John Bruder, managing director of Treasury Holdings' Irish business, believes that Nama has made a monumental blunder in moving against the developer by calling in the bulk of the €1.7 billion in loans it has on its books, writes CIARAN HANCOCK
THERE ARE two interpretations of Treasury Holdings’ recent bitter legal disputes with the National Asset Management Agency over its impaired loans. One is that the company’s owners and senior executives are a bunch of bluffers, who eventually ran out of luck in in their high-stakes game of poker with Nama when it called in their loans on January 9th.
The other is that the development and asset- management group, one of the few Irish ones left standing since the crash of 2008, albeit with significant support from the State, has been done a great wrong by Nama, which has fundamentally misjudged its ability to deliver the best return on its loans for the Irish exchequer.
Over the course of a 105-minute interview in the basement of Treasury’s head office at Connaught House in Dublin last week, John Bruder, managing director of Treasury’s Irish business, set out the company’s side of the story in a calm, logical and plausible way.
His unshakable belief is that Treasury Holdings is the company best placed to deliver maximum value to the taxpayer from its hotch-potch of loans and that Nama has made a monumental blunder in moving against the developer.
There are two sides to every story, of course, and Nama will no doubt provide a robust defence of its decision to move aggressively against Treasury when the matter gets a full airing before the High Court later this year.
Nama currently has about €1.7 billion of Treasury loans on its books, following transfers from AIB, Bank of Ireland and the old Anglo Irish Bank.
This figure includes interest rolled up over the past two years on loans for development land. At the time of the transfer to Nama in 2010, the loans were valued at €1.5 billion.
It has never been revealed publicly how much Nama paid for these loans, but Bruder believes the haircut was close to the 58 per cent average on all borrowings transferred by our broken banks to the State loans agency.
In early January, to the seeming shock of all at Treasury, Nama decided to call in the bulk of those loans for immediate repayment.
Nama claims Treasury is “hopelessly insolvent” with overall debts of €2.7 billion and “past the point of commercial rescue”. Nama had provided €103 million over the past two years to support Treasury’s continued functioning.
In an ironic twist, the news was delivered to the developer in the Treasury building on Grand Canal Street, which is owned by Johnny Ronan, joint owner of Treasury Holdings, and is home to Nama.
Treasury was broke and hadn’t a hope of repaying the money, so receivers were quickly appointed by Nama to the assets involved.
The decision to call in the loans was taken by the board of Nama on December 8th, although it was another month before it was acted upon and communicated to Treasury.
Treasury was incredulous and responded in kind. An application for a judicial review of Nama’s move was upheld by the High Court in March.
The developer – owned by Ronan and businessman Richard Barrett – has since given notice of its intention to sue for damages and to challenge the State on the constitutionality of the legislation that underpins Nama’s activities.
WHY DOES BRUDER think that Nama called in its loans? “We remain in the dark as to why Nama made a decision to call in our loans having put together a very detailed business plan that we submitted to them in May 2010 and having gone through an extremely rigorous and detailed analysis of that plan by Nama and their consultants, and that plan having effectively been translated into an agreed memorandum of understanding, setting out exactly what we and Nama were going to do, year by year, property by property between 2010 and 2018,” is Bruder’s comprehensive, if slightly evasive, answer to the question.
Nama might have its shortcomings but those running the agency are no mugs. There must be a reason why they moved against Treasury.
We try again.
“I don’t know, I really don’t know,” Bruder says.
“I don’t believe that a body of the size and scale and importance of Nama would do things in an offhand way or make such important decisions based on personalities or anything like that,” he adds, arms still folded tight.
“But I do believe that for whatever reason they made their decision it was fundamentally wrong. I don’t believe for a moment that these receivers will deliver to Nama, and by extension to taxpayers, value remotely equivalent to the kind of deals that we put before Nama, subsequent to their decision to pull the plug.”
According to Bruder, Treasury “embarked” in 2011 on delivering on its obligations under a memorandum of understanding (MOU) with Nama.
“For all of last year we did just that,” he says. “We met, and in some cases we exceeded, our targets and our obligations. Out of the blue, with no forewarning, in fact quite the opposite, our loans were called in.”
By way of back-up for his claims, Bruder says Treasury found “purchasers and tenants for the guts of 400,000sq ft of prime” commercial space here.
It also finished, with the aid of working capital provided by Nama, the Montevetro building on Barrow Street in Dublin that was sold to Google for about €100 million.
“So we were generating cashflow out of what had previously been vacant property, all in line with the business plan,” Bruder argues, now warming to the task by unfolding his arms.
