Questions to Nama – Public Accounts Committee, Wednesday 26th October 2011.
Extract 2.
Deputy Eoghan Murphy: I thank the witnesses for their answers today. I wish to clarify a number of points that were made earlier to ensure I understood them correctly. Is it Mr. Daly’s understanding that no change in legislation is required from the recommendations made in the Geoghegan report?
Mr. Frank Daly: I cannot speak for the Minister who will consider the report but it would be my judgment looking at what was said to us that I would not think so but at the end of the day that is a matter for the Minister. Deputy
Eoghan Murphy: I thank Mr. Daly. We are anticipating having a new board member in light of the recent resignation but we are also anticipating having other new board members.
Mr. Frank Daly: No, I did not say that. Deputy Eoghan Murphy: Okay, I just wished to clarify the matter.
I was not clear whether Mr. McDonagh said that the two developers who are participating in managing the assets are resident in the State for tax purposes.
Mr. Brendan McDonagh: My understanding is that both are resident in the State.
Deputy Eoghan Murphy: Could we get confirmation of that? When Mr. McDonagh says it is his understanding, does that mean they are both resident in the State for tax purposes?
Mr. Brendan McDonagh: They have interests in both Irish and UK properties. That is where the majority of their loans would be. I understand that they are resident in the State for tax purposes but I can check it for the Deputy.
Deputy Eoghan Murphy: It is important to know that they are living in this country and paying taxes.
Mr. Brendan McDonagh: They might not be living here full-time given the nature of their portfolio but I will check that out for the Deputy.
Deputy Eoghan Murphy: I would appreciate it if Mr. McDonagh could do that. I thank him.
My third question relates to incentivising developers. I wish to inquire from the angle I was coming from previously. Mr. McDonagh said he did not see a big pay day for any developer through the incentivisation scheme. Can I infer that he does not envisage NAMA realising that much more than what it paid to the banks? He does not envisage us making more than €31 billion or €32 billion.
Mr. Brendan McDonagh: As said today the market is very difficult, especially the Irish market. To be completely upfront, the asset values are declining as opposed to increasing. Asset values must increase by generally around 10% over what we paid in 2009 before any incentivisation will kick in. The maths are not difficult.
Deputy Eoghan Murphy: I thank Mr. McDonagh. Reference was made to €4.6 billion that has been realised in asset sales. Mr. McDonagh said that of the €4.6 billion, NAMA was selling Irish property at a loss and making a profit of approximately 15% on the overseas property. What loss is NAMA making on the Irish property?
Mr. Brendan McDonagh: Some of the residential property has been selling for anything from probably 5% to 25% below the November 2009 valuation, depending on location and the type of property. That is just the nature of the market when one sees the CSO index.
Deputy Eoghan Murphy: Did every Irish property make a loss?
Mr. Brendan McDonagh: Not every Irish property. I am speaking in general terms.
Deputy Eoghan Murphy: Could Mr. McDonagh indicate any properties or buildings that did not make a loss?
Mr. Brendan McDonagh: I can tell the Deputy of one because it was in the public domain. We did not make a loss on the Google building. It was a €100 million transaction.
Deputy Eoghan Murphy: Was what NAMA paid to the banks what it received for it?
Mr. Brendan McDonagh: We had to invest a considerable amount of capital expenditure to finish the building. There was also an amount payable to CIE which was the leaseholder on the site. Once we took those costs out it we made a small profit.
Deputy Eoghan Murphy: That is only a profit in terms of the NAMA operation. It is not a profit in terms of the overall cost of the loan when it was taken off the banks.
Mr. Brendan McDonagh: No, in terms of what NAMA paid for the site plus the substantial capital expenditure.
Deputy Eoghan Murphy: Essentially, it was a loss for the taxpayer.
Mr. Brendan McDonagh: Yes, because the price we paid for the loan was a lot less than what—–
Deputy Eoghan Murphy: Did Mr. McDonagh not see the headline that NAMA is making a profit for taxpayers?
