Oireachtas Joint and Select Committees

Thursday, 8 October 2020

Public Accounts Committee

Special Report 109 of the Comptroller and Auditor General: National Asset Management Agency
National Asset Management Agency - Financial Statements 2019

11:30 am

Mr. Brendan McDonagh:

Mr. Brendan McDonagh (Chief Executive, National Asset Management Agency) and Mr. Aidan Williams(Chairman, National Asset Management Agency)called and examined.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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This morning we are engaging with witnesses from the National Asset Management Agency, NAMA. I welcome our witnesses to today’s meeting and thank them for the briefing they have provided to the committee.

The focus of today’s meeting is NAMA’s financial statements for 2019, and the Comptroller and Auditor General's special report 109 on NAMA’s management and disposal of the Project Nantes loans, a matter that was raised with the last Committee of Public Accounts.

With regard to public health guidelines, we are joined in person by Mr. Aidan Williams, chairman, Mr. Brendan McDonagh, chief executive officer, and Mr. Jamie Bourke, head of strategy and communications. We are also joined remotely by Ms Noelle Condon, chief financial officer with the NTMA.

I remind all those in attendance that all mobile phones must be switched off. I also ask that members and witnesses remove their masks when speaking as the masks interfere with the quality of the sound. When members are leaving and taking their seats, I also ask that they sanitise their area.

I wish to 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 in relation to a particular matter and continue to so do, they are entitled thereafter only to a 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 you are asked to respect the parliamentary practice to the effect that, where possible, witnesses should not criticise nor make charges against any person, persons 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 218 that the committee shall also refrain from inquiring 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.

Members are also reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

While we expect witnesses to answer questions asked by the committee clearly and with candour, witnesses can and should expect to be treated fairly and with respect and consideration at all times, in accordance with the witness protocol.

I invite Mr. McCarthy to make his opening statement.

Mr. Seamus McCarthy:

As members are aware, the National Asset Management Agency was established in December 2009. At the outset, it was envisaged that NAMA would have a life of around ten years, and would therefore be winding up in 2020. However, a Department of Finance review published in July 2019 recommended that NAMA continue to work out its residual loans for a limited period beyond 2021. It further recommended that, before the end of 2021, NAMA would submit to the Minister proposals and a plan for the dissolution of the agency.

Because NAMA’s primary purpose is to dispose of the loans it acquired on the best achievable terms, it is more meaningful to consider its cumulative performance, rather than make year-to-year comparisons.

Members have been provided with a graph that shows how NAMA’s profit level has been tailing off. It had accumulated reserves totalling €4.5 billion by end 2019. At that date, it was projecting delivery of a final surplus of €4 billion when it winds up.

The other key aspect of NAMA’s financial performance is the ongoing reduction in its holdings of loan assets, and associated borrowing. At the outset, NAMA acquired property-related loans with a par value of €74.4 billion for an outlay of €31.8 billion. This was funded through the creation of €31.8 billion in debt. Both the level of loans outstanding, and the outstanding borrowing, had reduced considerably by the end of 2019, as reflected in the agency’s statement of financial position.

I will now turn to the special report on NAMA's management and disposal of the Project Nantes loans. In autumn 2018, concerns were raised with the previous committee and directly with my office about the sale by NAMA in 2012 of a portfolio of loans to a Luxembourg-based company. The disposal, referred to by NAMA under the codename Project Nantes, was one of its first loan portfolio sales. The loans included in the sale were mainly of two types. There was a large number of high-risk equity-backed loans, which had no property collateral, and which NAMA acquired from the participating banks for a nominal payment of €1 per loan. Most of the other loans were property-backed, related to properties predominantly located in other European states or the US, with only about a quarter related to properties in Ireland.

The concerns raised about the Project Nantes loan sale included questions around the adequacy of the sales process, the price achieved for the portfolio, and the legality of aspects of the sale. There was an exchange of correspondence between the committee and NAMA, which we have reproduced in an appendix to the report. Despite the explanations provided by NAMA, I felt that the matter required further inquiry, and my office therefore undertook a value for money examination of the sale.

NAMA’s general strategy to manage its loans was to organise them by reference to debtor connections, that is, grouping of loans connected through a common debtor, or common group of debtors. What became the Project Nantes portfolio was part of the larger Avestus portfolio, which in turn was part of the Quinlan and Quinlan Partnership debtor connection.

In its response to the committee’s inquiries, NAMA emphasised the outturn it had achieved on the Avestus portfolio. NAMA’s total outlay on the Avestus portfolio was €136.3 million. Between 2011 and 2013, it realised a total of €204.1 million from the loans, thus yielding an overall cash surplus of €67.8 million on the portfolio. NAMA has stated that it is strongly of the view that that surplus was the best commercial outcome achievable for the Avestus portfolio at that time.

In fact, the Avestus portfolio of loans was disposed of in eight transactions, rather than in one single portfolio sale, so it is relevant to consider also the outcome on each transaction. As figure 3 in the report summary indicates, two of the transactions, related to large office developments in London, resulted in very substantial gains for NAMA, while five resulted in modest gains. In contrast, Project Nantes resulted in a sizeable loss for NAMA.

Contrary to a code of practice for NAMA’s disposal of bank assets approved by the Minister for Finance in 2010, NAMA did not seek current independent valuations of the Project Nantes loans or of underlying property collateral. Furthermore, NAMA did not pursue a competitive sales process. Instead, it negotiated exclusively with one potential purchaser of the loans called Clairvue, which was introduced to the process by Avestus.

In July 2011, the NAMA board approved a repayment target for the Avestus loans, but there were errors and inconsistencies in how NAMA arrived at the target. Correcting for these errors and inconsistencies, the repayment target would have been significantly higher. NAMA told Avestus what the approved target amount was. It then went on to agree adjustments to the target with Avestus as the various transactions progressed. As a result, Avestus knew the residual amount NAMA needed to raise through the Project Nantes loan sale in order to achieve its repayment target. The Clairvue offer was very close to that amount.

Where a competitively-based market price for the Project Nantes loans could have been struck cannot now be known. However, without the assurance of a contemporaneous asset valuation and a competitive sales process, I believe there is no basis to conclude that NAMA achieved the best possible financial outturn from the Project Nantes loan sale.

The requirements of section 172(3) of the NAMA Act 2009 prohibits NAMA from selling a loan collateral property to a debtor or an associated debtor who is in default in relation to any NAMA loan. However, this legal prohibition is limited and does not apply to the sale by NAMA of a loan or portfolio of loans. Since Project Nantes involved a loan sale there is no reason to believe that there was any infringement of section 172 of the NAMA Act.

Despite the statutory limitations, NAMA put in place arrangements that required those purchasing loans to make a declaration confirming that the purchaser was not connected to the debtor whose loans it was purchasing. Clairvue and the debtors each made the declarations required by NAMA in relation to the Project Nantes sale. In addition, Clairvue disclosed to NAMA in advance the nature of the fee and performance-related compensation arrangements Avestus had with Clairvue, including arrangements for a number of the debtors to redeem personal loans at a future date.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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As we are constrained by time, while the witnesses need to be treated with respect and fairly I ask them to answer questions directly and, if possible, that they are not passed between the various members of the witness panel so that we can carry out the business of the meeting efficiently.

I apologise. Before we get to questions I call on Mr. McDonagh to make his opening statement.

Mr. Brendan McDonagh:

The committee has invited us to discuss NAMA's 2019 financial statements and the Comptroller and Auditor General's special report on Project Nantes. I am joined by Mr. Aidan Williams, the NAMA chairman, Mr. Jamie Bourke, our head of strategy and communications, and Ms Noelle Condon, our chief financial officer.

Last year, 2019, was another successful year for NAMA. We reported a profit of €265 million and continued to make material progress on all of our objectives. Coupled with our 2018 results, in the past two years alone NAMA has generated profits in excess of €1 billion. We generated more than €1.3 billion in cash during the year, exceeding our deleveraging targets. This and further cash generation during 2020 brings cumulative cash generated by NAMA since inception to €45.7 billion.

As a result of a programme of efficient and focused deleveraging over the past ten years, our loan portfolio is now 97% reduced from its €32 billion acquisition cost. Our deleveraged position means that NAMA is far less vulnerable to potential falls in asset values than it would have been just a few short years ago. However, NAMA is not immune to the effects of the economic crisis created by Covid-19. The impact of Covid-19 can already be seen in our financials for the first quarter of 2020, where we reported a loss of €49 million. The widespread and unexpected market disruption caused the NAMA board to make a management judgment on the possible reduction in value of our residual assets. Thankfully, some parts of our portfolio have performed better than expected since the end of the first quarter and we are reporting improved results for the second quarter. The disruption continues to impede the completion of some of our activities and delay planned debtor exits and asset sales. Accordingly, it is increasingly likely that NAMA may be left with a larger residual portfolio by the end of 2021 than the €300 million previously envisaged.

I now turn to the special report of the Comptroller and Auditor General on Project Nantes. I would like to make the committee aware of our statutory confidentiality obligations under sections 99 and 202 of the NAMA Act, as well as the confidentiality clause in the loan sale. These clauses effectively preclude us from discussing or disclosing specific information regarding debtors, their loans or transactions. However, in this context, and in consideration of the published report which does contain a great deal of information, I will endeavour to be as comprehensive as possible in my remarks.

Following our last appearance before the committee, we engaged in extensive correspondence with it regarding the Project Nantes loan sale. The queries originated in part because of an allegation that the loan sale was not compliant with section 172 of the NAMA Act. This allegation has been found to be incorrect.

As regards the other findings in the report, from our perspective there are a number of fundamental points to be made. The Nantes loan sale cannot be viewed in isolation. It must be viewed in the context of the global connection exit strategy. We achieved profits of €78 million on six out of the seven connection loan bundles, as evidenced by the graph on page 12 of the special report, but made a €10 million loss on Nantes, resulting in an overall profit for the taxpayer of €68 million.

A consensual loan sale ensured the achievement of the global exit target in the most efficient manner. It is NAMA's experience that in certain circumstances higher returns can be achieved from the targeted sale of assets to credible specialist buyers. That is to say, open marketing does not always result in the best possible outcome.

