Business Week: C&AG inches secretive Nama’s lid open

The “biggest financial scandal in the history of the State” is what Independent TD Mick Wallace is calling it, and while that remains to be seen, this week’s report on the sale of Project Eagle has set two of the State’s most powerful institutions firmly on a collision course.

The bottom line is €220 million. That's what the State's spending watchdog, the Comptroller and Auditor General (C&AG), reckons was squandered by the National Asset Management Agency (Nama) when it sold Project Eagle to US vulture fund Cerberus.

Project Eagle was the name given to a batch of more than 900 distressed loans secured on properties in Northern Ireland, the Republic and the UK, although most were based in the North.

Nama’s remit after taking on these loans was to dispose of them while getting “the best financial return for the State’’. The agency is secretive by nature and by statute, with “commercial sensitivity” routinely cited as it lobs smoke bombs at inquisitive journalists and parliamentarians.

That is what made the report by the C&AG – a highly respected office in the State – into the sale of Project Eagle a rare opportunity for some clarity on an issue that has been cloaked in secrecy amid cries of subterfuge.

The C&AG found the price sought by Nama gave a return that was lower than the potential return for selling the loans differently and over a longer period. “The decision to sell the loans at a minimum price of £1.3 billion involved a significant probable loss of value to the State of up to £190 million,” it found.

The report was also critical of Nama's management of the conflicts of interest presented by the commercial relationship between Frank Cushnahan, a member of its Northern Ireland advisory board, and Pimco, another bidder for the Project Eagle portfolio.

Nama, in an unprecedented dismissal of the C&AG findings, hit back furiously that the key verdict was “fundamentally unsound and unstable and cannot be left unchallenged”. The €1.6 billion price tag “was the best achievable result”.

That intervention seemed to catch the Government on the hop and it was left to Minister for Public Expenditure Paschal Donohoe to play the diplomat. They were “both exceptionally important organisations”, he soothed. But, yes, a further inquiry would be required to get to the bottom of their differences.

An inquiry by the Dáil Committee of Public Accounts (PAC) will now proceed, while the Government has said it will make preparations for a separate investigation. The PAC has also invited Minister for Finance Michael Noonan to appear before it to discuss these matters.

Highly charged debate

The Republic's standing in the European Union over the Apple ruling was laid bare on Wednesday as MEPs overwhelmingly backed the EU's finding that the State had offered illegal state aid to the US multinational.

In a highly charged though sparsely attended debate at the European Parliament, MEPs from across the political spectrum lined up to congratulate EU competition commissioner Margrethe Vestager on her decision against Ireland.

“Citizens who have been asked for great sacrifices cannot understand that big multinationals do not participate in this collective effort,” said Spanish MEP Pablo Zalba Bidegain.

Speaking earlier, European Commission president Jean-Claude Juncker, in his state of the union address, waxed lyrical about fair playing fields and protecting the everyman from "cartels" and "powerful companies".

Interestingly, Juncker deviated from his prepared speech and omitted several passages that dealt with Apple and the Republic. One such passage read: “The level of taxation in a country like Ireland is not our issue.

“Ireland has the sovereign right to set the tax level wherever it wants. But it is not right that one company can evade taxes that could have gone to Irish families and businesses, hospitals and schools.”

There was even talk that the Republic won’t have all of the €13 billion to itself, but that it could instead be divvied up among European and even other taxpayers. German finance minister Wolfgang Schäuble played down that outcome however. “You should never divvy up the bear skin before you’ve taken out the bear,” he said.

Another German really had the knives out for Ireland. MEP Martin Sonneborn, founder of Die Partei (The Party), demanded the Republic be thrown out of the European Union for refusing to accept the commission’s judgment.

He said expelling Ireland was an important signal to show that Europe was there for its citizens and not multinational concerns. In an open letter to President Michael D Higgins, he suggested the State “take the money and run”.

Thirteen billion euro “will buy you many, many iPhones,” he said. “This will generate more tax income for Ireland. Then you can buy even more iPhones. It is a win-win-win situation. Think it over with a good bottle of whiskey. Sláinte.”

Economic rebound

In terms of the general state of the Irish economy, things appear to be ticking over, although the week brought some cause for concern. The economy grew by 0.6 per cent in the second quarter of 2016, rebounding from a 2.1 per cent contraction in the first three months of the year.

Compared with the same period 12 months ago, gross domestic product (GDP) grew by 4.1 per cent, while gross national product (GNP), which strips out the effect of multinational companies, advanced by 4.6 per cent.

The latest quarterly national accounts by the Central Statistics Office put the economy back on a more normal growth trajectory following those revisions that suggested the economy grew by 26 per cent last year.

However, the European Central Bank published a stocktake that showed Irish banks were still dealing with more than €50 billion worth of non-performing loans at the end of 2015.

This was in spite of €74 billion worth of face-value loans being transferred from Irish banks to Nama after the crash, and a further €40 billion reduction in bad loans in the two years from the end of 2013.

The figures showed the Republic as having a total non-performing loan ratio of 19 per cent at the end of last year compared with an average of 7 per cent for the institutions now regulated by Europe.

AIB problem loans

AIB is understood to have enlisted the help of accounting firm Grant Thornton to advise on a wide range of issues relating to its large book of problem loans. The bank is currently considering selling some of its portfolio of buy-to-let mortgages, which has significant arrears, although it is understood that a final decision has not yet been made.

Separately, figures from the Central Bank showed the number of residential mortgages in arrears has declined for the 12th consecutive quarter. A total of 82,092, or 11 per cent of all residential mortgages, were in arrears at the end of the second quarter of 2016, down 4.5 per cent on the previous three-month period.

At the end of June there were 743,700 private residential mortgage accounts for principal dwellings in Ireland with a total value of €100.9 billion. There were 57,571 owner-occupier mortgages in arrears for 90 days or more at the end of June, equivalent to 8 per cent of residential accounts, 3.6 per cent down on the previous quarter, marking the 11th successive quarterly reduction

For those renting, the news was less rosy, as the Residential Tenancies Board confirmed what most renters have suspected for some time now. Dublin rents are now at an all-time high, and 3.9 per cent higher than the previous peak in the last quarter of 2007.

The cost of renting a home countrywide jumped by almost 10 per cent in the 12 months to the end of July. The average monthly cost of renting in Dublin at the end of the second quarter of the year was €113 higher than 12 months earlier. It all means that someone signing a 12-month lease now will pay €1,356 more over the course of next year than they would have paid a year earlier.