Mr. Brendan McDonagh: I am not being trite but I can only deal with what I have in front of me.
Deputy Eoghan Murphy: There have been a lot of questions about transparency in the organisation in terms of the commercial dealings that are going on. Mr. McDonagh said it is commercially sensitive information at the time a deal is taking place but what about historical transparency? What about releasing more details on the individual deals that have been done? I refer to information on the profit and loss, fees paid out to advising consultants and whether there were competing bids and for what amount.
Mr. Brendan McDonagh: That is a good point. In terms of who is advising us, as I indicated to Deputy McDonald, their names are on our website because of the tender process but details of individual transactions are available to colleagues from the Comptroller and Auditor General’s office. They have access to the full information.
Deputy Eoghan Murphy: Is that including the different bids, for example, on the Google building? Could we get access to that information?
Mr. Brendan McDonagh: In terms of the Google building, it was a special purchase because there was only one person interested in a building of that size.
Deputy Eoghan Murphy: Was the building marketed or was a direct approach made and a sale agreed?
Mr. Brendan McDonagh: It was a special purchase as there was no demand for a building of that size in Dublin at that point.
Deputy Eoghan Murphy: How was that fact established?
Mr. Brendan McDonagh: The purchaser approached the debtor.
Mr. John Mulcahy: The property was on the market all the time. It was available for sale or to let.
Deputy Eoghan Murphy: Had we gone out to see if anyone would be interested in it?
Mr. Brendan McDonagh: The debtor had it on the market and had appointed agents. It was for sale or let.
Mr. John Mulcahy: People were interested in taking individual floors.
Mr. Brendan McDonagh: But not the whole building.
Mr. John Mulcahy: The Google offer was one we could not pass up.
Deputy Eoghan Murphy: Is it possible for the public to see the offers that were made for the different floors?
Mr. John Mulcahy: We have said publicly that we would welcome a change to the Data Protection Act to enable all property transactions to be published. This happens in the UK, the US and other jurisdictions, so that the whole market can see every transaction. Every transaction that is stamped would be published.
Deputy Eoghan Murphy: I believe that change is coming.
Mr. John Mulcahy: That would be terrific for the market.
Deputy Eoghan Murphy: I am interested in seeing the offers made prior to a transaction. I am interested in any property sold on behalf of the taxpayers and not only this property. NAMA assures us that it is doing its best and we want NAMA to do that. However, the Committee of Public Accounts has the oversight role of making sure it does so. Other people who have a knowledge of this area should be able to see the information and judge whether or not the best decision was made or why certain costs were paid out on a particular deal.
Mr. John Mulcahy: Our guidance is that all properties in which NAMA has an interest must be freely exposed to the market in a competitive situation where there is competitive bidding, other than where we are selling apartments, for example, where there is a fixed price. The market knows what our properties are changing hands for. All properties in receivership are listed on our website.
Deputy Eoghan Murphy: The market knows the prices property is changing hands for. The market does not know the competing bids. This committee, and the taxpayers, do not know. In terms of historical transparency, when deals are done by NAMA we do not see exactly what was involved.
Mr. Frank Daly: There are other parties to these transactions, including the people who are making the bids. There are often confidentiality clauses. If it becomes known that NAMA will subsequently, or historically, reveal the bids of other parties that will affect their willingness to get involved in the market.
Deputy Eoghan Murphy: One would not have to release their names. It could be recorded that a certain number of bids were made at certain values, what the winning bid was, who made the winning bid, what profit was made, how much was paid to a particular legal adviser, who did the valuation and what it cost, the cost of the upkeep of the building while it was on NAMA’s hands and so on. All of these details, which are so pertinent to understanding what is going on inside NAMA, are not being released.
Mr. Frank Daly: We are always conscious of the need for transparency. In this year’s annual report we gave as much information as we possibly could. We do not have any desire to be a totally opaque organisation. We intend to keep looking at this issue but we will always benchmark transparency against what it does to our capacity, as a commercial organisation, to get the best result for the taxpayers. We are not saying we will never examine any of the things the Deputy mentioned.
