditors. Some €14 billion held by NAMA has already been repaid.
Their work encompassed repaying all of that debt and the contingent liability-----
Mr. Des Carville:
The special liquidators have been saying for the past year that their expectation is that they will pay between 75% and 100% of the figure for unsecured creditor claims, but there are a lot of assumptions behind that expectation, a very large one of which concerns the length of the liquidation process and for how much longer it will continue. The special liquidators have to assist the State in various ongoing criminal prosecutions and there are huge discovery exercises. They have to assist the commission of investigation and there is an ongoing interest remediation exercise. They also have to deal with the litigation to which I referred. They have to sell the remaining €3.5 billion worth of loans for whatever they happen to be worth. The biggest swing factor is probably the litigation to which I referred. We focus on the material bits of it because they will move the deal from the State's point of view. We cannot predict beyond the fact that the figure is expected to be between 75% and 100%, but that is subject to change.
I find it objectionable that unsecured or subordinated debt would be repaid. They have been accelerating the sale of the floating rate bonds and are ahead of schedule because of interest rates and the NTMA. We never had the game changer which was related to the promissory notes. Have we fully accepted this and has there been any challenge to it? Is there any follow-up to the commitments that were made but never delivered on? Is it now over for the Department or is it a political issue?
Mr. Des Carville:
The commitment was related to retrospective recapitalisation. When it was mooted as a concept, the world was a different place. We now have a different scenario in which, with the exclusion of IBRC, the shareholdings we have in the banks show on a paper basis a profit of €1.6 billion. A sum of €64 billion was put into the banks. We distinguish between the living and the dead, or liquidated banks, in that regard, of which the latter cost €35 billion as per the report of the Comptroller and Auditor General. A total of €29.4 billion was put into the three living banks which are quoted. We expect to get back more than €29 billion; therefore, it offers a better outcome than retrospective recapitalisation would have.
I can accept that things have changed with AIB and Bank of Ireland, in particular, but IBRC and Irish Nationwide Building Society were a different proposition. Most of us understood the promissory notes represented money that was being extinguished. That was the word used when some of us met the Governor of the Central Bank. I am reminded that Ashoka Mody, one of the people involved on the IMF side in the negotiations for the troika, was quite critical of the way Ireland had been treated. By turning the floating rate or promissory notes into sovereign debt, as we did in the Dáil, although I did not vote in favour of it, is the Department giving up on any prospect of relief on that front?
Mr. Eoin Dorgan:
Direct recapitalisation was a Government policy matter at the time. The then Minister, Deputy Michael Noonan, said in 2016 that the process had been brought to an end. As Mr. Carville said, the returns achieved on the living banks would not justify the investment. As the then Minister said, the process for dealing with the promissory notes reflected the best outcome for the State at the time. A sales schedule has been set out, but it is a matter for the Central Bank to decide independently. It has stated it is committed to disposing of the floating rate notes as soon as possible, provided financial stability conditions permit.
With others, I met Mr. Philip Lane and addressed this issue with him. When we asked him if it would be impossible to address the issue, he said it would be difficult but that it could happen at a political level. Would Mr. Dorgan agree?
No, and not on the Attorney General's side. It is not a reflection on the witnesses but it is certainly a reflection of the Department. I will come back to the general endorsement of claim that is being served and will pick up on a point made by Deputy Murphy on setting out the plaintiff's claim. Mr. Carville agreed with two and he could not disagree with them. There were only eight declarations sought and declarations Nos. 2 and 3 simply set out that the Department has a duty to properly and effectively analyse, assess and so on. There is no problem with that, I presume. There is also a declaration of a transparent process. That leaves six to look at, and we can leave the further or other relief from costs. From the eight declarations, two are conceded, which relate to duty. That leaves us with the other few. As my colleague has stated and I have said repeatedly in the Dáil Chamber, if questions were answered we would not have tribunals of inquiry. The Department has a duty, as it accepts in the declarations. There is a duty to outline to members of this committee that there is value for money. That is not happening at present. The witnesses have taken a vow of omertaor silence on the basis of advice. There is a duty to account to us value for money in everything the Department does.
This is no game. I am not asking the witness to go through the document but I am referring to it because it is on my desk and the witnesses' desk. It clearly put the cat among the pigeons. That somebody would have to take a case to ensure accountability is a serious indictment of the failure of the Department of Finance to show it is open and accountable. These are simple declarations. The witnesses have acknowledged two of them and the Department must account for that. Surely that should be part of the process. The Chairman has already picked up the point about commercial sensitivity.
Let us spell out what we are talking about. It is what I hope will be a once-off liquidation of this nature. It refers to Anglo Irish Bank and Irish Nationwide Building Society. Is that correct? I like clear language. We are talking about Anglo Irish Bank and Irish Nationwide Building Society in this new entity in liquidation. Is that right?
I am glad I am sitting, as €35 billion went into a speculators' bank, as has been acknowledged. It was there for speculation. We nationalised that bank and we are here in 2017 looking at a process of liquidation of what it became when it metamorphosed. Is that correct? How many people have died on our streets since August? Could any of the gentlemen in suits tell us how many people have died on our streets since August? No. That is okay. Let us go back to value for money in the context of not knowing how many people have died on the streets. The witnesses are aware of the housing crisis.
Okay. We come back to value for money, which is the whole purpose of the Comptroller and Auditor General's chapter. It deals with the cost of the banking stabilisation measures and value for money. Has there been value for money in bailing out these institutions, Anglo Irish Bank and Irish Nationwide Building Society? If there is value for money, how have the witnesses come to that conclusion?
I am looking at the chapter dealing with the cost of the bank stabilisation measures for the end of 2016. It seems to be set out there are serious costs in that regard and we are still paying them. These are very simple questions and I tend to be kind of straight and simple, for want of a better word. Figures and monetary terms can be used to overwhelm us. A bank that existed for property speculation is still causing a huge financial cost in 2017. Is that right? Was it worth it and was there value for money?
Mr. Des Carville:
The Deputy must contextualise this in terms of what was happening in the economy at the time. It was a policy matter at the end of the day. I will see if I can explain it to the Deputy as I can understand from where she is coming with the question. It is a good way of looking at it. We had a choice in that period of either bailing out the banks or not doing so. The policy was to bail out all the banks and put the bank guarantee in place. Ultimately, shareholdings would be taken in the banks and there would be investment in contingent convertible capital notes and preference shares etc. The cost of that-----
We are here today at a point where the Department is facing a High Court action to bring accountability. The witness will answer that. I agree with colleagues that I see absolutely no reason it cannot be answered now. The very reason we are here is to see if there was value for money in the general banking stabilisation measures and, within that, the liquidation process. I have no idea why none of the gentlemen present can answer that today. It would short-circuit the High Court action. They have clearly said there was supervision and everything was in place. I see absolutely no commercial sensitivity in this. In any event, it will have to be explained in an open affidavit very soon that we will all be able to read.
I presume the witnesses should tell us the same story as they will tell the High Court in an affidavit. They will set out the process and contract, as well as the mechanisms demonstrating that the process is monitored and supervised for the taxpayer. It will be done in an affidavit. What is the problem with doing it today? Was it discussed with the Attorney General that this would be set out anyway and there could be a run at it today with us?
That is okay. If the Department is prepared to do that, it has to meet the case. My colleague put a question and I am repeating it. Is the Department prepared to come back before us when it has reflected on this?
Mr. Des Carville:
Absolutely. I will reiterate the assurance I gave to Deputy Catherine Murphy. The next material staging post for us in the litigation is when we receive a statement of claim. At that point in time, I will have a better sense of the matter and will be able to consult with our legal advisers, namely, the Office of the Attorney General, and try to ascertain where the case is going. Perhaps, when a statement of claims comes in, some of these points will be dropped. I do not know how litigants-----
The essence of the whole claim relates to monitoring, supervision and accountability. The answer to that is not going to change. It has been stated that everything is under control. However, the witnesses cannot tell us things because they are commercially sensitive or there are legal proceedings.
We have the plenary summons, which sets out the principles of what is being sought. Mr. Carville has no problem with that and agreed openly that the Department has a role, as set out in two of the paragraphs.