As regards NAMA not seeking up to date valuations, the loans were independently valued in 2009 prior to acquisition by NAMA and reassessed in an independent business review, IBR, by a large accounting firm in 2011. These earlier valuations were arguably overstatements by the time the loan sale was completed in January 2012 as Irish asset values continued to decline by approximately 30% from late 2009. We did, however, have up-to-date appraisals of valuation on the assets.

We fully accept and regret that there was a miscalculation on the part of NAMA in setting the €125.5 million target, as certain loans were inadvertently misclassified in the IBR report. This transaction occurred early in NAMA's life cycle when we had no central IT systems and relied on multiple spreadsheets with volumes of data. Since then, our internal controls and IT systems have evolved and improved and are significantly more robust as well as being subject to rigorous control testing by our auditors. Nonetheless, we are of the strong view that the miscalculation of the target did not affect the outcome from the portfolio. The gross proceeds achieved of €210 million exceeded the restated target of €151.8 million by €58 million. This was a notable return in a very depressed market. Irish Government bond yields were close to 18% and Ireland was in the middle of a Troika bailout. Equally, it is acknowledged in the report of the Comptroller and Auditor General that had NAMA set a higher repayment target for the Project Nantes loans there was no guarantee that a sale could have been concluded at that higher price.

All commercial transactions carry risk. If NAMA withheld the sale of every asset because it may subsequently increase in value, we would never have disposed of a single asset. We make considered decisions based on our section 10 mandate, the information available at the time and the expertise and experience of our staff.

We still have much work to do in order to maximise the value of our residual portfolio. However, in a very real sense, we have already achieved the primary statutory mandate set out for NAMA when it was established. We have fully repaid the €32 billion in debt issued to acquire loans. Importantly, we repaid the Government guaranteed portion three years ahead of schedule in 2017. This not only removed a contingent liability for the State but significantly aided Irish banks in returning to the financial markets. We have deleveraged 97% of our acquired portfolio and made a substantial and tangible economic and social contribution through our residential funding programme, which has delivered more than 17,000 units to date, our docklands strategic development zone programme, which is 75% complete, and our social housing programme, which has provided more than 2,600 homes to date.

Most remarkably, in my opinion, this year we accomplished a goal that was simply not considered possible when NAMA was first established. We delivered a sizeable surplus payment of €2 billion to the Exchequer in June of this year. Our surplus will provide the Exchequer with valuable resources that the Government may use to alleviate some of the immense pressures currently being experienced throughout our society and the economy. Further transfers totalling €2 billion are anticipated over the next two years.

Our progress in the achievement of our objectives demonstrates that our decisions have overwhelmingly been the correct ones. We all can see the effects of Covid-19 in causing lower valuations of assets and we are fortunate most of the portfolio was disposed by the end of 2019. We have the capability to effectively address any challenges that may arise from dealing with our residual portfolio and we remain reasonably confident we can preserve the €4 billion surplus.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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I welcome Mr. McDonagh and Mr. Williams. I was involved in the NAMA debates when the legislation was before the Seanad. As I have said, I envisaged that there would probably be a second or third NAMA Bill and, with the benefit of hindsight, there probably should have been. On a macro level, Mr. McDonagh and the former chairman, Mr. Daly, deserve great credit for achieving what they set out to do. The failing was in the legislation and in the fact that there was not a second or third NAMA Bill as matters became clearer. The failings we see are probably on the ethical rather than the statutory side at this stage, such as the lack of a social dividend and, arguably, the focus on supporting the construction industry to the extent it did. No doubt, books will be written on all these matters in the future but, on a macro level, our guests deserve great credit. I am sure it was an extremely busy but fast decade for them. I hope Mr. Daly is doing well and wish Mr. Williams well in his role.

Would our guests accept, looking back, that mistakes were made with regard to Project Nantes?

Mr. Brendan McDonagh:

A mistake was made in the inadvertent miscalculation of a target. I fully accept that.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Mr. McDonagh is referring to the €9.7 million in personal loans to the director of Quinlan.

Mr. Brendan McDonagh:

No, it was a combination of things. There were two loans we had acquired from the banks for €18 million. When that information was relayed to the independent business reviewer, it was not stated that we had paid €18 million for them. The independent business reviewer assumed they had been acquired for zero, because it thought they were equity loans as opposed to first charge loans. It put them in at a value of €2 million rather than €18 million, so that was a difference of €16 million.

As for the personal loans of €9.7 million, we always knew we had acquired them for €9.7 million. If €16 million is added to €9.7 million, it is close to the €26 million adjustment before the 15%.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Theoretically, the target recoverable may have been as high as €154 million, as the Comptroller and Auditor General has determined.

Mr. Brendan McDonagh:

€151.8 million.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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There is a notional loss in that because of that mistake.

Mr. Brendan McDonagh:

Yes.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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It arose through our deliberations on Project Eagle that there was a decision not to carry out current valuations, which had been a requirement from July of that year in the code the Minister had set out for disposals. We relied, therefore, on a 2009 valuation as opposed to current ones. Can Mr. McDonagh recall why that was done?

Mr. Brendan McDonagh:

The code of practice, as the Deputy will know, having some experience in the industry-----

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Yes, that is an interest declared before the Committee of Public Accounts of the previous Dáil, which I will come to in a moment.

Mr. Brendan McDonagh:

Absolutely. Under the Society of Chartered Surveyors Ireland, SCSI, code, valuations have to be performed by qualified valuers. The code of practice required an appraisal, and appraisals can be done by people who are not qualified valuers. That is a distinction under the SCSI code. We believed that although the November 2009 valuations were dated 30 November 2009, they were effectively done in late 2010 because there were references back to 30 November 2009 . They were provided to the independent business reviewer, which did an assessment of those cashflows as part of its work. We relied on those as meeting the criteria for being appraisals as opposed to valuations. We all knew that because of the stress that was on the markets globally at that stage, asset values were effectively falling. The Deputy will recall that in 2011, very much like today, the whole eurozone was crisis-----

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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The argument is it may have been valued as less, in any event.

Mr. Brendan McDonagh:

That was the view taken at the time. Some very experienced property people were working for us at the time and that was the view we took.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Was it a failing of the SCSI that unqualified people were enabled to perform the appraisals?

Mr. Brendan McDonagh:

No, there was a standard. The SCSI is very perfectionist about its profession and says valuations have to be done by qualified valuers. The code of practice, however, states that appraisals can be done by people other than qualified property valuers. They can be people who have knowledge of the situation. We believed that the independent business reviewer had knowledge of the assets he was reviewing as part of the property plan. We also had people internally who were very seasoned property professions, who had the view that the information going forward was representative of what the assets were worth.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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I turn to the converse of that, which is where I gained the experience to which Mr. McDonagh referred. This was declared in the previous term of the Committee of Public Accounts, that I had worked as an auctioneer and, on one occasion, had been handling a receivership file for individual private homes. If someone was selling a three-bedroom semi-detached property at that stage, by NAMA's insistence there would have to be an up-to-date valuation. It might have been less than €100,000 at the time for certain properties, particularly in rural Ireland, yet when the properties were in the tens of millions of euro, the desktop appraisal was acceptable. Does Mr. McDonagh accept that there was a very thorough and robust micromanagement of individual property sales of relatively low value, but that when it came to the big stuff, we were not applying the same level of oversight.

Mr. Brendan McDonagh:

I would not accept that. In fairness, one tries, at the time, to take a decision. We had business plans from 800 debtors. We had to review those business plans and make an assessment of what we thought the assets were worth when we were putting it forward to, in this instance, the credit committee of the board. If a property was being prepared for sale, we would accept that whoever was selling the property would give us an assessment of value for the asset. If it then went on the market, the market would determine what it was worth.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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I am bound to suggest that perhaps we did not focus as much on the larger valuations as we did on the lesser ones, and that might have been a lesson, although it is ten years ago now. When we got to the sale of Project Nantes, the Avestus portfolio had already performed well because there had been two large and very profitable disposals and others that broke even. Then we came to Project Nantes, where we were sort of in clover, for want of a better expression, compared with the recovery targets that were set. Is there any sense of complacency here, where due process was overlooked because, to get out alive, it was decided just to take the first person who came and to waive the need for competitive tension and the normal processes that would apply, on the basis that the overall target for Avestus and the recovery would be met and, therefore, anything would do?

Mr. Brendan McDonagh:

No, that is not the way it works at all-----

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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I know it is not the way it works generally. I am saying that, in the context of this and, similarly, of Project Eagle, it is a matter of fact that valuations were not done, that competitive tension was not sought in the normal way and that mistakes were made in aspects of the valuation. My question, in effect, is whether this was looked at in isolation and decided that, as one of the 800 business plans that would perform, there was no need to worry about the kind of detail that would be applied to others.

Mr. Brendan McDonagh:

No, because we always had the same concerns about this debtor connection and the significant exposure to other third party banks. It was highlighted in the business plan, which was reviewed and sent to the board by the independent business reviewer and to my internal team at the time, that there was a real risk that if the third-party creditors moved against these people, the whole business would collapse and go into liquidation, and we would have lost the asset-management platform of Avestus to manage these assets, which were in multiple jurisdictions and were quite complex in their financial structuring, which they fully understood. Their help was needed to unwind - let us put it that way. We always share that concern.

To be clear with the committee, all the debtors in NAMA have made efforts to get out of it. That is just the nature of the business and it is very understandable. Avestus was trying to find people to back it and to get its loans out of NAMA. Another major US real estate fund had expressed interest before Clairevue and backed out, and then Clairevue came along and made an offer.

It also wanted to make an offer wherein we would give it indemnities and underwrite its due diligence costs, both of which we refused to do. Even in January 2012, when we decided to proceed with the offer to Clairevue, we knew these concerns were still there and that these debtors were very vulnerable to third-party actions. At the same time, in January 2012, we decided that we would not sell the discrete asset in Paddington as we would be better of continuing to fund it and finishing it. As a result of that decision, we turned it from a €75 million valuation to €104 million. We were constantly evolving our strategy to make sure we could get the maximum out of the connection but at the same time the vulnerabilities attached to these debtors always existed and it was a real risk to us in terms of management.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Were there many occasions after Project Nantes and Project Eagle when NAMA gave exclusivity?