Deputy Eoghan Murphy: Is NAMA considering making those changes so that we can have historical transparency to a greater degree than already exists?
Mr. Frank Daly: The board is minded to consider all of that in the context of greater transparency. I am not making any specific commitment or promises.
Deputy Eoghan Murphy: I recently asked the Minister how much was spent on consultancy in 2011. He replied that it was €29.9 million. I heard other figures here today. Is there a total figure for the amount to be spent on consultancy this year and the amount spent in 2010?
Mr. Brendan McDonagh: I will give the major headings. The Deputy may see this information in the response I sent to the committee. In 2011, portfolio management fees were approximately €15 million. Most of that amount relates to independent business reviews. Legal fees amounted to approximately €10 million and audit fees approximately €2.4 million. Other costs are included in the response sent to the committee. The costs for 2010 are in note 8 on page 79 of the 2010 annual report.
Deputy Eoghan Murphy: What is the difference between consultancy fees paid in 2010 and those paid in this year?
Mr. Brendan McDonagh: In 2010 we paid approximately €5 million in portfolio management fees and approximately €15 million this year. Last year, we paid €700,000 in internal audit fees and this year we are paying €2.4 million. Last year we paid €3.3 million in legal fees and this year we expect to pay approximately €10 million.
Deputy Eoghan Murphy: All of NAMA’s consultancy fees have gone up significantly since last year.
Mr. Brendan McDonagh: We were acquiring loans throughout 2010. The following year, 2011, is probably our first full year of operation.
Deputy Eoghan Murphy: Last year, the Minister said consultancy would cost more in 2010, because that was the beginning year, and would cost less in 2011.
Mr. Brendan McDonagh: There are other costs, which we do not regard as consultancy. Due diligence costs were €50 million in 2010 and 2011. That refers to due diligence on loans we have acquired from the institutions. They are one-off costs of €50 million.
Deputy Eoghan Murphy: When the Minister said consultancy would cost less this year than last year he was taking into account those due diligence costs, which are no longer being paid.
Mr. Brendan McDonagh: I would think he was.
Mr. Frank Daly: A huge amount of money was spent on consultancy. I have it at €29.9 million. Does that mean NAMA has employed the wrong people?
Mr. Brendan McDonagh: Why does the Deputy say that?
Deputy Eoghan Murphy: Why are consultants necessary?
Mr. Brendan McDonagh: Many of those are one-off due diligence costs when debtors’ business plans are being assessed and we are trying to acquire knowledge of portfolios.
Deputy Eoghan Murphy: That is done. I am talking about this year.
Mr. Brendan McDonagh: Due diligence on 25 properties had to be done all the way through 2010 and 2011. It was finished at the end of 2011. When we look forward to 2012 we will not have those historic due diligence costs or business plan assessments. Those costs will not recur.
Deputy Eoghan Murphy: Will consultancy fees come down significantly from €29.9 million?
Mr. Brendan McDonagh: Absolutely. In the budget for 2012, which will be finalised in December, €75 million will probably go to the banks for administering loans on our behalf. Costs to the NTMA will be approximately €40 million. Other costs will amount to approximately €30 million. These include rent, legal fees, insurance and restructuring the loans in the portfolio. There will be legal costs in pursuing debtors. In the context of a €30 billion portfolio, our overall costs are approximately 0.5% per annum.
Deputy Eoghan Murphy: A recent newspaper article claimed that NAMA would only accept consultancy tenders from companies with a turnover of at least €25 million a year. Is that the case?
Mr. Brendan McDonagh: That referred to a tender for specific and technical international financial reporting standards, IFRS, accounting advice to NAMA.
Deputy Eoghan Murphy: I believe it referred to a tender for legal work.
Ms Aideen O’Reilly: There was a recent tender for a very specific legal mandate, which was to provide corporate legal advice to the NAMA group. The turnover figure the Deputy refers to does not apply to the refinancing and enforcement panels, for example.
