A report into Nama’s sale of Project Eagle has found the agency lost £190 million (€220 million) on the deal.
The report by the Republic's finance watchdog, the Comptroller and Auditor General (C&AG), which was released on Wednesday afternoon, raises a number of concerns about the sale of the State agency's Northern Ireland loan portfolio.
The Government is now to establish a formal inquiry into the sale, with the structure to be discussed at a meeting between the Taoiseach and Opposition leaders on Thursday.
The report said Nama did not consider the sale of the Northern Ireland assets until US law firm Brown Rudnick wrote in June 2013 offering an exclusive deal.The legal team was working on behalf of US investment firm Pimco.
The report found that accepting Pimco’s offer for the portfolio would have led to significant policy changes by Nama.
However, the agency did not seek any external expert advice on the sale and two of its valuations underestimated the value of the loans.
The report outlines how Pimco became aware in March 2014 of a proposed success fee arrangement between Brown Rudnick, law firm Tughans and a former member of Nama’s Northern Ireland advisory committee, Frank Cushnahan.
It informed Nama and withdrew from the process.
Following Pimco's withdrawal, just two firms - Cerberus and Fortress - remained in the competition, and both subsequently submitted bids.
Two bids were received on April 1st, 2014.
Cerberus bid £1.241 million - which was £11 million higher than the revised minimum price - and Fortress bid £1.075 million - £155 million below the revised minimum. Nama accepted the Cerberus bid.
The report said Nama departed from its normal loan sale process in this sale.
“The restrictions Nama implemented, relative to its standard process, reduced both the level of competition and the opportunity for potential bidders to assess the value of the portfolio.
“They acted as a deterrent for a number of bidders and had the potential to affect the price achievable.”
Frank Cushnahan
The C&AG report also said former Nama advisor Mr Cushnahan had declared his involvement as an advisor to six Nama debtors and to a third party engaged in a joint venture with a seventh debtor.
Loans held by the six debtors represented about half the value of the agency’s Northern Ireland loan book.
The report said Nama should have considered the inclusion of Mr Cushnahan, who had been a member of its Northern Irish advisory committee (NIAC), in the discussions on the sale, given that he was acting as an advisor to the debtors.
It said Nama became aware of the proposed success fee arrangement involving Mr Cushnahan, Tughans and Brown Rudnick in March 2014.
They were also aware the potential payment was in the amount of £15 million to £16 million, to be shared equally.
The report says: “Given the joint agreement between the parties to the success fee arrangement with Pimco, all of the payment - not just the payment to Mr Cushnahan - should have raised concerns for Nama.
“The board subsequently learned of the existence of a success fee arrangement involving Cerberus, on the one hand, and Brown Rudnick and Tughans on the other.
“The understanding that Brown Rudnick and Tughans had allegedly been in an arrangement with a member of the NIAC at any stage of the process should have raised concerns for Nama about potential impacts of such arrangements on the sale process, unless convincing explanations could be produced.”
CA&G report said the allegations of Mr Cushnahan’s involvement in an arrangement to share fees with Brown Rudnick and Tughans warranted more action by Nama when the matter came to light.
Investigation
Earlier on Wednesday, the Government agreed to carry out an investigation into the Project Eagle sale after the report was discussed by the Cabinet.
This investigation will be independent of a separate inquiry into the sale that will be conducted by the Public Accounts Committee.
A Government statement read: “The Government . . . recognises that it has its own responsibilities to ensure that all matters of public concern with regard to the functions of an important public body such as Nama are fully addressed.
“It has therefore decided that the Taoiseach will invite Opposition party leaders to meet him tomorrow with a view to seeking agreement on the issues of public concern that require further investigation and the most appropriate nature and terms of reference for such an investigation.
“Subject to the outcome of those discussions, the matter will then be the subject of a Dáil debate early in the new session.”
An investigation by British police is already under way into the sale, and a number of arrests have been made.
Responding to the report, Fianna Fáil spokesman on finance Michael McGrath said Mr Cushnahan casts a shadow over it.
Mr McGrath said Nama should have stopped the entire process once it became known to them that Mr Cushnahan was set to benefit financially.
He said an inquiry must now take place.
Nama response
In an unprecedented move, Nama said it “categorically rejected” the report’s key conclusions, saying that Project Eagle’s €1.6 billion price tag was the best achievable result.
The agency said the C&AG reached its conclusions based on incorrect assumptions on the discount rate for property in the North.
In a statement, Nama chairman Frank Daly said: “It is clear to us that, if Nama had retained the Eagle portfolio, there would be no investor interest in buying it today – or in the foreseeable future – at anything close to the £1.322 billion (€1.6 billion) price that was actually achieved.”
For a State body to reject the findings of a report by the C&AG is highly unusual.
Asked about Nama’s criticism of the C&AG report, Minister for Public Expenditure Paschal Donohoe said that they were “both exceptionally important organisations”.
He said he and the Government had an absolute appreciation of the work of Nama.
“We also do believe, given the issues, given the differing views of both bodies, that a further investigation is warranted by Government,” he said.
“We also want a form of investigation that will deal with these matters in a way that is acceptable to the public and to the Oireachtas.”
Controversy
The sale has been the source of enormous controversy.
Independent TD Mick Wallace, who has been highly critical of Nama, told the Dáil that politicians and business people in the North were to benefit from the deal.
The Government had also consistently resisted calls for an inquiry into the sale.
Following the publication of the report, Mr Wallace said it showed the “breathtaking indifference, and at times arrogance, to any form of oversight of Nama” by the Minister for Finance and the Taoiseach.
He said the proceeds of the sale should be frozen pending an investigation.
The report comes as Nama’s financial outlook continues to improve.
The agency says it will return a €2.3 billion profit to the State, though in a note to investors earlier this week, stockbrokers Davy said that figure was likely to increase.
The agency was also praised on Thursday by a European Commission report on the performance of the bad banks in Ireland, Spain and Germany. It found Nama has been "very effective with the sale of assets".