Mr. Brendan McDonagh:

There were not too many. Sometimes it happens because of legal restrictions or because someone makes an offer. To give an example-----

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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I do not have much time. Mr. McDonagh is a regular attendee at this committee so he knows how to talk down the clock. I have only three minutes left so maybe Mr. McDonagh will get to that point in somebody else's time later. I have a few other questions. At what point during the normal company searches that can be done did NAMA become aware that somebody was a director and shareholder of both Avestus and Clairevue-Nantes?

Mr. Brendan McDonagh:

Avestus never told us that. This only arose-----

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Were searches not carried out? I can do a company search while sitting here to find out what Mr. McDonagh is a director of, and he could do the same in respect of me.

Mr. Brendan McDonagh:

When we sell on an asset or loan to another party, that party will manage that asset in the way it wants. It would have been better if Avestus was upfront and told us-----

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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The question is whether NAMA conducted searches.

Mr. Brendan McDonagh:

No. We did not do searches because we had only-----

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Was that a failing, in hindsight?

Mr. Brendan McDonagh:

I do not believe so because once we sell an asset, we are finished with the asset and it has moved on.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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To bring this back to my direct experience, if the first cousin of a developer, who he had not seen for 30 years, was seeking to purchase a house that a receivership was selling, NAMA would not have allowed it.

Mr. Brendan McDonagh:

We would have allowed it if he could sign the section 172 declaration stating that he is not a connected party. Avestus and Clairevue signed the section 172 declaration and they were both legally correct.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Was that a failing in the legislation? Is the legislation not sufficient? If I were a developer and my house was taken off me, I could give the money I had under the mattress to my first cousin to buy the house. If I signed the section 172 declaration, NAMA would be out the gap legally but I would get my house back from my cousin because I gave him the money to buy it.

Mr. Brendan McDonagh:

The Deputy's cousin would also have to sign the declaration to say he is not in any way-----

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Is there legal recourse against such people for making false declarations?

Mr. Brendan McDonagh:

Absolutely. If they make false-----

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Has NAMA sought legal recourse against this individual who happened to be a director of both companies?

Mr. Brendan McDonagh:

No, because we checked it out legally. The Committee of Public Accounts took advice from its own parliamentary counsel and the Comptroller and Auditor General has looked at it as well. There was nothing illegal with the section 172 declaration. The man was not, nor had he ever been, a NAMA debtor and Avestus was never a NAMA debtor. There was nothing legally we could have done to stop it. The only failing was a moral failing on the part of Avestus because it should have been upfront with us and said that one of its colleagues had been asked to be a director of this entity by Clairevue but that he was not a NAMA debtor. If it has told us that upfront it would have been better for everyone.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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It was more than being asked to be a director. He was a shareholder.

Mr. Brendan McDonagh:

He was not a shareholder.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Was he not a shareholder in Clairevue?

Mr. Brendan McDonagh:

No.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Is Mr. McDonagh certain of that? I do not want to name the individual.

Mr. Brendan McDonagh:

We were told that none of the directors were shareholders in Clairevue.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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That was a function of the section 172 declaration. Does any forensic accounting go on after the fact to investigate these matters?

Mr. Brendan McDonagh:

We looked at this issue forensically after it emerged in September 2018. We exchanged correspondence with both Clairevue and Avestus and they confirmed that there was no connection.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Would NAMA's then head of property management - again, I will not mention the name but we know about whom we are talking - have been aware of any of that?

Mr. Brendan McDonagh:

I do not believe so.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Was he involved in this transaction?

Mr. Brendan McDonagh:

His team would have been involved in this transaction and he would have been aware of it as head of the team.

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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Is Mr. McDonagh satisfied that the man in question would not have been aware of these connections?

Mr. Brendan McDonagh:

Absolutely. My experience of that man is that he is a normal man and I have never once in my life doubted that he-----

Photo of Marc MacSharryMarc MacSharry (Sligo-Leitrim, Fianna Fail)
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There is nothing personal going on here.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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The next speaker is Deputy Munster.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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Given my limited time I will concentrate on the Comptroller and Auditor General's report. It was quite a thorough report which made for a shocking read. I refer to the litany of mistakes, the oversights, the lack of transparency around record-keeping and the lack of adherence to guidelines and best practice. This morning's statement from NAMA disputes much of what was identified in the report as poor practice. That is quite astonishing. Is Mr. McDonagh seriously suggesting that because a profit was made overall on the Avestus loan bundles that the glaring errors made in Project Nantes are therefore irrelevant? Making a mess of one thing is not cancelled out because NAMA did not make a mess of everything. Does Mr. McDonagh accept that?

Mr. Brendan McDonagh:

As I said in my opening statement, I and my colleagues very much regret that a mistake was made on the target calculation, but that was related to the target. If the Avestus connection was able to write the cheque and give us €125 million, that would have been a complete loss to the taxpayer but the important thing to remember here is that we did not achieve €125 million or €152 million, but €210 million overall. I cannot say that I or anyone else in NAMA is infallible, that we do not make mistakes or that we are not humans. We did not want to make the mistake. The mistake was made, we apologised for it, we regret it and I wish it did not happen but it did. What more can I say other than that I wish it did not happen?

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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NAMA also violated the code of practice for disposal of bank assets approved by the Minister for Finance by not seeking independent valuations. Is that correct?

Mr. Brendan McDonagh:

That is not the case because the code of practice states that one should get independent appraisals and we had independent appraisals from the independent business plan reviewer.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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NAMA had previously indicated that it did not agree with, or was critical of, the Comptroller and Auditor General's report into Project Eagle. Look where we are now-----

Mr. Aidan Williams:

I am not sure it is appropriate to discuss Project Eagle as there is an inquiry-----

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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I am cross-referencing.

Mr. Aidan Williams:

-----and the results are due to be published at the end of the year.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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I am just saying that NAMA had previously been critical of or certainly did not agree with the Comptroller and Auditor General's report on Project Eagle. Look where we are now. One of NAMA's former advisers and another person associated with the sale are both facing fraud charges in the North. They are before the courts-----

Mr. Aidan Williams:

With respect-----

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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Is NAMA still of the same opinion regarding Project Eagle? Is it still critical of the Comptroller and Auditor General's report on it? Does Mr. McDonagh still stand over that despite where we are now?

Mr. Brendan McDonagh:

In respect of Project Eagle, we are under specific instruction from Mr. Justice John Cooke not to discuss it because he is dealing with the commission of investigation and-----

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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If Mr. McDonagh is not going to discuss it, that is fair enough.

Mr. Brendan McDonagh:

I am not allowed to discuss it. There is a difference.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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I just asked whether he was still of the same opinion regarding Project Eagle.

Mr. Aidan Williams:

We are not allowed to discuss that.

Mr. Brendan McDonagh:

I cannot discuss that.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I ask the Deputy to move on to her next question.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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Does Mr. McDonagh accept the Comptroller and Auditor General's report into Project Nantes?

Mr. Brendan McDonagh:

Yes. That report is very comprehensive and-----

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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Does Mr. McDonagh accept that it identifies poor practice?

Mr. Brendan McDonagh:

I accept that it identifies deficiencies that should not have happened.

What I am saying to the Deputy is that we wish they did not happen, and we work very hard to make sure they do not happen again. That is what I can say to her.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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Does Mr. McDonagh believe people will have confidence that NAMA will ensure those types of colossal mistakes will not happen again, given the litany of mistakes made, oversights and lack of transparency on record keeping?

Mr. Brendan McDonagh:

There was, as we said, a miscalculation in terms of the target on Project Nantes.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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There is a perception of a culture of arrogance in NAMA. For the most part, it refuses to admit or accept mistakes or wrongdoing.

Mr. Brendan McDonagh:

I do not accept that.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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Mr. McDonagh's opening statement-----

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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The Deputy's time is up.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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His opening statement did not exactly say that he accepted the litany of mistakes that were made-----

Mr. Brendan McDonagh:

No, hold on----

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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-----given that the Comptroller and Auditor General was also previously critical of Project Eagle.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Allow the witness to answer the question.

Mr. Brendan McDonagh:

We accept the findings of the Comptroller and Auditor General's report. We have a very good engagement - professional engagement - with the Comptroller and Auditor General. Do we agree with him on everything? No, we do not, but I do not think many Accounting Officers agree with the Comptroller and Auditor General on everything. That is fine. That is part of-----

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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Does Mr. McDonagh accept it was a thorough investigative report?

Mr. Brendan McDonagh:

Absolutely. In fairness to Mr. McCarthy and his team, they do thorough reports. It has been months upon months. We were engaging with him for months upon months on the-----

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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It highlighted a litany of mistakes.

Mr. Brendan McDonagh:

I do not accept there was a litany of mistakes. At the end of the day, we are returning €4 billion to the taxpayer. One does not return €4 billion by continuously making mistakes day after day. There was a mistake identified here. There was a mistake in the target, but the outcome was much higher than the target.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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NAMA did not return much to the taxpayer from Project Nantes.

Mr. Brendan McDonagh:

In the overall connection, which was there, the target should have been €152 million. We got €210 million. We achieved €58 million more than that.

Photo of Imelda MunsterImelda Munster (Louth, Sinn Fein)
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NAMA failed in relation to Project Nantes.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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The witnesses are very welcome, and I thank them for coming today. I think NAMA has done a very good job in recent years in difficult circumstances. Its return to the Exchequer of the sums that are there is very welcome, particularly now. I recognise it is a commercial enterprise operating in a commercial environment, which is extremely difficult. It needs to make commercial judgment calls, not always with the benefit of perfect information that we all might like.

I also recognise that NAMA has a significant level of oversight with the Comptroller and Auditor General and this committee in public forum. That is a pressure on a commercial enterprise that other commercial enterprises do not have. I recognise and acknowledge all that. It is clear that Mr. McDonagh is here to talk about a mistake that has been made. He has acknowledged that, and I accept that. On the other hand, I have some detailed questions on it.

