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Nama: 'It's not plausible to say Project Eagle price was too low'

By Cormac McQuinn

Published 24/11/2016

The National Asset Management Agency Treasury building in Dublin
The National Asset Management Agency Treasury building in Dublin

Nama chief executive Brendan McDonagh has defended the controversial €1.6bn Project Eagle sale, insisting it's "not plausible" to say the agency set the reserve price too low.

He said if this was the case, "major astute international investors" that were part of the bidding process would have effectively left "easy money on the table" when they decided not to buy Nama's Northern Ireland loan book.

Meanwhile, Nama chairman Frank Daly made a broader defence of the organisation pointing out that the €22.6bn contingent liability in place in 2013 has been reduced to €3.6bn.

He said this has happened because Nama has operated on a "commercial basis".

He said the reduction in liabilities has that the Irish State is in "a good position" in the context of "significant uncertainties" ahead with Mr Daly citing the election in the United States of Donald Trump.

Mr Daly said: "There is market speculation that the likely impact of the policies signaled by Mr Trump is that interest rates will rise faster than had been expected up to now.

"That is likely to reduce the attractiveness of property assets to international investors," he added as part of his argument that selling the Project Eagle portfolio was the right thing to do.

Mr McDonagh and Mr Daly are today appearing before the Dáil's Public Accounts Committee (PAC).

TDs are examining Project Eagle after the Comptroller and Auditor General (C&AG) found that a probable loss of £190m (€223m) was incurred in the 2014 deal.

Nama has rejected this finding.

Mr Daly told TDs: "Decisions can only be based on information available at a particular point in time.

"Would we have realised more if we had delayed all our sales by five years? Perhaps. We will never know and neither will anyone else," he added.

Mr McDonagh said the conclusion of the C&AG report's conclusion of a probable loss of £190m "rests entirely on the view that Nama applied, or should have applied, a standard discount of 5.5pc to all evaluations."

Nama rejects the argument that this discount rate should have been used, rather than the ultimate rate used in the deal of around 10pc. Mr McDonagh argued that the report "puts forward no external evidence in support of 5.5pc as being an appropriate market discount rate".

Mr McDonagh noted the C&AG Seamus McCarthy's evidence to the committee where  he said it wasn't possible to be definte about the "probable loss".

He pointed out that Mr McCarthy told the PAC there was a margin around the £190m figure but it was not possible to say what the margin might be.

Mr McDonagh said: "Based on the magnitude of possible margins put to him on that date, he did not rule out the possibility that the margin may have been plus or minus £200m or more.

"Therefore, depending on the parameters of the margin, the ‘probable loss’ could have been much higher than £190m or indeed, at the other extreme, that there may have been no ‘probable loss’ at all.

"Such a wide-ranging margin leaves us in the realm of speculation," he added.

Mr McDonagh also said: "It is not plausible to suggest, as is done in this (C&AG) report, that NAMA set a reserve price for the Eagle portfolio which, was too low.

He added: "There was no substantial profit available [in the Project Eagle deal]through alleged Nama mispricing.

"It would be more realistic and more credible to suggest that the £1.3bn minimum price set by Nama was a commercially reasonable target in early 2014 and that only one of the five investors who looked at the portfolio in detail considered that it represented a potentially profitable opportunity for them."

Mr Daly said that Nama has listened carefully to the two months of evidence at the Committee.

"If there is one message above all others that has come home to me based on that evidence, it is the fact that we did not document in greater detail and with greater clarity the rationale for key Board decisions".

He added: "That is a lesson that we have learned from this experience: nowadays, Board decisions and the rationale for them are recorded in much greater detail than was the case three years ago."

Meanwhile, Mr Daly address a letter that Pimco - a failed bidder in the sale process - sent to the PAC.

Pimco insists it took the decision to withdraw from the sale after informing Nama of an alleged success fee of around £16m to be paid to former Nama adviser Frank Cushnahan, the law firm Brown Rudnick and a solicitor at another firm Tughans. They have denied wrongdoing.

Nama insists that it forced Pimco to withdraw from the sale.

Mr Daly said a number of issues raised in the letter were not disclosed to Nama in March 2014.

He said Pimco did not disclose it was approached by Brown Rudnick and introduced to Mr Cushnahan in April 2013, at a time when he was still a Nama adviser.

He said another fact not disclosed was that Pimco was approached by Brown Rudnick in June 2013 about a success fee, one third of which was to be paid to Mr Cushnahan.

Another fact he said was not disclosed was that Pimco had sought confirmations from Brown Rudnick in 2013 as to whether Nama had been informed of, and had approved, the involvement of Mr Cushnahan in Pimco’s proposed transaction.

Mr Daly said: "Pimco’s letter to the Committee is materially inaccurate because it states that Pimco provided details of these matters to Nama in a series of calls in March 2014."

"Pimco did not provide these details to Nama in March 2014 or indeed at the time of its indicative offers in September or December 2013.

"At no stage during Nama's extensive engagement with Pimco from September 2013 until 10 March 2014 did Pimco inform Nama that Mr Cushnahan was a potential beneficiary of the success fee arrangement proposed to PIMCO by Brown Rudnick," Mr Daly added.

He said: "Only Pimco can explain why they did not tell us about these details and we have asked Pimco why none of these details were disclosed to Nama at that time.

Mr Daly also said: "I don’t believe that we have mischaracterised Pimco’s exit from the process but even if we did, in our view, nothing turns on it."

He reiterated his previous evidence to the PAC saying: "the Board was of the view that if PIMCO did not withdraw, NAMA could not permit it to remain in the process.

"In other words, if PIMCO had not withdrawn, the Board was minded to remove them and would have made a formal decision to that effect."

Another company, Cerberus ultimately bought the Project Eagle portfolio.

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