I am not asking Mr. Carville to compromise himself. I am simply saying he has acknowledged that two of the bullet points state that he has a role. He has to set that out to us, rather than wait for a statement of claim.
Mr. Des Carville:
I want to set it out. That is why we came before the committee originally, and had to scramble and produce a completely different opening statement in recent days. It is the right of a plaintiff to bring a case like this. That is fine and we have no problem with it but I have to respect the fact that there is a legal process and I have legal advice.
There is a process in the committee, a point which already has been mentioned. I do not accept Mr. Carville's answer. I do not expect him to go through this with me, but he accepts Nos. 2 and 3 concerning the duty and responsibility on the Department. Arising from that duty and responsibility, he has to be able to set out to the committee, at any stage and well before a statement of claim, whether he is complying with that duty. That is the key point. Why he would need a statement of claim or could not reply-----
I understand and I hear what Mr. Carville is telling me, but I disagree with him.
I refer to Chapter 3. We have a problem with banks, in particular Anglo Irish Bank. At some stage the Government nationalised the bank, something it could never do before, which is interesting. It could nationalise a bank to take on debt but not for us to get a benefit from it. That is a story for another day. It might be a cause for reflection in the Department of Finance. We will move on from that. That bank was taken over and a promissory note - which I understand is an IOU - was given. The bank was in serious trouble and was involved in business for the purposes of property speculation. A Government, in its wisdom, decided to write it IOUs. Is that right? Am I wrong?
Anglo Irish Bank brought the IOUs to the Central Bank. It looked on them as good collateral and said it could rely on the Government, and would give the bank money. Is that it? It has taken me a while to get my head around that, with the help of the Comptroller and Auditor General's report. The circular movement of money-----
It is a very good graphic. We will all agree on the graphics and that the bank was a bank of speculators. We agree that the Government wrote an IOU and Anglo Irish Bank took that and went to the Central Bank. It said it would give the bank money to keep it going. In addition, under the IOU the Government had to pay periodic payments to the bank. One can imagine how long it has taken me to get my head around this. A bank was not worth saving but the Government saved it with IOUs. The Government needed to borrow a great deal of money to finance those IOUs. It also raided the pension fund.
That is what I am coming to. I have outlined what happened for myself and for people who are listening. I have not simplified things too much and I have only mentioned one bank. We can fast-forward to 2013 and the liquidation process, which triggered the process to turn the promissory notes into bonds. I ask the witnesses to explain that.
I want to know about the decision-making procedure behind it and why it happened. I want to know about the outstanding promissory notes, which did not become bonds. Most, but not all, of the promissory notes became bonds as a result of the IBRC going into liquidation. Is that correct? It triggered that process.
Mr. Eoin Dorgan:
The point, which was made at the time, was that it was very much a policy decision but could only be facilitated when the Central Bank, as the independent holder of the promissory notes at the time, made a decision. As the Deputy said, they were being used for collateral in terms of the exceptional liquidity assistance extended to IBRC.
It had to be satisfied with what was being exchanged for those promissory notes. As part of the announcement of the promissory note deal, the ECB president and governing council noted the transaction.
Mr. Scott Rankin:
Also, trying to swap the promissory notes for debt while the bank was in operation would have been problematic. The bank would probably have objected to that given that it would have extended the cash flows of which the bank was in receipt. When the bank was a going concern, I do not think it was a runner.
I wish I had a few more hours given what I am hearing. I need an interpreter. The board needed to act in the interest of the bank, so it was not suitable, appropriate or financially rewarding to change the promissory notes into bonds at that point. Is that it?
Speculation is exactly what happened with Anglo Irish Bank. What is the cost at present of servicing the debt that we incurred for the banks? What is the outstanding debt and the cost of servicing that debt per year?
It is important to say that slowly. It is €1.7 billion in the context of us not knowing how many died on the streets since August and a housing and health crisis. It is €1.7 billion on servicing the debt alone for the money borrowed. It is not all of the money used to bail out the bank, just the portion that was borrowed.
The Comptroller and Auditor General is a very fair man. He puts questions as to this being an estimate and so forth. However, I am looking at what has happened here and the cost to the country. It has been clarified by Mr. Rankin. The bank must do what it must do at that time for the purposes of the bank, even though the bank was gone.
I do not have time to discuss all the banks. I was focusing on that one. I am shuddering at what has happened as a result of bailing out that bank and other banks in the manner in which we did. To this day we are still struggling to get accountability for the liquidation of one bank and the costs. Deputy MacSharry has gone into this in detail. People are dying on our streets and a decision was made to bail out a bank that should never have been bailed out. Does that not cause the witness to shudder?
It cannot function without people having homes. Decisions were made to save banks that should not have been saved. In addition, it was under pressure from Europe. I realise the witness cannot comment on that.
I am proposing a break for five minutes as we have been meeting since 9 a.m. We will resume with Deputy Cullinane. Deputy MacSharry and Deputy Catherine Murphy have indicated they wish to speak too. Everyone is entitled to a five minute break at this stage.
Before we call the next group, I am advised that the officials from the Department of Finance have now obtained answers to some questions that were asked earlier in the meeting. After they have provided this information, we will go straight to Deputy Cullinane.
Mr. Gary Hynds:
It was mentioned that there are 119 legal cases. At present, 32 or 33 of them are before the courts. Four of those are large cases. As Mr. Carville mentioned, we have a much greater focus on such cases. We were also asked about the monetary claims in those cases. It is not possible to quantify that at this stage because statements of claim have not been received in many cases.
I join previous speakers in expressing my unhappiness regarding the lack of response and the inability of the accounting officer to answer basic questions about the cost of the liquidation of IBRC. We need to come back to this in more general terms because there is a pattern here. References to commercial sensitivity and legal advice and the outsourcing of some work are creating a barrier between this committee and witnesses and accounting officers. While such officials are not legally compelled to come here and answer questions, there would be an expectation that they would answer basic questions. I would say they are certainly obliged to do so. In recent months, representatives of Nursing Homes Ireland, the HSE, the education and training boards, An Garda Síochána, the Department of Education and Skills, HIQA, the Department of Communications, Climate Action and Environment, the Department of Transport, Tourism and Sport and the Department of Finance - in terms of PPPs - have offered references to commercial sensitivity or legal advice as a cover or cloak to avoid answering what I would see as basic questions. I think we need to come back to it. Deputy MacSharry is right when he asks how we can do our work in such circumstances. I am not putting this as a question to Mr. Carville. I am making an observation and recommending that we should come back to his issue as part of our discussion on our work programme at a later stage. On that subject, will Mr. Carville outline to the committee the nature of the court case that is being taken?
I would imagine that the Department will offer up a defence of itself, and the liquidators will defend themselves against claims that they feel do not stack up or are not factual. Would that be a fair assessment?
Mr. Carville will accept that facts are facts. The amount of money that the Department has spent on the liquidators to date is a fact. If that is a fact, why can that information not be given to us? It is not going to alter or change. It is a matter of fact.
Mr. Des Carville:
I ask the Deputy to bear with me for a moment. I am looking at page 39 of the progress update report, which is dated 5 May 2017. This report and the other three reports are on our website. I need to refamiliarise myself with this document for a moment. The first column relates to the 35-month period to December 2015. It is actually a 47-month period. This is the cost of the liquidation to date. It is right at the bottom of the page. If the Deputy does not have this document, it might be easier for me to share a copy of it with him.
Mr. Des Carville:
The rate per hour is available. We have given this information previously in response to parliamentary questions. The hourly rate is €295 for a partner, €260 for a director, €220 for an associate director, €190 for a manager, €165 for a senior or semi-senior accountant and €95 for a junior accountant. The rate for a trainee accountant is not applicable. We can do something else that is helpful. There are quarter-proved rates. This is one of the things we wanted to get into today. In each of the first five categories, the quarter-proved rate is higher than the rates I have just mentioned, and in some cases substantially higher.
A lot of this information is now the public domain. It has been put on the record of the Committee of Public Accounts. This goes back to a statement made by the Chairman earlier. Why is Mr. Carville not in a position to answer some of the other questions that were asked?