I am concerned about the part of the report dealing with the level if disagreement with and contesting of the Comptroller and Auditor General's findings and the engagement on that. I note that over the last two years NAMA has derogations for legal services of over €11 million. It is important that NAMA is equipped with appropriate legal commercial expertise given the commercial entities it is engaging with. However, I have a concern where that expertise is being used against other entities of the State. How much of those fees are being used to fight any findings of the Comptroller and Auditor General?

Mr. Brendan McDonagh:

We have never spent any money in terms of fighting anything with the Comptroller and Auditor General.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Does that mean no money has been spent on legal advice relating to engaging with the Comptroller and Auditor General on the report or any of that?

Mr. Brendan McDonagh:

No. To the best of my recollection, I have never authorised any advice to challenge anything related to the Comptroller and Auditor General.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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NAMA is clearly in a wind-down phase overall. It has some excellent staff with very good property and commercial experience. Some of them are leaving. Where are they going? Is there any way for the State to retain some of that expertise?

Mr. Brendan McDonagh:

NAMA is in run-down. At one stage we had 380 people. I think it was in 2014. We were down to 211 at the end of 2019. We have just run a redundancy programme again and our target is to get to 143 by the middle of next year and by the middle of 2022, we will be down to about 80 people. Our people are leaving and being made redundant. Like everybody, they have commitments, mortgages and families. They are moving.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Of course.

Mr. Brendan McDonagh:

A lot of people up until the Covid pandemic were thankfully finding jobs. After they did their period of gardening leave, they were finding jobs in accounting firms, legal firms, property firms and IT firms.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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It is essentially a mix of professional services and construction.

Mr. Brendan McDonagh:

A lot them went to property because they would have had a property background. Some went to the banking sector and some worked in legal firms or worked for companies in legal capacities.

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Prior to today, NAMA provided a business update to the committee. Clearly, NAMA has become one of the biggest residential delivery providers. One figure on page 9 jumped out at me. The number of units for which NAMA or its entities has planning permission but are not yet under construction is 6,200. The graphic beside it shows units under construction or with funding approved but 1,100 of those with funding approved but not yet under construction, leading me to see 7,300 with planning permission but not yet under construction. What is going on there? How is it that when we are crying out so badly for houses they are not yet under construction?

Mr. Brendan McDonagh:

Sometimes we get the planning permission and sometimes they are just not commercially viable to build. Sometimes it depends on where it is located, and one just cannot achieve the sale price that-----

Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Can Mr. McDonagh give me an example?

Mr. Brendan McDonagh:

We have one major site on the border of Dublin and Wicklow. The infrastructure cost alone before one can build a house is something between €25 million and €30 million. One has to put that in before one can actually build anything on it. Given our timeframe, it is probably not going to be viable for us to put that level of money in before we can start construction. Over time, while that might be built out - that might be an excellent site in an excellent location - it will be long past NAMA's lifespan. These are sometimes the difficult decisions that we have to make.

Another site has an issue where effectively the National Roads Authority has to put in a spine road before that. It does not have the funding to do it. We have another site in Wicklow where one of our clients has built a lot of houses and wants to continue building houses, but unfortunately Irish Water needs to improve the whole water infrastructure. The cost of that infrastructure is, I believe, between €50 million and €60 million because it is going to serve the whole area and Irish Water does not have the funding to do it. The client wants to build 200 houses extra. Irish Water says it does not have capacity for it. The client has got permission to build 25 more houses because that is the maximum Irish Water can connect to the network. The site has planning permission but third parties outside our control, like the National Roads Authority and Irish Water, have other issues which are preventing that. We are funding any site which is commercially viable because it makes sense for us to do that; we make money. It also provides housing. No matter what NAMA can do, we cannot do Irish Water's job and we cannot do the National Roads Authority's job.

Paul McAuliffe (Dublin North West, Fianna Fail)
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I return to a point Mr. McDonagh made earlier about the strategy for dealing with these portfolios. He said he felt there was exposure to third-party creditors leading to the strategy that was taken. Did that rush or that need for a decision to be made quickly inform the overall strategy in this case?

Mr. Brendan McDonagh:

When we got the business plan from the debtors, they had to tell us, obviously, what borrowings they had with us. They also had to tell us what borrowings they had with third-party banks.

In fairness to the debtors, with regard to any cash resources they had when they came under NAMA, we said they would have to pay the interest on NAMA's loans. The third-party banks were not happy about this and were asking why their loans were not being serviced. This still goes on today but it was particularly prevalent in 2010 and 2011 when all banks were distressed and everybody was trying to grab whatever assets they could. They were threatening to appoint receivers, liquidate assets or take judgment actions.

Paul McAuliffe (Dublin North West, Fianna Fail)
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To confirm, the pressure to complete the sale in what Mr. McDonagh described as a very distressed market was a result of the involvement of external creditors.

Mr. Brendan McDonagh:

Yes. In fact, the board paper that went to the board in July 2011 said that the biggest threat to NAMA realising value in this portfolio was time because the longer we delayed the more likely it was that third-party action would take place.

Paul McAuliffe (Dublin North West, Fianna Fail)
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Was that unusual?

Mr. Brendan McDonagh:

No.

Paul McAuliffe (Dublin North West, Fianna Fail)
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Was it different from any other projects within the overall investment platform?

Mr. Brendan McDonagh:

Of all the connections that came into NAMA, the most financially complex structures we saw across all debtors were those associated with the Avestus-Quinlan connection. The way these connections were set up structurally involved companies in Ireland, Luxembourg, Holland and Delaware. The financial structures were very intricate, although they were completely within the law. To unwind these connections was going to be very difficult.

Paul McAuliffe (Dublin North West, Fianna Fail)
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Was the strategy to proceed with a targeted sale on the Project Nantes portfolio unique or were other portfolios in the platform handled in the same way?

Mr. Brendan McDonagh:

Is the Deputy asking about Project Nantes? Well-----

Paul McAuliffe (Dublin North West, Fianna Fail)
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Did any others proceed on the basis of a targeted sale? I refer to those bundled together in the total achievement of €210 million.

Mr. Brendan McDonagh:

As I said, Avestus was a particularly complex connection and the pressure from third-party creditors was very great. We decided to carve up the portfolio in different ways to try to at least achieve the targets.

Paul McAuliffe (Dublin North West, Fianna Fail)
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My question was whether it was the only one to involve a targeted sale.

Mr. Brendan McDonagh:

No. We have had legal issues with regard to other connections, which meant we needed to have a targeted sale.

Paul McAuliffe (Dublin North West, Fianna Fail)
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Figure 3 in Mr. McDonagh's statement shows the overall cash outcome of the Avestus loans. Of all the bars on that chart, was Project Nantes the only one to proceed with a targeted sale?

Mr. Brendan McDonagh:

Yes. It was the only one of those to do so.

Paul McAuliffe (Dublin North West, Fianna Fail)
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I accept Mr. McDonagh's response on the timing issue but why was the targeted sale identified for that portfolio and not others?

Mr. Brendan McDonagh:

We were able to sell the other assets discretely. They were in discrete structures and the debtors co-operated with us in that regard. These debtors had a lot of third-party debt secured with personal guarantees. They told us that they were coming under immense pressure from third-party banks.

Paul McAuliffe (Dublin North West, Fianna Fail)
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Is that to say NAMA was receiving co-operation from third-party debtors with regard to the other portfolios, the other bars on the cash outcome chart, but not with regard to this one?

Mr. Brendan McDonagh:

All the loans involved in Project Nantes were personal loans in respect of which the borrowers were personally exposed. If they were made bankrupt, it would have made matters very difficult.

Paul McAuliffe (Dublin North West, Fianna Fail)
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I accept much of the information Mr. McDonagh gave us beforehand but the impression is being given that, because of the common directorship between Avestus and Clareview and because this was the only portfolio to go for a targeted sale, there was some sort of connection. The public believe this to be the case and that, therefore, something wrong was going on. Does Mr. McDonagh accept that impression has been given and that we have failed to dispel that impression today?

Mr. Brendan McDonagh:

I cannot help the impression that has been given but having received declarations from both Clareview and the debtors and having searched filings in Luxembourg, where Clareview was based, we have not been able to establish that what Clareview and the debtors have told us is untrue.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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I am sorry I was not here earlier; the timings just did not work out. I noticed something in Mr. McDonagh's statement that always grates with me, as I have said on several occasions. I refer to the word "profit". I appreciate that NAMA ended up with portfolios on which there had been great discounts. I believe the Comptroller and Auditor General said the outlay was €74.4 billion and that NAMA received the assets for €31.8 billion. I would say we are talking about a "surplus" rather than a "profit" given that the public took a hit of €40 billion. That is important to note.

The par value for the assets relating to Project Nantes was somewhere in the region of €306 million. Is that correct?

Mr. Brendan McDonagh:

It was €307 million at acquisition.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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This represents a discount of approximately 85% on the original par value. NAMA hoped to get €46.2 million. We have heard that there were errors and Mr. McDonagh has accepted this. The public took a great hit and NAMA was set up and given a job to do, which was to get as much as it possibly could for the assets. Its terms of reference stated that it was to achieve the best possible amount. Why then would it not have insisted on a competitive process in every instance?

Mr. Brendan McDonagh:

The code of practice, which has been referred to previously, permits us to sell loans directly to people. It does not say that we have to openly market such sales. We set a target for the connection but this target was not achieved. The portfolio was sold off in parts and this was the residual connection. As I told Deputy MacSharry, Clareview was one of the first funds to come and look at this portfolio. Another US fund looked at the portfolio and declined to buy it. Clareview made an offer and we had to decide whether to accept that offer or to negotiate with Clareview. We negotiated a sale of the portfolio with it. There was nothing inconsistent with the code in doing so.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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If there was no real interest in the portfolio, what risk was there in NAMA advertising it?

