Ireland’s National Asset Management Agency’s £1.1bn sale of its Project Eagle portfolio to Cerberus Capital Management was “seriously deficient” and failed to get value for money for taxpayers, Ireland’s Committee of Public Accounts has said following a three-month investigation.
The report, published yesterday, said that Nama undermined the sale of the €5.5bn (£4.8bn) Northern Ireland non-performing loan portfolio by failing to respond to possible conflicts of interest and by undervaluing its assets.
In particular, it highlighted the role of Frank Cushnahan, who was initially a part of Nama’s Northern Ireland Advisory Committee when it was set up in 2009.
Cushnahan was a financial consultant to half of Nama’s Northern Ireland debtors and had also been involved in talks between two law firms, Brown Rudnick and Tughan, in 2013. The two firms advised investment manager Pimco and were the first to suggest to Nama that it would be interested in buying the portfolio in a closed-market sale.
The committee condemned Nama for not removing Cushnahan immediately after he revealed his consultancy work with the bank’s debtors in 2011 and 2012. It also said that Cushnahan’s knowledge of Nama’s strategy in Northern Ireland alongside his involvement with Pimco meant that “any real or perceived” sharing of that strategy could have compromised the sale.
At a board meeting in March 2014, Nama said that Cushnahan, who resigned from Nama in November 2013, had not made known any conflicts of interest in terms of its involvement with Pimco. The board went on to say that Cushnahan’s involvement could harm the bank’s reputation.
Avoiding a fully open deal
According to the report, Nama had not considered enough options before selling the portfolio to Cerberus – which was also advised by Brown Rudnick after Pimco dropped out three months before the sale closed in June 2014.
It said that Brown Rudnick had wanted to influence Nama’s decisions and “gain preferential access to a sales process” by proposing the sale in the first place.
In the following months, the report said, Nama appeared to favour a sales process that would not be fully open after it wrote an analysis of open and closed transactions that included only the advantages of a closed deal. The sale was focused on a shortlist Nama’s adviser Lazard had drawn up in January 2014.
A month later, Nama and Lazard had refused entry to eight of the 10 firms that had expressed an interest in buying the portfolio after the sale became public knowledge on 20 February 2014. However, a week later Lazard claimed in a letter to Nama that the six firms in the race would generate enough competition.
Undervaluing the portfolio
In September 2016, the comptroller and auditor general started the investigation into Project Eagle with a report that concluded that Nama had lost up to £189m in the sale. It argued Nama had underestimated the value of the portfolio at £1.4bn – a 5.5% discount on its most recent valuation. Its own estimate was £1.5bn.
Nama’s reserve was lowered from £1.3bn to £1.2bn in March 2014 after it sold £83.6m of loans from the portfolio. The final sale price was another £100m lower after it sold a number of other assets.
While this week’s report did concede that the comptroller’s own figure was also an estimate, it said Nama had been over-reliant on cash flow projections because it did not have a comprehensive set of valuations on its Northern Ireland assets. It also suggested that the Nama’s board had not been made aware of the full extent of the financial loss that would come from setting the reserve that low.
The Committee of Public Accounts said that although it understood Nama had a “general pressure” to sell its loan portfolios for the public good, there was “no specific pressure” to sell at the time that it did.
It concluded: “It is the view of the committee that the sales strategy pursued by Nama included restrictions of such significance that the strategy could be described as seriously deficient.
“It is, therefore, the opinion of the committee that Nama has been unable to demonstrate that by pursuing such a strategy that it got value for money for the Irish state in relation to the price achieved.”
What was Nama’s response to the report?
A spokesman for Nama said: “It was the board’s commercial and considered judgement, in full knowledge of the financial implications, that the sale of the Project Eagle loan portfolio provided a better financial outcome than any alternative monetisation strategy.
“That was the board’s view in 204 and it remains the board’s view today.”
A statement from the bank said it disputed the idea that it could have reached a better deal in any other circumstances or that it could have seen a £189m rise in value. It said: “No independent, third-party market-based analysis has been sought by, or provided to, the committee to support either of these contentions.”
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