Mr. Des Carville:
I am quiet happy to talk about information that is in the public domain because we will be using it and the plaintiff knows we will be using it. I am not going to show my hand in terms of how I am going to defend litigation. This applies to any litigation. On behalf of the Department, I have been before the High Court, the Supreme Court, the Court of Appeal and the European Court of Justice on litigation. This is no different, in many respects.
Mr. Des Carville:
Sorry, I would like to finish. There is plenty of litigation against the State through the Department of Finance or the Minister for Finance. The approach we are adopting here is entirely consistent with the approach we have adopted in the cases I have mentioned. I am quite happy to talk about this again as long as we can defend our position successfully, which is our objective. As I mentioned to Deputies Catherine Murphy and Connolly earlier, we will revisit this as we go through the process. I am not saying we are going to wait until the very end of this process. If we can get refreshed legal advice that tells me I can talk about this in greater detail, we will act on that. We will let the Chairman and the secretariat know straightaway.
I would like to make another observation. The Department has committed to go back to seek further legal advice. Part of the problem here is that what we get in general terms is a synopsis of the legal advice, which is that these legal issues cannot be dealt with. The parameters of what can and cannot be discussed are never set out for us. We would then have a view that there might be some logic in not answering one set of questions, but no logic in answering another set of questions.
What we get is a blanket or a wall put between us, which is that the Department cannot answer any of the questions and, obviously, we are not privy to the legal advice the Department received.
I think there is a serious problem for the Committee of Public Accounts. The Department said it would come back to the committee once it got legal advice. There is a clear lack of accountability and this goes back in the Department for a long period of time. The Department of Justice and Equality has been under scrutiny for a culture of secrecy. If there is a culture of lack of transparency in any Department, that would worry me. Given what I have seen so far today, I think there is still such a culture in the Department of Finance and I am not happy with it. I am putting that on the record. Mr. Carville has defended his Department and said that is not the case. I am accepting what he said but I am giving him my opinion, which is my personal opinion and not that of the committee. I want to come back to the broader issue later. If Mr. Carville wants to comment, he can do so.
Mr. Des Carville:
We normally produce these in April-May every year. This is a voluntary document. There is no legal requirement for us to publish this document but we published four of them. This was the Department's idea in consultation with the Minister, Deputy Noonan, at the time in 2014. We felt it was a good idea to provide transparency. There is a huge amount of detail in these documents. The latest one is probably lighter than the other ones because there is less work going on now. When we were going through the various loan sale processes, there was a huge wealth of detail in these documents. While I respect what the Deputy is saying, these are voluntary documents. We did not have to produce them and had no obligation whatsoever to do so, and we did.
The problem for us is that many of us have spent a substantial amount of time dealing with what is a distraction that we should not have to deal with. The bodies of the chapters are quite substantial and we have not had, in my view, a fair opportunity to even probe them because we have spent so much time going over and back in respect of this issue. That is problematic. I am going to park that now because I have made my point and the assistant secretary general, if that is Mr. Carville's position-----
That is fine. I will turn to the substantive issue. The gross cost of capitalising the banks, according to the Comptroller and Auditor General's office, is €66.8 billion, the net cost to the State is €39.9 billion and there is an average cost of between €1 billion and €1.4 billion a year to service the associated debt. These are the headline figures in the Comptroller and Auditor General's report. All of this is a consequence of the fact the State essentially recapitalised the banks and, as a consequence of that, nationalised some of these banks as well. Is that correct?
Mr. Des Carville:
Yes. There were 14 banks operating in the country before the crash - I am thinking of retail mortgage banks. Some were owned by foreign subsidiaries, some left the market for various reasons, some closed down, some were sold and two were merged into IBRC, as the Deputy knows. The ones which were predominantly Irish were the three banks posted on the Stock Exchange at the time, Irish Life and Permanent, as it was then called, which is now PTSB-----
Is it fair to say that the vast majority of banks that were operating in this State, certainly the Irish-owned banks, were profitable before the crash? What I am asking is why the Department did not at that point consider nationalising them. What was the rationale for that? Why did the Department not consider it?
It was a policy decision. However, after the crash there was a decision to nationalise them, which came on the back of the bank guarantee. As a consequence of having to recapitalise the banks by investing so much in the banks, the quid pro quowas that the State would become a shareholder and, essentially, would own the banks de facto. That was a consequence of the policy decision that was taken. Is that what Mr. Carville is saying?
Mr. Des Carville:
Some of the banks were nationalised. For the Irish banks, if I can use that expression, although it is an expression I am somewhat uncomfortable with that because they are owned by shareholders, many of whom are outside the State, a policy choice was made to invest in those banks-----
How many other private organisations at that time were the subject of what Mr. Carville is calling stabilisation measures? How many private companies did not go to the wall because they were bailed out by the State, other than the banks?
It was public money. Obviously, Mr. Carville would know about the banks because it is within his remit and the State would have had to bail them out. Other than the banks, is Mr. Carville aware of any other private institutions that were bailed out by the State and got taxpayers' money?
Of course not. Those companies went to the wall because that is what happens. They went to the wall and they were not bailed out by the State. People lost their jobs and people who invested in those companies lost. However, a different attitude was taken to the banks. It goes back to something Mr. Carville said earlier when asked the logic of this. He said he shuddered to think what would have happened had we not bailed out the banks. Of the €66.8 billion of the gross cost of capitalising the banks, how much of that was Anglo debt, or what would now be IBRC?
Was that a systemic bank? Was it a high street bank? Could we put it on par, for example, with Bank of Ireland or Allied Irish Banks? I am not sure if anyone in this room was a customer of Anglo Irish Bank. I certainly was not. It was seen pretty much as a developer's bank and an investor's bank, more than a high street bank for ordinary customers.
Therefore, when Mr. Carville said he shuddered to think what would have happened if we had not taken that decision, it might hold some logic for a fraction of the €66.8 billion that was spent but, for the majority, it would have made no difference. If Anglo had been left to go to the wall and the State did not take up the liabilities, I fail to see how that would have been problematic for the State. I want to check the figure of €1.7 billion was the cost of servicing the debt last year.
That is pretty much just paying the interest. The principal amount is only paid down when the State, for example, sells off the AIB shares and pays off the loan, but the amount we owe stays the same and interest is an annual interest fee that is paid for by the State. Is that correct?
Mr. Des Carville:
I want to develop that slightly because there are actually three buckets, so there are various ways we could recoup the €29 billion that went into what I earlier called the "living banks". When we had debt-like instruments, contingent convertible capital notes, or CoCos, and preference shares, we received interest on those instruments. In the case of AIB, the Deputy might have seen earlier this year it declared its first dividend for nine or ten years, and we received 99% of that, so we receive dividend income as well. We also receive income when we sell the investments.
We have sold the preference shares and CoCos in Bank of Ireland. We have redeemed preference shares in AIB. That is income capital.
Given that most of the money was for Anglo Irish Bank, we can now surmise that, of the €1.7 billion we now pay back on an annual basis - the figure may be higher or lower, but it is within that range-----
The figure the Government uses is 5,000. That number of homes built on an annual basis would resolve the housing crisis. Five thousand homes could be built every year and yet we are spending this money on debt relating to private institutions that we had no legal obligation to bail out, certainly before the bank guarantee. We are talking about a housing crisis that could be sorted and not be a problem if we did not have this debt hanging over us.
I am expressing a view. I am not expecting Mr. Carville to do so. As a citizen, Mr. Carville might have his own view. I am giving him my view, as a citizen. Can Mr. Dorgan tell me the difference between promissory notes and sovereign debt and bonds?
Mr. Eoin Dorgan:
I am not a legal expert, but a promissory note, essentially, to characterise what Deputy Connolly said, is a promise to pay in time. A sovereign bond is very similar in a sense but it is a sovereign debt instrument that has been given out. It is essentially that the State will repay a debt in due course.
When we had the promissory notes, that was essentially a promise that the State would burn the money periodically. Was it not that the Central Bank would literally burn money or take it out of circulation? In other words, it would take whatever the figure was at a given time out of circulation.
Mr. Dorgan might forward to the committee a more detailed note on this matter because it is important. My understanding of the promissory note was that the Central Bank was given permission to print €30 billion or whatever was the amount.