Deputy Eoghan Murphy: The tender precluded firms with a turnover below €25 million from applying for a corporate legal and accountancy services contract.
Ms Aideen O’Reilly: For that specific mandate, yes.
Deputy Eoghan Murphy: It is unusual. I had never of tenders being invited on the basis of turnover.
Ms Aideen O’Reilly: It is my understanding that a minimum turnover figure is quite common in public procurement tenders.
Deputy Eoghan Murphy: Is it a means to establishing that a company has a certain degree of competence or expertise?
Ms Aideen O’Reilly: It establishes a certain financial capability.
Deputy Eoghan Murphy: Who gave the advice to set the limit at €25 million as a means of establishing which firms had the expertise or ability to handle what NAMA was asking them to do?
Ms Aideen O’Reilly: Turnover is very different from technical expertise criteria. The turnover figure relates to the financial condition of the tenderer and not the technical expertise. In this case we took advice from the NTMA procurement unit as to the standard measure for minimum turnover.
Deputy Eoghan Murphy: The procurement unit in the NTMA said that was how it should be done and set the figure of €25 million.
Ms Aideen O’Reilly: That is correct.
Deputy Eoghan Murphy: I would like to get into the detail of what is involved in consultancy. There was a recent sale of a NAMA debtor’s art collection in Christie’s. Who advised that the art collection be sold at Christie’s?
Ms Aideen O’Reilly: We carried out a tendering process, in respect of which we received five bids and Christie’s was the winner.
Deputy Eoghan Murphy: Why can NAMA not release information in regard to who bid, what were those bids and the reason it chose Christie’s?
Mr. Brendan McDonagh: In that instance Christie’s won the bid because it declined to charge us a fee.
Deputy Eoghan Murphy: That is the reason it won the bid.
Mr. Brendan McDonagh: Yes. It also provided in its tender best coverage in terms of potential sales and exposure of the art works to a particular segment of the market, domestically and internationally. A mixture of Irish and international artworks were involved.
Deputy Eoghan Murphy: No one else who bid offered to waive the fee.
Mr. Brendan McDonagh: It was not only a fee consideration. It was also a consideration in terms of—–
Deputy Eoghan Murphy: Did other bidders offer to waive the fee?
Ms Aideen O’Reilly: Yes.
Deputy Eoghan Murphy: Others did.
Mr. Brendan McDonagh: Yes.
Deputy Eoghan Murphy: Mr. McDonagh stated that Christie’s was considered in the first instance because it offered to waive the fee.
Mr. Brendan McDonagh: It was one of the considerations. Its coverage was another.
Deputy Eoghan Murphy: That only came to light later. Mr. McDonagh said Christie’s had been chosen because it offered to waive the fee. I am now hearing that other Irish companies or others may also have offered to waive the fee, which brings us back to the transparency issue.
Mr. Brendan McDonagh: There is more than one consideration in the assessment of any tender. The criteria was set out in the tender document, which included fees and the bidder’s ability to do the job. I am not hiding anything.
Deputy Eoghan Murphy: Who decided Christie’s would provide better coverage than other dealers?
Mr. Brendan McDonagh: An internal evaluation group.
Deputy Eoghan Murphy: Who on the internal evaluation group had the experience to decide that? Does the group comprise an art expert or someone with an understanding of the art world?
Mr. Brendan McDonagh: An art expert is not required to assess a tender.
Deputy Eoghan Murphy: Not even in regard to who would be the best dealer on which to off-load a portfolio of work?
Mr. Brendan McDonagh: In assessing tenders, people must make subjective judgments. One can only compare the information in the tender documents in terms of the ability of one dealer as compared to another, to market a portfolio. I do not believe anyone here could question the ability of a dealer such as Christie’s to market an art portfolio.
Deputy Eoghan Murphy: I am not questioning Christie’s ability to do the job, rather I am questioning whether NAMA has the capability to determine which dealer in a given situation will achieve best value for the collection offered.