“How could it make sense to pull the plug on a business that was actually delivering on its objectives?”
Bruder claims that as late as November 2011, Treasury was told by Nama that it was “performing well”.
He argues that this is evident from notes – from both sides – of a meeting between Ronan and Barrett with Nama chairman Frank Daly, its chief executive Brendan McDonagh and portfolio manager Mary Bermingham.
“To read our notes of that meeting, and Nama’s notes, you would come to the conclusion, quite reasonably, that here are two parties that are working positively together with a view to delivering on the MOU.”
Bruder insists that Nama’s move against the developer is “destroying value”.
“They’re creating a dead hand in terms of the running and operation of the business and they’re doing that in the face of the opportunity and against their own stated objective to attract serious foreign money into the Irish market.”
THIS IS ONE of the key thrusts of Treasury’s argument against Nama. On more than one occasion, Treasury has brought an international investor to Nama with a view to it acquiring its entire portfolio from the agency.
In March 2011, a deal with a US private equity group called CIM almost got over the line.
After Nama called in its loans in January, Treasury hurriedly brought bids from Hines and Macquarie to Nama during a two- week standstill period before the receivers were appointed.
Bruder says they were both “north” of €600 million with the potential for a slice of any future profits that might accrue from the loans for the new owners.
Both of these deals were highly conditional and involved substantial vendor financing by Nama – in excess of 80 per cent in both cases.
They also would have resulted in Treasury continuing to manage the portfolio for the new owners and possibly getting a slice of the profits down the road, something that it seems Nama wasn’t prepared to countenance.
Nama rejected both bids and pressed ahead with the appointment of receivers.
“Nama never told us what their sticking points were,” Bruder claims, adding that Treasury was excluded from the talks with Hines and Macquarie.
“If they had, it might have been possible to see what we could have done to improve the deals.”
Another sticking point was the transfer in March 2010 by three wholly owned subsidiaries of Treasury of €20.5 million worth of shares in a related entity called China Real Estate Holdings to Ronan and Barrett.
This occurred just before the Treasury portfolio was transferred to Nama. The value of these shares now resides within a company called Treasury Asia Investments Ltd (Tail).
Treasury has argued that the Tail transaction was completed at an open market value and that it was perfectly legal.
An affidavit submitted to the High Court by Mary Birmingham of Nama dealing with Treasury’s loans claims that in return for this transfer, Treasury received just €100,000 and unsecured loan notes, with several conditions attached.
Nama opposed this share transfer and has sought – to date without success – to have its effect reversed. It recently began a High Court action to reverse the effect of the share sale.
Did the Tail transaction result sour the relationship between the two sides?
“I don’t believe a loss of trust occurred because that happened before our loans went into Nama,” Bruder says.
“It was us who drew Nama’s attention to this transaction. It was a stock exchange transaction and, like any such transaction involving connected parties, it involved a publication of the transaction, so there was nothing in the least underhand or surreptitious about the transaction at the time.
“In the context of submitting our business plan to Nama, we disclosed that transaction to them and they queried it and ultimately they, and we, agreed how that transaction would be dealt with in the context of the MOU.
“The bottom line is that there was a deal agreed as to how Tail would be dealt with in December 2010 and that remains our position.”
Bruder says the reversal never happened because term sheets, which would have given effect to the MOU, were never signed before Nama called in the loans.
“Tail is a non-issue. It didn’t happen because the term sheets ultimately did not get executed.”
Again, Nama might offer a different view of this transaction in the fullness of time.
THE MEETING WITH Bruder comes just four days after it emerged in the media that Russian moneybags Roman Abramovich had bid about £500 million to buy Battersea power station from administrators to build a new stadium for Chelsea football club.
Battersea was the jewel in the crown of Treasury’s development projects but it slipped from its control late last year when Nama and Lloyds Banking Group in the UK had Ernst Young appointed as an administrator.
Treasury expected to earn about £400 million in management fees over a 10- to 15- year timeframe and a “small” slice of an estimated £4.5 billion profit on the project.
Battersea is a large component of Treasury’s unspecified damages claim against Nama. The developer had spent three years getting planning permission for Battersea, a highly sensitive and potentially valuable 37-acre site.
Did it stick in Bruder’s throat to read about the various offers made for the iconic London site?
“We’re obviously very frustrated and disappointed that we weren’t left to deliver on that design because we put a huge amount of blood, sweat and tears into delivering what we believe will be a very attractive scheme,” he says.