Mr. Scott Rankin:
I am not sure I understand the question, but the promissory note was used as an asset whereby the Central Bank was able to lend money to provide liquidity to the bank. Perhaps that is where the Deputy is coming from, that the Central Bank was creating liquidity by virtue of the fact that it had this as an asset.
Mr. Eoin Dorgan:
To make it absolutely clear, with the promissory note, there was a payment from the Central Fund in 2011 to honour the debt. There was a slightly different arrangement used in 2012, in terms of an issuance of a sovereign bond, effectively, to honour the promissory note payment, but there was a cash payment from the Central Fund in 2011.
That is the point I was making.
I will turn to the NAMA side of it. Am I correct in my understanding of the Comptroller and Auditor General's report - perhaps Mr. Harkness can help me with this - that the gross cost of capitalising the banks was €66.8 billion? Is that separate from the €31.8 billion that was then given to the banks to basically take the bad loans?
Mr. Andy Harkness:
That is correct. The €31.8 billion that NAMA issued in bonds was described as a contingent liability on the Exchequer.
There is a problem where I do not have the information I need. NAMA paid €31.8 billion to banks to purchase property-related loans. What I am seeking is a breakdown of the €31.8 billion went to which banks. How much went to which banks? It is a reasonable question to ask in the context of this report. Unfortunately, the information is not to hand. I need that for my follow-up question. Am I right in saying that Anglo Irish Bank would have got a fair portion of that €31.8 billion?
Can the witnesses tell me what would have been the range of the value of the properties? I refer to those at the top end, namely, the top ten loans that would have been taken over. Would the Department have that breakdown? In the context of the €31.8 billion, the State essentially took the bad loans and paid that amount but the borrowers owed over €74.4 billion. The information I am seeking is the volume of loans in the first instance, the range of what they were and the top ten in value terms.
Mr. Des Carville:
What I do not have in front of me today - but we can get the information for the Deputy very quickly - is the haircuts per bank and the value of loans transferred by bank. The third question the Deputy asked in terms of the top ten loans is not information to which we would have access. We do not have that information.
I am trying to tease out where exactly that money was spent. This goes back to what I was saying earlier. As members of the Committee of Public Accounts, we are working from a report of the Comptroller and Auditor General that gives headline figures. Our job is to probe those figures and conduct a deep dive in terms of where the money went. There is a headline figure of €31.8 billion paid from NAMA to banks, essentially, to take bad loans off the banks' books. I am looking for a breakdown, in the first instance, of how much went to what banks, and the information is not to hand. I am also looking for a range of the value of those loans, and that information is not to hand. Why was that work not done in advance of today's meeting? Surely, Mr. Carville would have understood-----
I am sorry, Mr. Carville, I have not finished my point. Surely, Mr. Carville would have understood that our job today is to probe those figures. We do not just accept the headline figures provided to us as being fine. Our job is to ask questions about such figures. I would expect some level of detail to underpin those figures and I am not hearing it.
Mr. Gary Hynds:
The Comptroller and Auditor General produced another report that dealt exclusively with the acquisition of loan assets and went into that in quite a level of detail. We were not here to talk about that report. We are here to talk about the chapter on stabilisation measures and it does not go into any details in terms of that. We will get the Deputy as much information as we have to hand and then we will follow up with any information we have.
The €31.8 billion, yes. Mr. Hynds is missing my point entirely. What I am saying is that the headline figures are in the report. Our job is to probe beyond the headline figures. In the context of the witnesses saying that they will come back to us at some point, when they do so and provide the information - this is what I said to previous holders of the position of Accounting Officer - we will not be here to discuss it. We will not be here to account for how the money was spent.
Mr. Des Carville:
Sure, but it is a very detailed and very specific question.
It would just be so much better if there was any way of asking that question beforehand so we could come in with the information. It would make our lives and the Deputy's life a lot easier if there was any mechanism for that. The best we can do is get the information - it is publicly available - and send it on.
In any event, it can be called up. We will keep going, but I think the Comptroller and Auditor General covered that in the previous special report on NAMA. I am sure the information is in it. That will follow. The Deputy can come back in.
I will try not to come in again and will try to wind up my end of it now. I thank the witnesses for continuing to be here. I am sorry if at times it is adversarial. As many of us have said, it is not personal; we have a job to do. I have just carried out a Google search in respect of some of these matters and I note that the plaintiff in this case is referred to as the director of the Irish Mortgage Holders Organisation. That individual took a case on the promissory notes in 2013. The case was dismissed because he was deemed not to have standing. Mr. Carville mentioned earlier that he accepted that this case was being brought or whatever. Is it the Department's position that this person, as an advocate for mortgage holders, has standing in respect of this matter?
Mr. Des Carville:
I do not know. That is a legalistic type of question. We only got the paperwork on Monday. We are analysing it. We will work our way through that, but I do not have an answer for the Deputy to that today. I was not aware, by the way, that the plaintiff also took a case in respect of promissory notes.
Neither was I. It is not that I was not listening attentively, but I was researching some matters. The individual in question took a case in respect of the promissory notes which was dismissed on the basis of the State's defence to the effect that he did not have standing. The court ruled that he would have had to be a Deputy. Subsequently, a Deputy took a case and it went that route. In this instance, is it the Department's position that he would have standing?
In the past Mr. Carville worked for KPMG, one of the major firms in the country with a super reputation and so on. While I do not want to focus on him personally, I will ask him to compare something in the private sector with the public sector. Did he work at the level of partner or manager?
I asked how many whole-time staff were involved in the Department's monitoring of the liquidation process. The witnesses were busy telling us what a great job they were doing protecting the taxpayer. I asked for an indication of how many people were doing that and they said it was basically two and maybe a solicitor because of the court cases. Our view was that it was quite light.
Mr. Des Carville:
I should also say that everyone shares information within my division so we can draw on people as and when we need to. If, for example, there is a crisis issue at IBRC - a big issue - I have the ability to move resources around and we do that from time to time. When working on the AIB IPO for example, I will move people from within my division to work exclusively on that; it just depends on where the issues are.
The litigation case is - for the avoidance of any doubt - their case is handled by the special liquidators and their legal advisers, not handled by the Department of Finance.
I wonder what KPMG would charge out if it was doing it. I wonder how many partners, directors, senior directors it would use. I would say it would be billing us more than two whole-time equivalents, a solicitor and a specialist.
It just does not inspire confidence. That is against the backdrop of the parliamentary questions. I said I would refer back to those. One of my parliamentary questions in September related to the frequency of meetings of the committee - these are the update committees. The answer stated that in 2016 there were eight such update meetings. At that stage in 2017 - up to 20 September - there had only been three, but another was planned. To the layperson, that does not inspire confidence. We had eight and now we only have three. If-----
Mr. Des Carville:
I actually have that information in front of me as well. I think this is a really important point the Deputy is getting to. These are formal update meetings. In total, we have had 74. This reflects the work of the special liquidation. We must remember the liquidation started in 2013. This will not be an annualised figure, but I can probably annualise it in my head quickly. As one would expect, in 2013 there were 36 meetings because that was when all the activity was taking place. That was when most of the fees were being incurred. There were 18 meetings in 2014. The difference between 2013 and 2014 and then between 2015, 2016 and 2017 is that €21 billion par-value loans were sold over that period. This was the bulk of work. This was where all the activity was taking place in terms of liquidation. I believe it is entirely appropriate that we step back.
As a result, there were fewer meetings. I am trying to understand the whole process and procedure around liquidation. We move resources when they are required. We have one liquidation specialist, two whole-time equivalents and a solicitor. It is less important to have those formal update meetings in 2017 because the Department is not as busy with that issue as was the case in 2016. It sounds very haphazard to me. That is why we should have the committee of inspection or whatever. Is there a defined process? Is what is supposed to happen written down anywhere in the Department or is it haphazard and generic? For example, what is the process if the Department has a problem with the number of partner hours being associated with a particular task? Does Mr. Carville ring Kieran Wallace or someone else in KPMG to say that he has a problem with something? Are there informal arrangements? Is it that simple? Is it informal or is a process defined?