Mr. Brendan McDonagh:

We knew that third-party banks and other third-party creditors were threatening to enforce against the debtors themselves. If they had done so, it would have made it very difficult for us to unwind the complexity of the connections and the assets involved. We needed their co-operation to unwind the assets.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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Looking at this from the perspective of the public, the valuation goes back to 2009. There may well have been a desktop exercise carried out after that. Mr. McDonagh might confirm whether there was. There was no competitive process and Clareview knew that there was no other bidder. Did NAMA not just throw in the towel in attesting that there was no more to be achieved from this?

Mr. Brendan McDonagh:

Others did look at the portfolio but were not interested. We still had the same issue, which was that, in buying this loan portfolio from NAMA, Clareview had the same issue as NAMA had. It had to take the view that it could manage this connection even if those involved were enforced against by third parties and made bankrupt. These specialist funds probably have more specialist expertise in managing complex infrastructures in multiple jurisdictions. We had to make an assessment. This was a business assessment based on the best information we had at the time and it suggested that this was a good offer.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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Does Mr. McDonagh think the €10 million loss on Project Nantes was a good outcome?

Mr. Brendan McDonagh:

No. I do not accept that we want to make a loss on any portfolio. The Deputy must recognise something. She talked about November 2009 but the valuations were actually done in 2010 by reference to 30 November 2009 because that was the set valuation date. The difference is that between November 2009 and 2011 and the start of 2012 the Irish market was falling dramatically. Commercial property prices had fallen by 30%. We looked at this by getting a valuation in 2019 - for somebody to go back to value them at the time we sold them and they said the €10 million would only have been a €3.5 million loss because there would have been a €6.5 million reduction in the Irish assets between November 2009 and the time we sold them. With assets we sold, I wish I could say we made a profit on every asset in our portfolio but we did not. One must make a decision at the time and one must live with it, in terms of making sure one did what one thought was the best outcome at the time.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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Would Mr. McDonagh say there is a basis to conclude that NAMA achieved the best possible financial return for the Project Nantes loan sale? Can he point to that basis?

Mr. Brendan McDonagh:

In terms of Nantes, one can look at it in financial terms but in terms of the overall connection, where we needed all the debtors' co-operation to achieve this, we achieved €210 million. We did not achieve €152 million or €125 million. Therefore, we do not think that looking at Nantes in isolation, when one has a debtor with multiple assets, is a fair reflection.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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Yet Mr. McDonagh differentiated in his response today that NAMA achieved profits of €78 million on six of the seven connection loan bundles. He differentiated Nantes himself.

Mr. Brendan McDonagh:

I differentiated Nantes because the Comptroller and Auditor General has done a special report on Nantes. I have to acknowledge that the Comptroller and Auditor General did a report and did very good work with that. However, factually, the Comptroller and Auditor General has established that because of the price at which we acquired the loans and the price we sold them for we made a €10 million loss on Nantes.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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In hindsight, does Mr. McDonagh regret that the information was not forthcoming, that when information came to the Committee of Public Accounts or to the Comptroller and Auditor General that it was not specifically referenced?

Mr. Brendan McDonagh:

Sorry, Deputy but I do not-----

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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That goes back some time. I realise I am going to be very short on time. I might actually put that question to Mr. McDonagh in writing if he does not mind and send him an email.

Mr. Brendan McDonagh:

I would be grateful if she would.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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I want to ask about Mr. McDonagh about housing and 20,000 residential units. I appreciate some residential units have come into play but some were supposed to be delivered by the end of 2020. This will now happen in 2021. Why is that the case?

Mr. Brendan McDonagh:

Sometimes some of the sites have taken longer than we anticipated. This year we planned to do 1,500 units but because of the Covid lockdown, we are only going to deliver 750. That is the same for NAMA as for anybody else in the market. There were supposed to be 23,000 units but now there is only going to be-----

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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Was that not referenced in the 2019 report, which would have been pre-Covid?

Mr. Brendan McDonagh:

Sorry, the 20,000-----

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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No. I refer to residential units to delivered in 2020.

Mr. Brendan McDonagh:

Last year, we did 2,000 units. The previous three years we did 2,500 units. What is happening is that a number of our debtors, because of the improvement in the market in the past number of years, have been able to pay off their debts and leave NAMA. Some of these are big house builders and, fair dues to them, they have paid off all their debts to the taxpayer and then moved on. That, therefore, reduces our capacity in terms of the number of builders we have in NAMA and building units. We have tried to deliver the maximum we can. This year we would definitely have delivered 1,500 units. However, because of the lockdown and Covid and the restrictions in terms of people working internally. Before one could have a plumber, an electrician and a tiler working in a house at the same time, but they must now work discretely because of the necessary Covid restrictions. Hence the 750. As such we have had to push the target out to 2021 and we will get to the 20,000.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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Okay.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Deputy Carthy has five minutes.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I thank Mr. McDonagh and our other guests from NAMA. I am new to this committee and it is the first time I have dealt with a file of this nature. As such I would like to get "Yes" or "No" answers to my questions for my understanding of the situation with Project Nantes. The witnesses may tell me if I am wrong on any account.

The first premise is essentially that NAMA is suggesting the handling of the assets from Quinlan Private was broadly a success for the agency.

Mr. Brendan McDonagh:

Yes, in overall terms.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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What we know about Quinlan Private is that senior people in that company essentially set up a new company to manage their debt called Avestus.

Mr. Brendan McDonagh:

They set up a separate entity, an asset management firm called Avestus.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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It was essentially the same people.

Mr. Brendan McDonagh:

Yes.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Avestus is then retained by NAMA to manage Quinlan Private loans but NAMA did not designate it as a NAMA debtor.

Mr. Brendan McDonagh:

No, because Avestus did not borrow the money. Quinlan Private was the partnership which borrowed the money, not Avestus.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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NAMA did not put any arrangements with Avestus in writing.

Mr. Brendan McDonagh:

No, because it was the same individuals who had borrowed the money personally so effectively they were the same people who were involved.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Then Avestus is privy to the target price that NAMA set out.

Mr. Brendan McDonagh:

Yes. After we went through the business plan process with all 800 of our debtors who sent us their business plans, we told them what the outcome was in terms of what the decision was and what they had to try to achieve.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Am I correct in saying that throughout this process NAMA was unaware that a director in Avestus was also a director in Clairvue?

Mr. Brendan McDonagh:

Yes, but he was not a NAMA debtor.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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No, but he was a director in-----

Mr. Brendan McDonagh:

Avestus.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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-----the company that was managing on behalf of NAMA but also in the company that eventually purchased the-----

Mr. Brendan McDonagh:

Yes, he was a director of Clairvue and, as I said to another member of the committee, it would have been better if they had been fully upfront in disclosing that to us. There was nothing we could have done about it legally but it would have been better if they had disclosed that to us.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Overall, in terms of this portfolio, the Comptroller and Auditor General has suggested that there was an undervaluation to the tune of approximately €29 million. Then we have a situation where, on the valuation NAMA had placed on the file and very conveniently with the Project Nantes portfolio, Clairvue offers, through a non-competitive process, essentially the gap NAMA needed to fill. A gap that Avestus was aware of and that this director, who happened to also be a director of the company that made the bid, was aware of. Is that correct?

Mr. Brendan McDonagh:

All of the debtors were aware of what the overall target was and if the same debtors are seeing what the residual assets are selling for then it is easy to work out the difference. There is nothing proprietary in that. It is a mathematical calculation. One does not have to be a mathematical genius or a property expert to work that out.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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At the same time, however, it is fair to say that most people did not know that this portfolio was even on the market. Thus there was a situation where a company that had an interest in purchasing this portfolio had, as a director, someone who was aware that NAMA had a target price to achieve and that company, very conveniently, valued that portfolio at almost the exact amount NAMA needed to secure.

Mr. Brendan McDonagh:

One must be realistic about all our debtors in NAMA. When they are given a target to meet they know exactly what is needed to meet the debtors. Again, just to be fair to Avestus, as it is a requirement, that person became a director of Clairvue in, I think, December 2011. Clairvue made the first offers to us in October 2011, before that person was a director.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Okay.

Mr. Brendan McDonagh:

The offer was made in that October 2011, two months before that.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Does Mr. McDonagh think it might be conceivable that person might have been in negotiations with that company in respect of whether they might take up employment or a directorship prior to that?

Mr. Brendan McDonagh:

That would be pure speculation on my part and I cannot engage in speculation because I do not know.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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These are the facts as we know them. The Comptroller and Auditor General has suggested that the overall portfolio was undervalued to the tune of €29 million. There has been a suggestion that on the Nantes project a loss was incurred by the taxpayers in Ireland of €10 million. Mr. McDonagh is suggesting that it has only been €3.5 million. All of these things are possible but what I do not understand is the answer to his first question which is that he accepts and contends that this was actually a success for the agencies and for the Irish taxpayer. Whatever about laws being broken, bad practices were clearly employed. My fear is that NAMA is not as angry as hell about the fact that it has been played. A guy who was operating for a company that it employed was also a director of a company for somebody who is purchasing the portfolio that was for sale through a non-competitive process. At the end of the day the people who lost were the Irish taxpayers. I do not understand why Mr. McDonagh is not as angry as hell with this individual and the companies involved because they played NAMA.

Mr. Brendan McDonagh:

I do not accept that they played us. I am angry and I was very unhappy at the fact that they were not upfront with us and told us that one of their colleagues was not a NAMA debtor, and to to pick up this point, was being asked by Clairvue to become a director of this Luxembourg entity which bought the portfolio. It would, as I said before to one of the Deputy Carthy’s colleagues, be morally better to me if they had been upfront with us. There was nothing we could have done about it.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Would it have been better if somebody in NAMA had done a little bit of research to find out whether somebody was playing on both football teams at once?

Mr. Brendan McDonagh:

All NAMA debtors are in negotiations with parties to try to refinance their loans out of NAMA. That is the real world that we live in. We never came across a situation before where this type of thing happened, where somebody who is a director of this new entity is also a director of the----

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Can Mr. McDonagh be sure that it will not happen again?

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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We will be moving onto the next speaker and I will ask Mr. McDonagh to make a brief response.

Mr. Brendan McDonagh:

We will do our best to ensure that this does not happen again.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I thank the Deputy and call now Deputy Burke who is the next member to speak.