Mr. Brendan McDonagh: In terms of assessment of documents submitted by bidders seeking work, one can only take into account the information put forward by them. The view of the evaluation group was that Christie’s had made the best proposal.
Deputy Eoghan Murphy: Did NAMA seek outside advice before making a final decision?
Mr. Brendan McDonagh: No.
Deputy Eoghan Murphy: NAMA did not believe it necessary to consult on this?
Mr. Brendan McDonagh: We are speaking about an art portfolio. We had already taken evaluations of the portfolio, which is €1.5 million. We obtained independent valuations prior to the tendering process. It was then a question of who could best execute sale of the assets.
Deputy Eoghan Murphy: This is only one area for which NAMA is responsible. The lack of transparency raises many questions for me, some of which have been answered and others which I do not believe will be. That is a problem for us in terms of confidence that NAMA is doing what it should be doing, which is maximising the return for the taxpayer.
Mr. Brendan McDonagh: The Deputy has not established that NAMA is not maximising a return for the taxpayer.
Deputy Eoghan Murphy: I have established that we do not know exactly what is going on in NAMA. It is only when we get an opportunity such as this to ask questions that we find out information, which I appreciate. Many people do not read the transcripts of these meetings and will still not know what is going on in NAMA.
Mr. Brendan McDonagh: I, and other witnesses have answered all questions put to us today. NAMA is trying to do its job to the best of its ability, with a view to maximising the return to the taxpayer. If the Deputy’s suggestion is that we should employ a consultant to help us evaluate a tender, then we will take it on board.
Deputy Eoghan Murphy: It is not my suggestion. While Mr. McDonagh has answered our questions, that does not mean we have been given the answers we wanted. My point is whether NAMA has the skill-set to deal with the sale of art portfolios. I did not mean to be detained on the issue of the art collection but have done so because I was not happy with the answers I was getting from Mr. McDonagh, who was drip-feeding them to me in a such a manner as to leave me with the perception that Christie’s had secured the bid because it offered to waive the fee when in fact other bidders offered to do likewise.
I would like to know, in the context of property deals, what other bidders are offering and on what NAMA makes it final choice. It is not entirely clear why in this instance, which is just an art collection worth a couple of million euro, NAMA accepted a particular bid. Mr. McDonagh’s is not very forthcoming in terms of his answers in that regard. It appears that after a decision has been made in respect of a property deal worth €1 billion, in respect of which there were competing bids, there is to be no transparency in regard to those bids and the reason a particular one was chosen.
Mr. Brendan McDonagh: With respect, the art collection will be publicly auctioned. The price we obtain for it will be known. In regard to sale of a property, as Mr. Mulcahy stated earlier, a property is openly marketed, following which bids are assessed and the best is chosen provided the person can prove the availability of funds to purchase the property. The Deputy is referring to two different scenarios.
Deputy Eoghan Murphy: No, I believe there is a relationship between how the two are approached in terms of transparency and what the public is told. Mr. McDonagh is not telling us anything after the fact about the differing bids. I accept we will be told the price for which something has been sold, often called a profit when in fact it is a loss to the taxpayer. However, we will not be told about the differing bids and so on and the reason a particular one was chosen. Mr. McDonagh said that in this instance Christie’s was chosen because it had offered to waive the fee when in fact that is not the reason it was chosen.
Mr. Brendan McDonagh: It was one of the considerations.
Deputy Eoghan Murphy: Thank you. However, it was not stated earlier that it was one of the considerations, rather it was stated it was “the” consideration.
Mr. Brendan McDonagh: I did not tell the Deputy it was “the” consideration. There may have been some misunderstanding between us.
Deputy Eoghan Murphy: Fair enough.
Chairman: The Deputy’s point is taken. Mr. McDonagh has said that in the context of transparency he will consider the points raised.
Deputy Eoghan Murphy: I am happy for Deputy Fleming to be allowed in now but would like to come back in again at a later stage.