Mr. Des Carville:
Around fees, I cannot comment in relation to that at this point in time; I will in the future. Around other matters, absolutely, if something emerges, we get information or we have to deal with parliamentary questions or whatever the issues is, the special liquidators are incredibly responsive to us. They are our main point of contact. It is not as if they subcontract the work way down the chain to somebody very junior, we deal with-----
Is there a Department of Finance process and are there procedures written down for the liquidation of the Irish Bank Resolution Corporation, IBRC, for example, whereby periodically one of the staff goes there and someone rings everybody in KPMG to ask these questions? Is there a checklist that is routinely checked or are we depending on parliamentary questions from me or Deputy Catherine Connolly when problems arise?
No one appears to be using them. I do not want to delay on this matter, but I want to go further down the list of parliamentary questions. Mr. Carville called out for Deputy David Cullinane the hourly rate for partners. I want a breakdown of how many partners are being used and for how many hours to perform certain tasks. The Minister, or perhaps the witnesses on his behalf, wrote back to say he had been advised by the special liquidators that these matters were commercially sensitive. Who is driving the bus? If I ask a parliamentary questin on behalf of the people, do we have to check with the special liquidators to find out if it is okay for me to tell the public, our employer, for how many hours the liquidators are being paid to do a certain job? Why would that even appear in a parliamentary question: "I am advised by the special liquidators"? The special liquidators are not advisers. If I get my hair cut, it will cost me €X. I do not need the hairdresser's permission to share the fact that it took a half an hour and cost me €20. That is my business to decide if I want to share the information.
Mr. Des Carville:
We would ask the special liquidators just as we would any other third party if a such parliamentary question was asked how they would feel if we were to share the information with the public at large and if it would damage their business. The special liquidators told us and we were convinced by their explanation that it was commercially sensitive information.
If a freedom of information request was received in the Department for information on Mr. Carville's salary, he would be informed, but the Department would get the information out as quick as it could. However, we are not allowed to tell people how much we are paying for a product or service and how many hours it takes them to do it.
Mine too, but I am saying I am not asked whether it would be all right; I am told that it is being sent. That is the way it should be, but Mr. Carville and I are not getting €222 million. The liquidators are and I think the public are entitled to know. The Comptroller and Auditor General and the Department of Finance have no role in the procurement of the joint special liquidators. If we have all of these powers that trump those of a committee of inspection, why are we not using them? Is it not legitimate for us to say to someone to whom we are paying €222 million that, while we want them to achieve the best value for money on all of the services they are procuring, we want to have an input? However, we have no role in that regard.
The contract is commercially sensitive. We had a lengthy engagement on the basis that we knew the price being paid per hour, but we could not see the contract because it was commercially sensitive. I disagree with this. We are told we cannot have a copy of the indemnity document because it is commercially sensitive too. They were the answers from the Minister last September. He would not tell us whether there had been a fee increase or what staff were assigned to perform each task as the information was commercially sensitive. Minutes of meetings are also described as being commercially sensitive and this was at a time when there was no legal case. I am bound to say that - I am sure the witnesses as individuals are doing extremely difficult and time consuming work - if a case had not been taken last Friday, they would have been sent here today with riding instructions and that we would be listening to the line, "That is commercially sensitive".
Mr. Des Carville:
In due course I can send the Deputy a different opening statement. The opening statement was drafted over several weeks in the expectation that it would be delivered. As I mentioned to the secretariat, I had to scramble in the past couple of days to completely redraft it. I will be very happy in due course to share the original opening statement with the committee and it will definitively prove the stuff about which we wanted to talk. There is no equivocation or hiding in that opening statement in terms of commercial sensitivity. It is the statement the Secretary General was proposing to make.
Is Mr. Carville in a position, notwithstanding the case, to answer the parliamentary questions I asked in September and on which I touched earlier, or will he say it is still claimed the information is commercially sensitive and that he cannot tell me?
Mr. Carville does not have to respect it. What is the definition of "commercially sensitive"? It is something, apparently, that we are allowing the contractor, KPMG, to determine and Mr. Carville is saying, "Fair enough."
Mr. Des Carville:
It has evolved much more than that. I would not like the committee or the Deputy to think we just take something somebody says at face value without probing it. The auditing expression we would have used when training in KPMG once upon a time was "professional scepticism". We apply it to everything we do. Just because somebody says something is commercially sensitive we do not say that is fine. We probe and push to satisfy ourselves that there is a case to be made, but my point about the previous opening statement is that the committee will get a sense of its tone and what we were trying to do in it. In due course we will share that information with the committee when we come back and deliver a different opening statement.
"That, Sir, is as good as cash. I will tell you as soon as it suits me to tell you." Mr. Carville is professionally sceptical; that is his training as an accountant. He studied for many years and was the top of the class. We are trying to be professionally sceptical, but what we are seeing is that there is no defined process and that there are no procedures. We took out the bit that existed in law, in the Companies Acts, in respect of the committee of inspection and are taking refuge in commercial sensitivity. Mr. Carville as much as admitted to me that the concept of commercial sensitivity will still apply.
That is a joke. We cannot allow the public to know how much it is getting for its euro. That is laughable and unacceptable. The committee has a job to do. The Department of Finance is not alone. Time and again departmental officials have queued to tell us that information is commercially sensitive and what is the legal advice, etc. It actually does not matter that Mr. Hall took the case last week because the reality is that Mr. Carville will tell us nothing. He has spoken about the report the Department produces periodically, which is great. I said to another Secretary General last week that we were not here to celebrate all of what the witnesses were doing well. What is contained in the report is great, but we are only interested in finding what can be improved to get better value for money. That is what is missing from the report. Regardless of the case, Mr. Carville has confirmed for me that I need not waste any more time on this issue at the Committee of Public Accounts because witnesses will not tell us because of the commercial sensitivity of information. I have taken up enough time and I am bound to conclude. There is a culture across departmental agencies and organisations audited by the Comptroller and Auditor General which uses evasion and any device within their reach to avoid an appearance or candour at the Committee of Public Accounts and that subverts the people's right to know that they are getting value for money. On the basis of the parliamentary that were not answered in September, the fact that the case was taken last week and what we have just heard, it can be proved that we have no chance of having the level of public scrutiny required of this matter.
We need former staff of IBRC before the committee. I proposed this earlier and the Chairman will come back to it. We need the Secretary General before the committee as soon as he is well. I also believe, while it is not common practice, that the Minister needs to come before the committee to discuss this issue. It is heading for €300 million, it could be €1 billion by the time it is all over and I it is far too much public money for us simply to be told, "We are doing a great job here. You have nothing to worry about." That is simply not good enough. I thank the gentlemen for their attendance. I am not happy.
I want to skip through a number of matters. Mr. Carville talked about the net amount in respect of the cost of the bank, stabilisation measures and capitalisation. I assume that the Department did not include the tax forgone that can be set aside for up to 20 years and which was recently in the news. Has the Department calculated what that might have otherwise been?
Mr. Des Carville:
I will talk about that. Deputy Murphy is talking about the tax losses, the deferred tax assets, that the banks hold. There are probably several important points in this regard, which are often overlooked, unfortunately. First, the banks do pay tax, obviously. Payroll taxes, VAT and so on, so-----
Mr. Des Carville:
The banks pay VAT as well. Second, the banks have a bank levy, which is €150 million per annum. That was put in place in 2014. In last year's Finance Act it was extended to 2021, which amounts to €750 million. Therefore, the banks do pay tax and that has been approved by the Oireachtas. There are a few really important things to note about the tax losses. First of all, tax losses are normal. I think all OECD countries have the concept of tax losses, so there is nothing unusual about the banks having tax losses per seif one imagines other Irish corporates that are tax-resident in this country. Second, we do get value for the deferred tax assets, DTAs, or tax losses. When we value the shareholdings in the banks, the market gives us value for those today. Hypothetically, if we were to eliminate tax losses today, the share prices would fall correspondingly tomorrow.
There is actually nothing similar to big corporates and the banks in these circumstances given that they would not exist if it were not for money that was put in by the National Pensions Reserve Fund and borrowings for which we are going to pay. Therefore, there is a very big difference and it does not appear that there is a Statute of Limitations, even uniquely on the banks, in respect of losses, which seems extraordinary given the investment that was made in the main by citizens, including those who have not even been born yet.