Photo of Colm BurkeColm Burke (Cork North Central, Fine Gael)
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I thank the Chairman and our guests for their presentation and the documentation that they have furnished to us.

On non-competitive procurement, in the statement of internal control for 2019, approved derogations were to the tune of €5.1 million. In 2018 it was €8.6 million. The derogations for legal services were €3.9 million and in 2018 it was €7.4 million. For the benefit of the committee, can Mr. McDonagh outline the steps involved in the derogation process and what the values for thresholds are for derogations that require to be approved by the NAMA board? Can he also explain the reason where a service provider had prior and existing knowledge of the debtor and outline what this refers to, please?

Mr. Brendan McDonagh:

Yes I will Deputy, I may need a moment to just find it within the documentation here. In overall terms, every procurement policy is in complete compliance with the code of practice issued by the Minister for Public Expenditure and Reform. We allow derogations but these derogations are provided in the context that they do not break European laws, which is a golden rule. The board must approve any derogations which are above €200,000, which is the EU threshold. Most of our derogations arise in two particular areas.

One is on legal services, primarily litigation, where such litigation is taken against us and we have no choice but to defend it. If we have a firm working on a case for a number of years, sometimes in foreign jurisdictions, and there is then suddenly another strand of litigation, it does not make sense to use another firm and we would continue to use that firm. The foreign litigation that we have been involved in has been very expensive.

The other area in which many derogations arise concerns mainly information technology systems where we had spent a great amount of money building a specific IT system for NAMA to suit our business because when we started this agency in 2010 there was no business like NAMA. Sometimes, if we wish to try to do something else and add additional controls, we have to pay for those additional services to enhance systems and controls.

Photo of Colm BurkeColm Burke (Cork North Central, Fine Gael)
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In 2018 this figure was €7.4 million, which was quite a significant amount of legal fees, and €3.9 million in 2019. This is a substantial amount of money for non-competitive procurement.

Mr. Brendan McDonagh:

Yes, but much of that unfortunately is outside our control and is related to litigation which is taken against NAMA where we have to employ firms to deal with this. Much of this litigation took place in the US which is very expensive.

Photo of Colm BurkeColm Burke (Cork North Central, Fine Gael)
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Over the next 12 months to two years, where will NAMA be in that legal situation?

Mr. Brendan McDonagh:

One of the big things we are trying to do is to reduce the litigation. Two years ago we had close to 90 litigation cases. Currently we are down to 46 cases. We are trying to dispose of litigation as we move on. There is always a threat of new litigation.

Photo of Colm BurkeColm Burke (Cork North Central, Fine Gael)
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Of those 46 cases will many of those be completed by this time next year?

Mr. Brendan McDonagh:

Yes, because we are actively pursuing mediation settlements where we can to try to reduce these costs. Unfortunately, some of the foreign litigation - I will not name the individuals but these are in the newspapers - is high profile in the United States and it is very expensive.

Photo of Colm BurkeColm Burke (Cork North Central, Fine Gael)
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On the litigation costs, where Mr. McDonagh states that there are 46 individual disputes or pieces of litigation ongoing, have the costs for some of these already been paid or can we expect a very big bill when all of those 46 cases are concluded?

Mr. Brendan McDonagh:

We are working through to resolve those issues. Sometimes we have litigation taken against us by parties who repeatedly appeal the decisions, even in Ireland, up to the High Court, the Court of Appeal, and even in some cases, to the Supreme Court. In the event that one gets an order for costs there may be nothing to recover from the party who brought this action all of the way but we have had to incur the costs of defending his actions

Photo of Colm BurkeColm Burke (Cork North Central, Fine Gael)
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On the €7.8 million in 2018 and €3.9 million in 2019 that we were discussing, do we expect a higher figure in bringing those 46 cases to a conclusion?

Mr. Brendan McDonagh:

No, our core objective is to reduce the number of cases and legal costs. That is what we expect to do by the time we get to our expected end date of 2025. We are trying to resolve as many cases as we can each year to reduce our costs. The quicker that litigation can be resolved, the better and the lower the costs will be.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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We will be moving to Deputy Hourigan. Deputy Burke briefly now to conclude, please.

Photo of Colm BurkeColm Burke (Cork North Central, Fine Gael)
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NAMA’s report, and this is a different issue, refers to €6.3 billion in non-disposable income from inception. Can Mr McDonagh explain this €6.3 billion in non-disposable income please?

Mr. Brendan McDonagh:

NAMA at the start acquired loans in excess of €32 billion, which involved approximately 60,000 individual properties hanging out of them. Thankfully, some of those properties had income in rents coming from them. Non-disposable income is made up mainly of rents or debt settlements with people where additional unencumbered assets and things like that are being handed over. The majority of this money relates to rents which we received from assets we collected over the years before we sold them.

Photo of Colm BurkeColm Burke (Cork North Central, Fine Gael)
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I thank Mr. McDonagh.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I call Deputy Hourigan to speak, now.

Neasa Hourigan (Dublin Central, Green Party)
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I thank the Chair and I also thank Mr. McDonagh for his time today. I am a bit like Deputy Carthy and am trying to get to grips with all of this. I have a question but I will check that I have it right before I ask it. Clairvue is the fund that bought the loans and was introduced to NAMA by Avestus. Is that right?

Mr. Brendan McDonagh:

Yes.

Neasa Hourigan (Dublin Central, Green Party)
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NAMA had told Avestus, or it had worked out and NAMA had confirmed for it, what the lowest or acceptable bid was. Clairvue offered almost exactly that, which we now know was probably less than it was worth. In some of the submissions today I am reading that Clairvue paid Avestus a fee in performance-related compensation. What does that relate to?

Mr. Brendan McDonagh:

That relates to the management of the assets. As I said at the start, these assets were involved in very complex financial structures in the way they were set up. Clairvue took the view that it needed people in Avestus to help it to unwind the assets as they were sold over time and it paid Avestus an asset management fee to help it to realise these assets over time. Avestus was not going to benefit from any profit but it is going to get an asset management fee on the back of managing the assets.

Neasa Hourigan (Dublin Central, Green Party)
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On that relationship between Avestus and Clairvue, they effectively were trading information between themselves around what the asset was worth and NAMA's position under the section 172 declaration is that the Irish State has no recourse here?

Mr. Brendan McDonagh:

We have no recourse because they said they were not going to benefit financially if Clairvue made any profit out of the assets and that was confirmed to us by both Avestus and Clairvue. If their statutory declarations turned out to be false, then we would refer that to the Garda and the Garda would investigate it.

Neasa Hourigan (Dublin Central, Green Party)
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Is Mr. McDonagh aware of any of this type of information trading impacting any other NAMA transactions?

Mr. Brendan McDonagh:

Information trading?

Neasa Hourigan (Dublin Central, Green Party)
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This kind of swapping of information between two different funds.

Mr. Brendan McDonagh:

No. As I said to one of the Deputy's colleagues, what goes on is that all NAMA debtors have been trying to get out of NAMA from day one. They have been approaching banks, private equity funds and wealthy investors to tell them that their loans are in NAMA and asking them to refinance those loans out of NAMA, at which point they would help the bank, private equity fund or investor to manage those loans afterwards. That is the real world and that is what happens. The reality is that whoever puts their money up, these guys are tough as nails and they will not give any of their profits away to the former debtors. They might pay them a fee to help manage the asset, depending on the complexity of the situation and if they needed them. In most cases, they do not pay a fee. They just throw the debtor aside and manage the asset themselves.

Neasa Hourigan (Dublin Central, Green Party)
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This is a slightly broader question. Given that our bondholders are repaid and considering NAMA's projections of a €49 million financial loss in 2020, is it still the plan to wind down and dispose of assets on the existing timeline? If so, why? Would it be more prudent for the State to hold on to some of these assets and realise the more annualised yield?

Mr. Brendan McDonagh:

If the Deputy sees the composition of our assets, which was in the briefing pack I sent in, a lot of our assets are land and development assets. We believe some of this land will become quite valuable before 2025 because of planned infrastructural works by the State. To give the Deputy an example, we have a lot of land banks in north Dublin. If the planned MetroLink went ahead, whatever the case is, that would open this land bank.

Neasa Hourigan (Dublin Central, Green Party)
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Does that change NAMA's schedule in terms of 2021?

Mr. Brendan McDonagh:

No. It does not change our schedule. Pre-Covid-19, there were plans for work to start on MetroLink and once we start opening up and approving access to lands, as everybody would know, it effectively becomes more valuable in terms of people getting planning permission for housing, commercial buildings or whatever the case is. This turns the land from having agricultural value into having commercial value. For argument's sake-----

Neasa Hourigan (Dublin Central, Green Party)
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I will stop Mr. McDonagh there because I want to get one more question in before we go. How does NAMA's performance compare with that of other international asset management agencies in the same period, in Mr. McDonagh's estimation?

Mr. Brendan McDonagh:

Independent reviews have been done on asset management companies by groups such as Moody's. It analysed NAMA versus the Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria, SAREB, in Spain and the German bad bank. Moody's said that NAMA has been by far the biggest success of those three comparable bodies that were set up in the same time. Even the troubled asset relief programme, TARP, in the US, which was set up in late 2008, has had a performance of somewhere around 1%, although it has been a few years since I have seen its figures. Even on the measures that were set up by the Comptroller and Auditor General in the section 226 report, our performance has been up around 7%. We are farther ahead and our costs are a lot less than the comparable bodies in Germany and Spain.

Alan Dillon (Mayo, Fine Gael)
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I welcome Mr. McDonagh and the other witnesses to the committee. I will primarily focus on the organisation and staff of NAMA. I see from the report that NAMA has had year-on-year growth in staff numbers from 2010 to 2014, resulting in 369 employees at the end of 2014. What are the current numbers of staff in contracted employment with NAMA? What is the gender balance of that? What percentage of senior managers are female in the organisation?

Mr. Brendan McDonagh:

On staff numbers, we peaked at 380 in 2014 and we had 369 by the end of 2014. In 2019, we had 211 staff, we currently have around 180 and we plan to get to 143 by the middle of next year. Our overall gender balance is 52% male and 48% female. Of the executive team that reports to me, 25% are female.