“We’re all the more frustrated because we firmly believe that we had, despite all the difficulties in the world market, managed to line up a very serious and credible investor who was prepared to buy in.”
That investor is Malaysian- listed company SP Setia. As Bruder tells it, Setia spent about six months doing “detailed due diligence” on Battersea.
He says Setia offered 83 or 84 pence in the pound for the loans, but he has no doubt that it would have come up to par value had there being any realistic engagement by Nama and Lloyds, so Nama would have recovered the £137 million loan in full.
According to Bruder, under UK law, getting back the face value of the loan is all lenders are entitled to. Any excess would, in the first instance, go to other creditors and then to Treasury as the shareholder.
Accepting that what Bruder says is true, why would Nama and Lloyds not do business with Setia?
“We think that they fundamentally misjudged the situation at the time,” he says. “They seemed not to take the Setia bid seriously.”
There are many who question the way Nama does its business, but is it really credible to think that the agency, and indeed Lloyds, wouldn’t engage with Setia if it thought the bid represented the best deal available?
“They did not agree to meet Setia other than after laying down some very dismissive preconditions,” Bruder says.
“We couldn’t believe that at the time. Nama had previously met other potential investors with no ifs, ands or buts, but they were only prepared to meet with Setia if, for example, Setia made a very substantial non-refundable deposit up front as the price of having a meeting.”
Bruder wasn’t a party to the discourse between Setia and Nama/Lloyds but he claims the deposit being sought was “north of £10 million”. “We believe that was a very unreasonable and uncommercial attitude for them to take.”
Having been on the defensive for the early months of this year, Treasury has counter-attacked aggressively with its recent actions against Nama and the State.
Is this not a bit rich given that it is insolvent and has relied on the support of taxpayers for the past two years?
“We’re not suing the taxpayer, we’re suing Nama,” he says. “If Nama continues along the avenue that they’ve started off on, they are going to wreck the business that is Treasury Holdings and destroy very substantial value contrary to what they can and should be doing.”
Bruder is confident Treasury will win its judicial review.
“We are confident that we will succeed and if we do succeed then we will be looking to Nama to make us good and to repair the damage that they have done. Unfortunately, we are talking big numbers here.”
When questioned about Ronan and Barrett and their different styles, Bruder says they are “chalk and cheese”.
“They tend to complement each other very well. Richard has a legal and financial background. He’s an economist and a barrister by profession, that is the end of the business that he tends to focus on.
“Johnny is very much a real estate, property, bricks and mortar man. He gets very passionate about the door handles on the buildings and the stone cladding, that type of thing. Johnny has them personally selected.”
Bruder met Ronan in the 1980s. Ronan was a “young, upstart property developer” who bought a derelict bakery on Grand Canal Street and who “had this vision”.
Ronan sold the “vision” to Bruder who was working for AIB Investment Managers at the time. Bruder acquired a one-third interest for the fund. “It turned out to be the Treasury building and a very good investment.”
After 21 years with AIBIM, Bruder joined Treasury in 2000. “I’ve worked in this market for 33 years; I’ll be working here for the rest of my career.”
He says it is “incredibly important” that Nama works.
“It’s too big to fail. Of course, I am committed to Treasury and finding the right solution for Treasury, but I firmly believe that the right solution for Treasury happens also to be the right solution for Nama.
“The sooner we can defuse the current collision course that we are on with Nama and find a solution that is to our mutual advantage, the better.”
Is Treasury open to cutting a deal with Nama and making the various legal actions disappear?
“Everything is possible. We don’t do any of these things lightly and they are not frivolous actions. Neither are they bargaining chips.
“Given the course that unfortunately Nama have set us on, there’s only three logical conclusions to the litigation.
“Either they win and that’s the end of Treasury, or we win and that’s at the very least very damaging to Nama.
“Or the third way is we collectively find an investor who is prepared to do a deal with Nama that Nama is prepared to agree and hopefully work with us with a view to getting us off their balance sheet.”
FRIDAY INTERVIEW
Name: John Bruder
Job: Managing director, Treasury Holdings Ireland
Age: 53
Family: Wife and three daughters
Lives: Blackrock
Hobbies: Hillwalking
Something you might expect:"Before I left school I was a big fan of Frank Lloyd Wright and Le Corbusier, well-known architects.My interest in the property game and the built environment goes back a very long way."
Something that might surprise: "In 1986, I got to base camp in the Himalayas. That's 20,000 feet and is the highest I've got. It is a pretty tough 10-day trek. I did Kilimanjaro in 1999 just before I joined Treasury. Generally, I'm confined now to more local hills in Wicklow