Mr. Carville referred in his opening statement to the initial public offering, IPO, that is, the €3.4 billion. What is the value of those shares today compared with their value when they were sold?
Mr. Des Carville:
Absolutely. It is a very good question. When we make an IPO for the bank, what is important is one must assess our performance when the last share is sold, so the assessment ranges over a period. We own 99.9% of the bank, so one has to assess when the final share is sold, not as we sell, because in capital market terms what we want to do is sell into a rising market. Therefore, every time we sell shares, in an ideal world - it will not work out like this in practice because it will take many years - we will continually sell at a higher price. There are plenty of examples of this not working and examples of it working really well. I am glad to say AIB is one example of it having worked really well. The morning the shares opened on the London and Irish stock markets the share price went up 4.6%. When the markets closed that day the share price was up 5.8% or 5.6%. I think it was 5.8%. A day later it was up 8%, I think, and it stayed at that level for quite some time. Markets since then-----
It just feels a little like roulette. I wish to refer to another sale of shares, namely, the Bank of Ireland shares. A European Parliament report on this has come out just in the last few days. I refer to the hedge fund with which Wilbur Ross was associated in 2011. It bought something like 34% or 35% of the shares after a large amount of money had been injected into Bank of Ireland and it took many people by surprise that they were sold at such a low rate. I think it was about 10 cent. There is an accusation now that when a large amount of the shares were sold in 2014, there was possible insider information and, obviously, insider trading because there was some knowledge of the market moving. Is the Department looking at this again? Is it a concern for the Department? Has there been any discussion about it?
Mr. Des Carville:
There are a few separate topics in the Deputy's questions. I am familiar with the report and the allegation. I am also familiar with Wilbur Ross's very detailed rebuttal of the allegation. I think that should be looked at because it explains the situation very well. At that point in time I was not working in the Department of Finance; I was an adviser to Bank of Ireland. I was Bank of Ireland's sponsor to its listing on the Irish Stock Exchange and co-sponsor, with UBS, to its listing on the London Stock Exchange. I was therefore responsible for the prospectus that was written to support that rights issue in 2010. I was also responsible for a prospectus written in 2011. With that hat on, I am absolutely satisfied, as were the directors of the bank because that is what they state on the first page of the document, that all the information investors needed to make a properly informed decision was in that document. I really do not want to get drawn into allegations because this is a matter between Wilbur Ross and-----
Mr. Des Carville:
It is really important to note that the Department of Finance is not the State organ for investigating insider dealing allegations. In that case, because it is a company on the official list of the Irish Stock Exchange, the Central Bank of Ireland would be responsible, so it is a question more appropriately addressed to the Central Bank.
Mr. Des Carville:
The 10 cent was a deeply discounted rights issue. This is perfectly normal in capital market terms. Any existing shareholder or investor already in the bank can invest at that price and then, to the extent that investors do not take up the pro rataentitlement, one then goes to external investors.
That was really rock bottom. There had been a public investment just before that. One would have expected it to rise from the very bottom at that stage. Has there even been any revision of that decision?
Mr. Scott Rankin:
I will say "repay its debts" then. There were very few people prepared to invest in anything in Ireland, so that transaction was seen as very beneficial to the State at the time. Had the investors from North America not stepped up at that point, we would have had to put another €1 billion into Bank of Ireland.
As Mr. Carville says, it was a matter for Bank of Ireland at the time as to whether it was prepared to allow investors in to do due diligence on the company.
Mr. Des Carville:
I will use an example. I am sure Mr. Ross will not mind me noting this but he has made other investments in the banking space in other parts of Europe that have not been as successful. The point I am making is that investments in equities are inherently risky. I remember in 2011 when the Fairfax consortium, including Wilbur Ross, invested in the country. That was a seminal moment. When we look back and the history of that decade is written, the moment when he and his co-investors took a risk will be regarded as a seminal moment for Ireland. That is when the tide started turning. That was the moment.
I will move on to something else, over which I think there is still a question. Obviously Mr. Mario Draghi is the current President of the European Central Bank, ECB, but he was formerly the Governor of Banca d'Italia. My question relates to the allegations that were made by the then risk manager at UniCredit, Mr. Jonathan Sugarman, who has appeared before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach. Mr. Sugarman went to the Central Bank and disclosed some information in his role as risk manager. We have been told that the central banks share a lot of information. They are subsidiaries of the ECB. Mr. Draghi has flatly denied having any knowledge that there was any risk or that he was aware of anything that was disclosed to the Central Bank of Ireland. Yet, in 2010, the then Minister for Finance, Brian Lenihan, claimed that the Central Bank maintained a close relationship with the ECB. How do we square that circle whereby that information was not shared when it was received? Was it just dismissed? How do we treat whistleblowers? If somebody went to the Central Bank today and disclosed that there was a risk, how would the information be treated? Would it be treated any differently to the way this was treated? Was it disclosed to the Central Bank or would Mr. Carville know that? Is that something that should be pursued with the Central Bank?
Earlier today, the witnesses were saying they could not share information in case it could be commercially sensitive, in case this happens again. I suppose we are all being very careful about making sure it does not happen again and whistleblowers are particularly important from that point of view. I am just looking for the route information takes.
Mr. Eoin Dorgan:
There was a specific instrument for the Central Bank, actually. The Central Bank (Supervision and Enforcement) Act 2013 had a provision for whistleblowers which predated that 2014 Act. The Central Bank views these disclosures as a very important tool for it in regulation and supervision, allowing access to information to which it may not get access.
Mr. Des Carville:
I wish to briefly return to the previous questions. The Deputy asked about the culture around whistleblowers. It is really important to say that within the Department of Finance, we receive training around whistleblowers and what to do if there is a protected disclosure to us. We are very familiar with that at assistant secretary level, and even at principal officer level as well.
Mr. Eoin Dorgan:
No. That is a Central Bank matter. The Central Bank produces an annual report on the number of protected disclosures that are made to it. It is subject to European rules about banking confidentiality. One of the capital requirements directives, CRD, specifies there must be very established gateways for regulatory and supervisory information to flow to other State bodies. That is considered to be a matter for a regulator and then potentially for the Garda or other authorities, depending on what the disclosure is about.
Mr. Des Carville:
A huge amount of work is done behind the scenes for a decision like that. There are at least ten material checkpoints, which must be passed. Everything leads to one word; "valuation". That is the only thing that matters. We start with the programme for partnership Government, which gave us permission to sell up to 25% plus the over-allotment option, which was the extra circa 4% we sold. That gives us 29%. That is a standard feature of a deal like this on the capital markets . About ten different items were involved. I will give the Deputy the list very quickly, because it really-----
Mr. Des Carville:
These are scribbles I made on the bus on the way in this morning. I was just thinking about it, so I am delighted you asked the question.
These items are not in any order. We had to select the selling syndicate, that is, the investment banks that acted on our behalf. We had a huge procurements exercise to make sure we got the best possible advisers. We worked on the listing venue to ensure that the bank was listed. It moved from the junior market in Dublin to the main market in Dublin, as well as to the main market in London. That is a similar arrangement to UK banks, for example. It is really important to buyers on the other side, because they like buying premium-listed companies rather than junior-listed or standard-listed companies.
The bank itself had declared its first dividend and in valuation terms this was an absolute game-changer. We would not have advised the Minister to execute an initial public offering, IPO, if the bank was not paying a dividend. It has that much of a material impact on the valuation of the bank. The bank had also done some work around pension volatility at the end of last year, which is very important from an investor perspective.
We also did our own roadshow. I referred to professional scepticism earlier. Investment banks tell us various things, which sound nice. They want to do a deal because they only get paid if there is a deal. Along with other colleagues including Mr. Rankin and Ms Ann Nolan, the former Second Secretary General to the Department, I travelled to meet a selection of the best investors in the world in London and New York. We satisfied ourselves that they understood the story of AIB, understood the Irish economic situation and were prepared to pay a decent price for the bank.
The bank itself played a huge part in this, in fairness to the chief executive officer, Mr. Bernard Byrne, the chief financial officer, Mr. Mark Bourke, and the rest of the management team. We also attended capital markets day in London. The results came out and we had to assess how the results were received; a week later was capital markets day in London. We all went over to that event and we were in the room for the whole day, talking with the analysts and making sure the offer was resonating.
