Sale of Project Eagle was 'flawed' and 'unfair'

The sale by Nama of its Northern Ireland loanbook was “flawed” and “unfair”, a damning new report is to find, writes Daniel McConnell and Fiachra Ó Cionnaith.

The Public Accounts Committee (PAC) report into the sale, known as Project Eagle, has found the agency erred on several counts into the €1.6bn sale.

The draft report, marked ‘Strictly Confidential’ seen by the Irish Examiner, has found the agency’s failure to manage conflicts of interest relating to Frank Cushnahan, the man at the centre of the €1.6bn Project Eagle scandal, was “a failing of corporate governance” which “potentially compromised the sales process”.

The report states that, when it came to light that Frank Cushnahan, above, had apparent involvement with PIMCO for a period.

The committee is to find that there was an apparent inconsistency in Nama’s treatment of a request for communications/meetings from different bidders that “could be perceived as unfair”.

The committee is to find that the Comptroller and Auditor General’s determination that Nama, and therefore the taxpayer, lost almost €200m on the sale was fair and based on evidence.

“Having considered the C&AG’s report and the evidence provided to the Committee, the Committee is of the opinion that the C&AG’s report was evidence-based, balanced and reasonable,” the report states.

This represents a major blow to Nama’s credibility as it had vigorously contested the C&AG’s findings.

Although Nama achieved in excess of the minimum reserve price on Project Eagle, it later recognised a loss of stg£162m on the transaction.

However, the board minutes of January 8, 2014 do not record that the achievement of the reserve price would result in a substantial loss, the report finds.

The committee finds that it was not appropriate for Michael Noonan, minister for finance, to meet with Cerberus representatives the day before the Project Eagle bid closing date. It could have given the perception that Cerberus was benefitting from special treatment.

The committee finds it was not appropriate for Finance Minister Michael Noonan to meet with Cerberus representatives the day before the Project Eagle bid closing date.

It also will find that the committee considers that it was not appropriate for Department of Finance officials to meet with senior Cerberus representatives in the days leading up to the Project Eagle bid closing date.

This could have given the perception that Cerberus was benefitting from special treatment.

“The committee considers that it was not appropriate for Nama to meet with Cerberus representatives the day before the Project Eagle bid closing date. It could have given the perception that Cerberus was benefitting from special treatment,” the report states.

The committee’s view is that the sale of Project Eagle was marked by poor record keeping, deficiencies in relation to management of conflicts of interest, a flawed sales process and, ultimately, an inability by Nama to demonstrate value for money.

The report also finds that it was not appropriate to give preferential treatment to any organisations that are engaged in the final stages of a bidding process for the purchase of assets owned by the State, or involved in a tendering process under public procurement.

“This refers to the practice of providing access to the relevant Minister or senior persons in the public body,” the report finds.

The report also finds that the decision by Nama not to tell Lazard, its loan sales adviser, of the reason’s for PIMCO’s withdrawal indicates limits to the role that Lazard was given in relation to the sales process.

The report says that the committee has seen no evidence that there was no specific pressure from the troika to sell the Northern Ireland loan portfolio at or around the time of Nama’s receipt of a proposal to do so.

The committee says that given that Mr Cushnahan would have been knowledgeable about Nama’s NI strategy, it is the opinion of the committee that it was not compatible for him to act as a financial consultant to a number of Nama debtors and act in the best interests of Nama at the same time.

It also will find that the failure of Nama to seek Mr Cushnahan’s removal from the NIAC, following his disclosures in relation to his connections with debtors, was a “failing of corporate governance by Nama”.

When it came to light that Frank Cushnahan had apparent involvement with PIMCO for a period while he was a member of Nama’s Northern Ireland advisory committee (NIAC) and subsequently, Nama should have been more proactive in dealing with the matter, the report states.

The PAC would have expected Nama to make direct contact with Mr Cushnahan:

* To ask him to provide full details of the nature and substance of his relationship with Tughans, Brown Rudnick and PIMCO;

* To remind him of his obligations as a former NIAC member;

* To advise him that the matter would be formally considered by the board in relation to ethics legislation and that any further appropriate steps or referrals would take place, the report adds.

The committee concludes, the report adds, from Nama’s own board minutes that Nama’s primary concern in relation to the involvement of Frank Cushnahan with PIMCO’s bid was in regards to “reputational risk” and “perception.”

The committee is of the view that any damage to Nama’s reputation could have negative implications for other sales processes and protection of that reputation deserved serious consideration, quite apart from ethical considerations.

The treasury building on Grand Canal St which houses Nama. The report finds that the taxpayer lost almost €200m on the sale of the Project Eagle loans.

The report states, that it is the opinion of the committee that receipt of the letter from Brown Rudnick in June 2013, proposing a sale with a supporting letter from a prominent member of the Northern Ireland Executive, created a certain political momentum in favour of a loan portfolio sale in one entire lot; sought to influence Nama’s view of such a proposal; and sought to gain preferential access to a sales process for at least one firm with whom Brown Rudnick and others had a relationship.

The committee is of the opinion that the paper presented by Nama’s executive favoured a sales process that would not be fully open. In particular, the omission of a subheading dealing with the advantages (if any) of an open marketing sales process supports this view, the report states.

The PAC are to find that no evidence of a formal risk management process was provided by Nama to the committee in relation to risk monitoring, evaluation, or mitigation.

Considering the unusual circumstances of the proposed sale, a more rigorous and well-documented risk management process would have been expected.

The report adds that it is the opinion of the committee that, given the high number of stakeholders and the level of political interest involved, combined with the size of the sale being considered, the loss of confidentiality was always a strong possibility.

“However, following the loss of confidentiality, Nama/Lazard refused entry to 8 of 10 firms expressing interest in joining the sales process. In doing so, Nama demonstrated a commitment to PIMCO that marketing would be to a “limited number of potential investors,” the report adds.


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