Alan Dillon (Mayo, Fine Gael)
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Mr. McDonagh said that in 2019, NAMA had 211 employees. Some 19 of these were made redundant, sharing €1.01 million in redundancy payments. In light of NAMA's wind-down, how many redundancies is it expecting in 2020 and what strategies is it using to retain staff?

Mr. Brendan McDonagh:

We are in this difficult situation where we are trying to retain certain skilled staff and then we have a voluntary redundancy programme. In fact, our voluntary redundancy programme just closed this week. We offered 33 redundancies and we only had 20 who applied for and accepted them. We have a number of people on contract, so that will hopefully make up a lot of difference. That is not surprising in the Covid-19 environment. This time last year, people wanted to leave because there were plenty of jobs in the economy but it has become different in the last six months, which is understandable. To answer the Deputy's question, everybody in NAMA will be made redundant by 2025. That is the trajectory we are on, while at the same time we hope to return at least €4 billion to the Exchequer. That is what it is about. It was never an organisation for the long term.

Alan Dillon (Mayo, Fine Gael)
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Of those 33 who were offered redundancies in 2020, I see that in last year's payout, €655,000 was paid out to 20 members of staff who were on garden leave. Will these 33 redundancies also remunerate garden leave? Can Mr. McDonagh let members know what garden leave is and the reason why those staff were on garden leave?

Mr. Brendan McDonagh:

The reason we have garden leave is because of an issue that was raised by the Committee of Public Accounts in 2012 and 2013. The committee said that people were leaving NAMA and jumping straight into the private sector and that it was not good that they were bringing their knowledge from NAMA straight over to the other side of the table. The NTMA is the employer, not NAMA. It introduced garden leave provisions so that when anybody leaves NAMA, they have cold storage periods before they can start working anywhere else. Garden leave provisions are typically three months' contractual leave but if somebody says they have been offered a job somewhere that is unrelated to NAMA, we might reduce that to two months. That is just a way of ensuring somebody does not leave NAMA and go straight into somebody across the table.

Alan Dillon (Mayo, Fine Gael)
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Does NAMA record that?

Mr. Brendan McDonagh:

Yes.

Alan Dillon (Mayo, Fine Gael)
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In the annual records?

Mr. Brendan McDonagh:

It is disclosed in our financial statements every year.

Alan Dillon (Mayo, Fine Gael)
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Mr. McDonagh has answered my question on garden leave, on top of redundancies. Does Mr. McDonagh feel that was appropriate and will we see that happening in the future? I see that NAMA has reduced the outstanding loans to €1.8 billion and the number of debtors to over 200. Mr. McDonagh said that NAMA should be wound down by 2025 so will there be a year-by-year reduction in redundancies?

Mr. Brendan McDonagh:

Yes. We plan to go from 143 staff down to 80 next year. Some 63 people will be made redundant. At the end of the day, it is not a nice thing when people have worked hard for the agency over the years to thank them and tell them their jobs are gone. However, everybody knew when they came into NAMA that it had a limited lifespan and once the assets are gone that is it. We cannot employ people unless we have work for them.

Mr. Aidan Williams:

We also have to present a detailed wind-down plan to the Minister for Finance by the end of 2021.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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I welcome the witnesses and thank them for attending. I understand that €4.5 billion is already secured and realised through the organisation. Credit is due to the work on that. There is a projection that €4 billion is to be realised between 2019 and the end of the organisation's role, as it were. Is that still on track?

Mr. Brendan McDonagh:

Absolutely, it is still on track. We are targeting €4 billion and, hopefully, we can do better than that. It would be extra money for the Exchequer, which will undoubtedly be needed.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Absolutely.

Mr. Brendan McDonagh:

We are still on track for that.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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The Comptroller and Auditor General's report says there was a large number of high-risk, equity-backed loans, which had no property or collateral. This relates to Project Nantes, which NAMA acquired from participating banks for a nominal amount of €1 per loan. Most other loans were property backed and related to properties in the US and across Europe. With regard to that portfolio, I understand Project Nantes was one of the first portfolios the witness dealt with under NAMA. From his earlier comments and the question regarding an individual who was involved both on the negotiating side and ultimately in one of the purchasing entities, I believe he said that the amount was mooted around October 2011 but he did not start until, perhaps, November or the like.

Mr. Brendan McDonagh:

December.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Okay. According to the Comptroller and Auditor General's report, the negotiations were continuing. It states: "It then went on to agree adjustments ...". Basically, it was not finalised and was continuing. How long did that process continue?

Mr. Brendan McDonagh:

It continued on until a month later, January 2012. In fact, in January 2012 there was one equity loan which was attached to the Paddington asset, that was including Clairvue, and we took it out. There was an adjustment in the price to reflect that. It was the best outcome for NAMA because we made €1.1 million more than what Clairvue was prepared to pay for it by holding onto it.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Did the price change from that originally mooted in October through to December?

Mr. Brendan McDonagh:

Yes. It made a conditional offer to us of around €29 million on the basis that we would indemnify it against anything that would be wrong with the assets, which we could not do, and that we would pay its due diligence costs of €250,000. We said we were not doing that and we would not do a deal with it on that basis. We negotiated those two things away, the indemnity and the €250,000. In January 2012, we became aware that there were developments in the Paddington asset which were going to increase its value and we decided to retain the Paddington asset. We had the loan over the asset itself, a 50% loan, but we also had the equity piece which the debtors had borrowed to put the equity into the Paddington asset. We took that loan out of Clairvue and there was an adjustment to the price from around €29 million down to €26.7 million. With that adjustment of €2.5 million or €2.6 million we ended up getting €1.1 million more subsequently on the back of taking it out of the loan.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Obviously, the concern of the committee is not only the connection with that individual, which I heard the witness say he regrets, and it would have been better if it had been made known in advance of all this, but also the losses that materialised at the end of the day. We want to see the full value realised on behalf of the taxpayer.

I have a question for the Comptroller and Auditor General. His report states that "without the assurance of a contemporaneous asset valuation and a competitive sales process, I believe there is no basis to conclude that NAMA achieved the best possible financial outturn from the Project Nantes loan sale". What was missing in his investigations that means he cannot make a full definitive evaluation in terms of any impropriety, if one can call it that? His report also states: "Since Project Nantes involved a loan sale there is no reason to believe that there was any infringement of section 172 of the NAMA Act". How did he come to that conclusion?

Mr. Seamus McCarthy:

On the first question, the lack of a competitive process for the disposal of the Project Nantes loan portfolio and, absent that, the lack of independent and up-to-date valuations are the key things that leave me without the assurance that this was the best possible price achievable. My sense is that there could have more available, but I could not put a figure on it.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Which is it - a competitive process or if there was more information available to him?

Mr. Seamus McCarthy:

One gets some level of assurance from the independent valuations, but the competitive process in the market, with sufficient potential bidders, would be the best assurance.

Regarding section 172, the legislation is very tightly drafted. It was originally envisaged that NAMA would be disposing mainly of property. It did not envisage, and put the same restriction in respect of, the disposal of a portfolio of loans. I do not see a basis for concluding there was illegality here.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I have some questions for the chairman of the board of NAMA. NAMA informed Avestus of the €125.5 million repayment target it aimed to achieve, and Avestus was given six months to meet that target. Despite the importance of that exchange, NAMA, as far as we can ascertain, did not document that communication process or put the proposal in writing to Avestus. As the chairman of the board, did you find it unusual that the offer made to Avestus was not properly documented or put in writing? Was that common practice within the organisation, particularly with a multimillion deal such as this? It was not documented and there were no minutes or any documents relating to that, as far as we can ascertain.

Mr. Aidan Williams:

First, I was not there at the time. I was appointed to the board in April 2019.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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If you had been there, would you have done it?

Mr. Aidan Williams:

With the benefit of hindsight, obviously recording everything is the optimal thing to do. It was not done at the time. I would like to think that certainly it is done on every occasion now. It is a lesson learned matter from that.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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What you are saying is that it should have been done at the time.

Mr. Aidan Williams:

It is very reasonable to say "yes".

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I refer to the exclusivity of the offer to Clairvue. This is something that when it arises in practice always raises questions not just in respect of NAMA but also other bodies. If one is bringing a car for which one paid €4,000 to a car auction, and the first person one meets inside the gate offers €4,000 and one decides to take it and go home, it would not be good practice, particularly if there were potentially other buyers. Has the board ever discussed loans being offered exclusively to one body such as this? Why were the loans not advertised in the normal fashion? I heard the CEO's answer on that, but would it not have been better that they were advertised, at least? There were a number of months involved. There was no independent valuation. Would it not have been advisable to seek a valuation?

Mr. Aidan Williams:

In terms of valuations, as the CEO mentioned, there were appraisals at the time.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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With respect, going by the CEO's earlier answer, it was not carried out by suitably qualified people in the context of a multimillion euro deal such as this.

Mr. Aidan Williams:

They were suitably qualified in their own field but there was an acceptance that the market had dropped.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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The Irish market had but some of these-----

Mr. Aidan Williams:

It was probably global, to be fair.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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A portion of these loans related to the Irish market. A lot of the overseas loans had property which was going up in value, as was proven by the case of the two London properties, where they multiplied quickly and became very profitable. One part of the portfolio was in Ireland. Should a question not have arisen at the board where there was no independent valuation and where one outfit, Clairvue, was given exclusive rights to buy this?

Mr. Aidan Williams:

On the analogy of the car auction, NAMA does not grant exclusivity until after diligence has been done on any debtor's portfolio. The proof of that is in the Paddington asset that was removed from the portfolio when information was received that the asset was potentially more valuable. The exclusivity is given when NAMA is at the stage where it has done diligence and thinks it appropriate at that time to enter into an exclusivity agreement.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Is there no record, documentation or minutes of that exchange of information with Avestus regarding the sum?