That was the policy telling the Department to sell and the Department's officials then determined, based on various criteria, the point at which to sell. Did the Government programme determine the time span within which the sale would take place?
Mr. Des Carville:
Yes. Regarding the 25% - the programme for Government figure was up to 25% - a huge amount went into considering why it would be that level. To expand on that, say we picked 5%, then we would still own 95%. We are dealing with very sophisticated buyers on the other side who are paid multiples of what we are paid. They are multiples better than we are whose job is to get the State to pay at the lowest possible price and ours it to ensure that we sell the shares at the highest possible price, bearing in mind that we have other transactions to make and shares to sell. It was very important to us that if we sold 5%, the other side would have felt that was not much to trade and they might look for a liquidity discount. They would think that we have 95% left and they would look for an overhang discount. I could anticipate the valuation falling. The converse would have been true had the programme for Government allowed us to sell 50% or 51%. Then we would look as though we were a distressed seller, and they would want to apply a discount on that or we could have been selling so many shares that the market could not absorb it. As I said in my opening statement, it was the second largest IPO in the world this year. A sum of €3.4 billion is a huge transaction. We had lots of advice, including independent advice from Rothschild, that 25% was the right figure to sell. That is borne out by the share price only rose 4.6% in the first day. It is what we call the Goldilocks zone. It does not get better than that.
Mr. Des Carville:
The Goldilocks zone. That is what we call it. To give the example of another privatisation in the UK, the share price popped 38% in the first day and was followed by several parliamentary investigations. If the share price goes below what we call break issue - that would be below the €4.40 price - that would also be a disaster because we would have sold too high and we would still have 71%.
Mr. Des Carville:
I will expand on this because it is very important. We examined this with Goldman Sachs in 2015. This advice was free of charge, incidentally, as we had Goldman Sachs on retainer for a year free of charge. We examined it again in 2016 when, following a public procurement exercise we appointed Rothschild as our independent financial adviser. This examination considered precisely the question the Deputy raised, along with other questions. Using our own expertise we did our own internal analysis. All three led to the inescapable conclusion that if we were to hold the bank in perpetuity and run it for dividends it would take decades - I think it was 30 years - to recover the money.
Mr. Scott Rankin:
It is also worth remembering that if we have learned nothing in the last ten years it is that bank shares are risky. Government policy is to sell the bank investments, get the money back and use it to do other, more important things. The State would rather it did not hold large investments in the banking sector. The next time there is a recession, and inevitably there will be one, it might be unlikely to happen in the next 12 months but whether it is in three, five, ten years or whenever, bank shares are risky. That is the primary reason why Government policy is to ultimately sell these investments. Stock markets internationally, particularly in the US, appear to be making new highs daily. This stock market rally, or bull market, is very mature, in a few months it will be the longest ever, and we are very conscious of that.
Second, learning that bank shares are risky might be a lesson worth learning but there are many other exercises that are worth learning from the debacle over the last ten years. The wisdom of putting State funds into speculative banks is one very serious lesson, and there are many others, but obviously the witnesses are not policy makers.
My second point related to value for money. I finished before I left the room on my last round of questioning. Eight people have died since August. I knew the figure and I did not wish to say it. I was not trying to catch the officials out over one or two people. I was using it as an indicator of the magnitude of the problem. It has a direct bearing in regard to policy decisions. I was away while Deputy Cullinane was asking his questions. Did we have to save Anglo Irish Bank given that we could not? Looking back, was this a bad decision? Were alternatives considered? Have alternatives been considered since in terms of value for money? What value for money exercise has been done in regard to learning lessons?
Mr. Eoin Dorgan:
On lessons learned, there has been restructuring so that there has been complete change in financial regulation and supervision, both nationally and at EU level. One now sees the use of macroprudential tools and analysis so that banks now must hold higher levels of buffers. The key lesson is the roll-out of bank recovery and resolution plans across all systemic banks so that in future there should be greater protection for taxpayers and bank customers.
That is in the future, and in the meantime, taxpayers cannot get houses, they cannot get healthcare and so on. We know what the problems are, the point is that officials such as the witnesses are making no connection between the two things. We are talking about this language as though it is a special language, which exists independently with no implications. Mr. Carville shuddered at the thought of making a different decision not to save the banks.
It is like Monopoly. I have often used the phrase Monopoly money here. The State did not save that bank. It was a basket case. It was not saved. Is it not the case that what we did was to put money in a circular movement from taxpayers, through the Government, to pay off creditors, bondholders, unsecured bondholders and so on? They were too big to let fail.
Mr. Des Carville:
We may be speaking at cross-purposes because the Deputy is trying to isolate it into one bank and I am speaking about the €64 billion that went into rescuing the Irish banking system in its entirety. I do not know whether a choice or a policy decision not to invest in Anglo Irish Bank would have made a difference.
I will continue on this theme because I am flabbergasted by Mr. Carville's response. I will try to elaborate on my thoughts so that Mr. Carville can help me understand his reasoning.
Mr. Carville said that the reason to invest the €66 billion in the banks to recapitalise them was to save the entirety of the banking system. That would have been the reasoning given at the time the decision was taken. In the context of Anglo Irish Bank, it was one of the few banks that were bailed out and which no longer exists. It was liquidated so it was not saved. When Mr. Carville says that the money was invested to save the banks, in the context of Anglo Irish Bank who exactly was saved?
I am not separating them, I accept that was Mr. Carville's response. I will isolate Anglo Irish Bank from the other banks. We invested €29 billion - invested is the wrong word - but €29 billion was put into Anglo Irish Bank. Who exactly was saved on the back of that €29 billion spend by the taxpayer?
I understand that. Some €29 billion of taxpayers' money was transferred from the State into Anglo Irish Bank. That is a fact. Somebody would have had to sign the cheque for that money and somebody is accountable for that spend. I imagine the Secretary General of the Department of Finance is the Accounting Officer for the transfer of that money.
I understand the policy choice was made but once a policy choice is made and money is then transferred from the public purse, from a Department to an organisation, the Accounting Officer is responsible for that money. Some €29 billion was put into Anglo Irish Bank. I was looking for a breakdown of the €66.8 billion and exactly where that money went. Similar to the NAMA money, what banks specifically got what money? Is that available now? What exactly was that money spent on?
The witnesses are looking at me as if it is a silly question. It is not a silly question. I want the witnesses to explain precisely what €29 billion, a huge amount of taxpayers' money that was put into a private organisation, was used for. I do not want to hear the general term that it was used to recapitalise the bank. The money that was given was used for something. What was it used for?
Bondholders, debt, exactly, so the €29 billion was essentially used to pay off debt, which is the point that I am making. This is a bad bank. It is a developer's bank, essentially, and it is extraordinary that we can make a statement that if that investment was not made, the entirety of the banking system could have collapsed. That might hold some logic if one was talking about Allied Irish Banks, AIB, and Bank of Ireland but one cannot assume that for Anglo Irish Bank.
Mr. Des Carville:
That was the view taken then. With respect, the Deputy has the luxury of being able to look at it in hindsight and see how things played out subsequently. At that point, the policy decision was taken to rescue the Irish banking system through the injection of €64 billion, or €66 billion if it is grossed up, into the system.
I do not know precisely how that €66 billion was spent other than being told it was used by the banks to recapitalise those banks. It would be useful if we could get a breakdown of exactly how that money was spent. For example, which banks got what from the first €66 billion? What was the money used for when the banks were recapitalised? What did they do with the money? Are there reports that we could get a breakdown? The Committee of Inquiry into the Banking Crisis may have gone through all of this. It is an extraordinary amount of taxpayers' money to put into private institutions, which we really had no legal requirement to do but did anyway on the premise that, at the time, a decision was taken that this would have been a massive shock to the economy had we not done it. We can argue or disagree about the degree of shock that would have happened with regard to the different banks involved. I think that the information we have is far too vague and that we need a further breakdown.
