Alarm bells should have rung much sooner for Nama over Project Eagle
He wasn’t impressed with the banking inquiry. “Did you hear the latest?” he said. “We are now having an inquiry into the banking inquiry. We’ll soon have enough for a football team.” He rhymed them off: “Fennelly, Guerin, O’Keeffe (briefly), McCracken, Murphy, Travers, Nyberg, Regling, Wright…”
As he was talking, it struck me that another name was about to be added to the list with the Nama sale of its Northern loan book, Project Eagle. This was an exceptional transaction. Throw in the additional element of the cross-border political dimension and it is clear that Nama’s big guns should have been trained on every move of this deal. Managed well, it would show Nama as a professional and proficient operator. Managed badly, it could leave a lot of value on the table and confirm the critics’ view that Nama was protected from scrutiny behind a wall of civil service secrecy. The full array of oversight tools that Nama could muster should have been applied in spades.
There are a number of points Nama could have applied to its supervision tools to keep the transaction on track.
The first was when trouble appeared in the shape of a report from Pimco that millions of pounds in fees to local advisers was in the offing. The normal reaction to such a report is to call in the auditors to have a quick look. Not only should this establish if there was any substance to the report, but would send out a clear message that management were on the case. Nama only appeared concerned about Pimco and its link to a former Nama adviser in the North.
The second chance to correct the process was when Pimco stepped aside. Now, there is a conflict of evidence between Pimco and Nama about whose idea it was that Pimco should withdraw from the bidding process. No matter which version is correct, Nama appears to have been satisfied that Pimco’s withdrawal rectified any potential loss of integrity in the process.
Even without the benefit of hindsight, this was a mistake. Pimco had identified a number of parties who would share a fee at the conclusion of the transaction. If Nama considered Pimco’s role in this arrangement merited exclusion, surely it should have considered that everyone connected to the arrangement should play no further part in the process. Excluding Brown Rudnick and Tughans from further participation in the transaction, along with Pimco, would have been the consistent thing to do.
Shortly after Pimco’s withdrawal, a third unusual event should have caused Nama to halt the process. The firms named by Pimco in the fee arrangement scheme re-emerged as advisers to one of the remaining bidders, Cerberus.
This didn’t seem to ring any alarm bells. It is unusual for a firm to switch legal advisers three weeks from the closing of a bidding process and should have caused Nama to ask questions. In run-of-the-mill transactions, clients would be reluctant to change advisers, in no small part because they are liable for the costs of their original advisers.
Cerberus had already engaged a prestigious firm of solicitors who had presumably undertaken some due diligence. Why should they change mid-stream with the attendant potential for delay and disruption? At the Public Accounts Committee, Nama said it was because Brown Rudnick and Tughans had undertaken some due diligence. Nama ought to have asked the obvious questions, joining the dots between these facts to work out what was going on.
At the PAC, Nama bosses Frank Daly and Brendan McDonagh were at pains to point out that they had done nothing wrong. Yet the public is left with an overriding concern that something bizarre went on with this transaction. Given the scale of what was involved there were sufficient grounds to halt the transaction.
The fact that the deal wasn’t halted means we better buckle up for another commission of inquiry.