Mr. Aidan Williams:

There is no record other than that all parties are aware of it.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Mr. Williams is talking about due diligence and proper procedures. We are talking about multimillion euro deals and the public, which took a big hit with regard to these loans and what happened with the banks at the time. Mr. Williams says that due diligence was carried out in respect of this multimillion euro deal, but the fact is that there are no minutes and there was no written record of the offer to Avestus. As the chairperson of the board, does Mr. Williams think that is acceptable?

Mr. Aidan Williams:

I would like to think it would not happen today.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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By implication, Mr. Williams is saying it should not have happened then.

Mr. Aidan Williams:

It is good practice for all of these things to be recorded.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Regarding the non-competitive nature of the valuation, Mr. Williams said that Avestus was only given exclusivity a long way into the process. The valuation used by NAMA was a 2009 valuation. Part of the portfolio related to Irish properties which we would all accept would have dropped from 2009 to 2011. Those of us who were around at the time would have seen that happen. The other part of the portfolio which was overseas, not in this State, increased in value, for example, the Paddington and Kensington properties. Moving into 2012, those were exchanged for that 2009 valuation. Why was no revaluation of the assets carried out prior to the sale in accordance with NAMA's loan sale policy? I might put that to the CEO.

Mr. Brendan McDonagh:

The Clairvue properties were Irish assets and eastern European assets. They were not assets in London, New York or such. In 2011-----

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Will Mr. McDonagh repeat that?

Mr. Brendan McDonagh:

The foreign assets in the Clairvue loan sale were eastern European assets. They were not assets in London, New York or some of the better places which had recovered. If one thinks back to mid-August 2011 up until the end of 2011, the eurozone was in deep crisis. There was talk at the time about the euro imploding. Financial markets everywhere were dislocated and in distress. That is why we did not believe there was any increase in value in those eastern European assets.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Mr. McDonagh argued in his opening statement and in previous documentation we received that it was the best gain in the circumstances for NAMA and the State. How can he argue that if there was a total absence of any other valuation or independent valuation? Does he not see that there is a defect in that?

Mr. Brendan McDonagh:

It is easy to come back with hindsight and say that we should have done certain things, and if we were doing it today, we would do so. At the time, NAMA was under immense pressure from the troika to generate cash to pay off €7.5 billion of debt in order that Ireland could get out of the troika bailout. We knew that it was highly likely that these debtors would be enforced against by third-party banks and creditors. We had to make the decision at the time because we knew that we had to get money in and that these guys could fall over at any moment. If they fell over, we would find it very difficult to realise value on those assets.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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On the question of the individual who was part of Avestus and was subsequently a principal in Clairvue, could that individual also have been part of the Quinlan partnership?

Mr. Brendan McDonagh:

He was not a NAMA debtor at all. He had no money borrowed from NAMA.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Could any major NAMA debtor or someone involved in setting up Avestus have in any way gained from Project Nantes?

Mr. Brendan McDonagh:

Is that people who worked in Quinlan Private or who became Avestus?

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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Or any NAMA debtor involved in establishing Avestus. Is Mr. McDonagh confident that no person would have gained from the sale of Project Nantes?

Mr. Brendan McDonagh:

We sought refreshed declarations last year from both Avestus and Clairvue, and they both confirmed that none of the people involved in Quinlan Private benefited from the transaction.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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I understand that NAMA has about €1.2 billion to €1.3 billion left in assets. Tomorrow is the first day of the future. Can Mr. McDonagh assure the committee and public here today that, when disposing and making use of those assets, the taxpayer and the State will receive the maximum benefit?

Mr. Brendan McDonagh:

Absolutely. If I might give a practical example, an off-market offer for two houses in a good suburb in Dublin was recently made to us. We were offered €1.8 million to sell them off-market. We said we would not sell them off-market, we put them on to the market, and we only realised €1.5 million when we put them onto the market. If we had accepted the off-market offer, we would have got €1.8 million. We said we could not because we live in a new world and we had to put them on to the market, and we got an offer of €300,000 less in the final outcome. That is why I said in my statement that putting properties on the market is not always the best outcome, but in the world we live in today, everything goes onto the market and has a valuation. It is completely different from 2011.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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We have eight minutes left. I will allow a question from each of the members.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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Mr. McDonagh did not write the legislation and section 172 did not anticipate some scenarios. That gap arose in the Committee of Public Accounts during the last Dáil. In hindsight, are there things that Mr. McDonagh thinks we should do regarding section 172? I know there is one case outstanding with the Garda, from the last parliamentary question I asked. Is that the only one at present?

Mr. Brendan McDonagh:

The Garda will not tell us what is going on because it is discussing the matter with the Director of Public Prosecutions or such. We believe that is with the Garda.

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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What would Mr. McDonagh do differently if he was writing the legislation?

Mr. Brendan McDonagh:

In fairness, and the Comptroller and Auditor General acknowledges this too, that in 2012 the board recognised there was a deficiency in section 172 whereby it only covered the sale of properties. That is why the board said it would extend farther than the legislation allowed and that we would seek the section 172 for sales by debtors or receivers or in respect of loan sales. The board extended it even though it had no statutory basis. Therefore, we started seeking the section 172 declarations anyway even though it was not particularly a legal requirement under the Act to deal with that. The board recognised this in 2012.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I want to return to this notion that the director of Avestus was handling the sale on behalf of NAMA or was, at least, advising it and was also a director of Clairvue which was the ultimate purchaser. There are two subsections to my question. The reason we know or became aware of this was that a former Deputy, Mr. Mick Wallace, informed the House of that information. Was NAMA aware of that before it was conveyed to the House or was that the first time Mr. McDonagh heard of it?

I hear what Mr. McDonagh is saying with regard to changed procedures over the past number of years and we welcome that. I hear what Mr. McDonagh is saying when he says he hopes it will not happen again. However, have NAMA's procedures and processes changed to a degree that at least there is an effort or a mechanism in place by which there is an attempt to identify whether people are working for, advising or facilitating purchasers of portfolios who might have some form of insider information?

Mr. Brendan McDonagh:

In fairness to this person in Avestus, he was not involved in the sale. NAMA was doing the sale.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I get that.

Mr. Brendan McDonagh:

Effectively, he was a director of this entity as regards-----

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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He had the pertinent information from NAMA.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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He may have. I cannot say he had or had not because his colleagues may or may not have told him. I do not know. I cannot speculate on that.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I will speculate that he did.

Mr. Brendan McDonagh:

That is fine. The Deputy can say that. I will not say that. In terms of procedures and as a result of our previous appearance in front of the committee we have put a chief legal officer in place in NAMA. We have started a process of going back through transactions to look at documentation around them and have done quite an involved exercise on the biggest asset sales that happened in NAMA, which is still ongoing. There are check processes around this, going back and looking at things like this. We are at the later stages of that and have not uncovered anything unusual or something like this. I wish to give the committee that assurance. It shows again that when the committee makes a suggestion to us we take it on board. We try to do supplemental checks we are legally entitled to do. That is the important thing. We cannot do something or make allegations against people but we try to re-establish the facts and make sure they were what we were told at the time.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Mr. McDonagh is being proactive in that.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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We need to move on.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Was Mr. McDonagh aware of the apparent conflict before the House was informed?

Mr. Brendan McDonagh:

I was astounded because I was coming in that day to the Committee of Public Accounts. I believe it was September 2008. The first I heard of it was just before I came into the meeting and to say I was flabbergasted would be an understatement. I was not happy.

Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Neither Mr. McDonagh nor anyone else in NAMA knew about this.

Mr. Brendan McDonagh:

Nobody else in NAMA knew.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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I have two quick questions. In terms of the lands and sites NAMA currently has to dispose of before 2025 or thereabouts and previous land it has sold, has NAMA kept the full planning permissions attached to those sites active or did it let them lapse? If so, roughly how many are we talking about? I would have hoped and expected that extensions to planning permissions would have been applied for to keep the value on the sites. Finally, if we find there are breaches of section 172, will enforcement action and pursuit of those issues be taken?

Mr. Brendan McDonagh:

With regard to planning, we always seek to extend the planning permission because if we let it expire then, effectively, the value of that asset goes back to agricultural value as opposed to the value of planning. Sometimes the issue has been that the planning granted is not commercially viable but that is another story. If it does not cost much to extend the planning we will do it and we will work with the local authority on that basis.

In terms of section 172, if we find that anybody associated with NAMA did something we were not aware of at the time and people tell us or we find out ourselves and believe there is a breach of the law, we are absolutely obliged under the Criminal Justice Act to report it and we do report it.

Alan Dillon (Mayo, Fine Gael)
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I have one final question on the commercial strategy around the Poolbeg strategic development zone, SDZ, and also around the docklands. Where is NAMA with regard to both of those commercial strategies?

Mr. Brendan McDonagh:

The Dublin docklands got approved in 2014. We got the SDZ status and, effectively, 75% of that has gone through. We have remaining interest in six sites. Two of the sites are being built at present or are resold. When they are complete they will be handed over to the new purchasers who bought them on a completed basis. They are two high-profile sites, namely, the Exo Building near the Point Village and Boland's Quay which has been pre-sold to Google.

We have minority interests in four other sites where we are in joint ventures with Oaktree and Kennedy Wilson. This is public information. We have a common interest with Waterways Ireland on one other site. We are trying to work with Waterways Ireland to sell our joint interest in that site together to maximise the value as all that money will come back to the taxpayer because Waterways Ireland and NAMA are State entities. That is what we have left in the docklands.

Poolbeg SDZ was granted planning in April 2009. We launched a competitive process in July 2019 and that process is still continuing. We hope to conclude that as soon as possible.

Photo of Brian StanleyBrian Stanley (Laois-Offaly, Sinn Fein)
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We are finished taking evidence. I thank our witnesses. It is always good to have the cathaoirleach of the board and Mr. McDonagh and his colleagues here. Thank you for the information provided at today's meeting.

I also thank the Comptroller and Auditor General and his staff and the Oireachtas liaison person for attending and assisting the committee in preparation for today's meeting. Is it agreed to request that the clerk seek any follow-up information and carry out any agreed actions arising from today's meeting? Agreed.

The witnesses withdrew.

The committee adjourned at 1.28 p.m. until 4.30 p.m. on Wednesday, 14 October 2020.