Mr. Des Carville:
I can provide that because these are numbers that I think about every day of my working life in the Department. Some €4.7 billion went into the Bank of Ireland. Some €4 billion went into Irish Life and Permanent. Some €20.8 billion, if rounded up, went into AIB. That is €29.4 billion if I remember correctly. The other €35 billion went into what is now IBRC. All we think about every working day in the Department is getting that €29 billion back to the taxpayer.
The biggest amount went to Anglo Irish Bank. I come then to the breakdown I asked for earlier, which relates to NAMA loans that were acquired and the €31.8 billion. We can see that Anglo Irish Bank got-----
Roughly 50%. Half of the €66 billion went into Anglo Irish Bank. Then NAMA was set up and was given €31.8 billion to take the bad loans off the banks. The banks then crystalised losses. The losses are €42.6 billion. In the case of Anglo Irish Bank, it was €21 billion, a majority, and we can maybe question the wisdom of that. What happened when the banks crystalised those losses? How did the banks acquit themselves or deal with those losses?
Back to the recapitalisation, which is a consequence of the fact that, for this particular bank, we took its bad loans and left it with a loss of €21 billion which happens to be 50% of the total amount of the crystalised losses. It then took approximately €29 billion of taxpayers' money which was put into it. At the end of the process, all we got was a broken bank which was liquidated at a cost to the taxpayer and we are being told that this was being done in the national interest and if we had not done it, it would have amounted to the potential collapse of the entire banking system. We actually know that is an incredible leap to make. I do not think one can make that leap, given the kind of bank that Anglo Irish Bank was.
I have watched enough of "Yes, Minister" to know that when Accounting Officers come in, it is a matter of policy and when the Minister comes in, he will say it is an operational matter for the Department. On something as serious as this, when we are talking about huge losses of this magnitude, we would have known this. None of this is new. It is flabbergasting to see the figures involved.
The total losses so far to the State with regard to the overall investment in the banks, bailing out the banks, or whatever terminology one wants to use is €39 billion to date according to the Comptroller and Auditor General.
The net cost to the State. That is going to increase because, year on year, we will have to pay back the interest. That is a moveable figure so it will go up again next year. In five or ten years the figure could be €45 billion.
Mr. Gary Hynds:
Once the remaining stakes are sold, and for the reasons outlined in the Comptroller and Auditor General's opening statement. Once our remaining stakes are sold and we have received the cash from NAMA, all that is left is IBRC and the cost of that.
I am going to make a request for information before we finish. I wish all the witnesses a happy Christmas, and I hope Mr. Carville, who said that he has a chest infection, recovers. I thank him for coming here today despite that.
From the figure at 2.1 which breaks down NAMA's loans we can see the total borrower debt, the NAMA payment for loans, which is the amount that NAMA got. The discount, or loss, is given as a percentage. Can we get a breakdown of each of those? Taxpayers' money was used. If we look at AIB for example, can we get a breakdown of how many loans there were, as well as the range in value? Was the range from €1 million to €500 million? We do not want the client's names, only the range. We would like the same for Anglo Irish Bank and Bank of Ireland. We want this because, if it is the case in Anglo Irish Bank that the volume of loans is, say 100, but 10 of those were very high amounts that add up to 50% of the overall amount, it shows us that we essentially bailed out a very small number of developers. It would be interesting and worthwhile to have that breakdown. The figures to be provided are for each of the banks involved and will show the volume and the range.
Mr. Des Carville:
I would like to believe that is the case. I cannot think of any difficulty. I understand the question. If the Deputy can let us know exactly what he is looking for we will liaise with NAMA on it.
We need an exact wording but we understand the request.
Before the witnesses leave I want to address two things. The promissory note covered ten years and it had seven or eight years left when it became a sovereign bond. When that happened we were told how much we would save in the next ten years because of the reduced interest rate. However, that was only part of the picture. The Department of Finance only put out part of the picture. There is an ongoing interest commitment beyond ten years on that sovereign bond.
The life of the sovereign bond, which is part of our national debt, carries on for a longer period than the life of the promissory note. Can the witness send us a note? He does not need to answer today. Is the estimated interest over the 35 year period?
We will accept what the witnesses and the NTMA believe is the reasonable approach to that question. The promissory note was for ten years, and we are transferring it into a sovereign bond at a lower rate. We are saving a certain amount for the next ten years. The sovereign bond has a life of 35 years, so the interest can only be compared over that 35 year period against what was paid under the promissory note. What is the cost of the promissory note over its full life? Had I asked this question 18 months ago a different interest rate would apply. How would the witnesses answer it as things stand now?
Have the various minutes between the Department of Finance and the special liquidator been examined by the Comptroller and Auditor General?
This is a liquidation, and at the end of any normal liquidation the liquidator produces his report. That is fine; it is the law. However, there is a large amount of taxpayers' money involved here. It is not in the legislation, but there is no independent verification of what the liquidator is doing.
It might be required in future legislation. Perhaps there should be an independent audit. The financial statements should be produced, rather than relying on a process which has court approval at the end, or in the case of the witnesses the Minister approving it. I understand the PMPA liquidation could have went on for over 30 years because people could claim up to the age of 18 and so the liquidation had to be kept open in case claims emerged over the lifetime of minors. Some liquidations can run for decades before they finish. I suspect we might be in that territory in this case.
Insurance is different. My point is that the special liquidator is contracted to the State to do work and it submits a report to the Comptroller and Auditor General when the job is done and that is the end of it. From the point of view of the Committee on Public Accounts we have no method of verifying that what is happening is in line with Government procurement and everything else that goes on. I know that it is not a public sector body. The Comptroller and Auditor General is telling us that he does not have access to the minutes.
I am not asking the Comptroller and Auditor General to take on a special report, but I am just saying that there is no independent person overseeing this. The Department is not independent; it is part of the process.
Most liquidations are in the private sector, outside the remit of the Oireachtas. This one has the same procedure but is carried out in a publically owned body. I am trying to separate the two. There is no method for intermittent independent reports on the liquidation process. It might be said that is not provided for, but there would be a benefit if there was an equivalent independent audit produced at the end of each year, especially when a liquidation is likely to span several years. When the special liquidator gives his report to the Comptroller and Auditor General it is published, and nobody has any way of knowing if it is true or not. That is probably why this case is going on at the moment. There is a missing link in terms of public accountability when a public, State owned organisation is being liquidated, compared to the private sector. That is my observation.
Mr. Des Carville:
Having come from the private sector to the public sector I recognise the responsibility in the public sector. We have the ability to impose legislation, provided the Oireachtas approves it. If I or my colleagues felt that we were missing something or that the IBRC Act was somehow deficient with the benefit of hindsight because it was done at a particular point in time it would be incumbent on us to put our hands up and say that we think that additional powers are required. We are not in that place, and we do not believe additional powers are required.
Protect the bona fides is what you are saying. That is a little like the Higher Education Authority saying, "We are happy with how the universities are running their business and there is no need for formal reports to the committee. If we were not happy we would flag that". That is fine and we accept your bona fides, but that does not give us any comfort. We are relying on believing what you are saying. We have no way of verifying what you have said. That is the point.
Mr. Des Carville:
I understand. I hope you get our frustration regarding how we cannot communicate better today. Hopefully, your concerns will be substantially mitigated when we can talk freely about what we are doing. The special liquidators were due to appear with us today. We did not have to ask or compel them. They were quite happy to come here because they believe they have a good story to tell. They will be here with us in due course, but I do not know when that will be. We look forward to that day.
I will make a last comment. You should consider the point that some Deputies made today regarding some of the information being sought. If some of that was going to made available here today, there is a case for putting part of that out in the public domain. You do not have to hold it all just to get to the court. Some of it is available and could be dealt with. I am not advising you on your strategy but you have heard the view of some members. If some of this can be put out in public, and there is nothing preventing that, you should not wait until you are on the steps of the court to provide it, if it can be done without compromising the case.
I acknowledge the position you are in. I see the two sides of the story. However, it is the job of the Committee of Public Accounts to interrogate you on various issues.
At this point, on behalf of the committee I thank all the witnesses for participating in the meeting today. We are suspending the public meeting and will meet in private session this afternoon. Our next public meeting will be after the Christmas break so I take this opportunity to extend best wishes for Christmas to the members, all the staff and all the witnesses who have appeared before us in the last year. We will see some of you again next year.