The Government has agreed to set up an inquiry into the sale of NAMA's Northern Ireland loans.
It's after a report by the state's spending watchdog found major shortcomings in how the sale was carried out.
Our political correspondent Gavan Reilly reports.
The report found that NAMA's board were presented an undervaluation of the loans - and that directors were not told whether their value before the sale included a discount to reflect that they were not performing.
NAMA told the inquiry that it discounted the value of the loans by 10% on the basis that they were a risky investment for any buyer.
But the auditor says a lower discount rate should be used - and that NAMA blurred the line between the interests of buyers and sellers.
It also finds that financial advisors Lazard were not asked to provide as much advice in the case of Project Eagle as they were for other sales.
And it finds that NAMA imposed limitations on the sale process which meant some potential buyers were not able to put an accurate value on the loans they might be buying.
The government says the issues merit a further inquiry.
Nama Issues Statement rejecting findings;
ô€¸ The NAMA Board disagrees fundamentally with many of the key conclusions reached by the
C&AG in this report. This document sets out NAMA’s view on four key issues, namely the
sales price, the sales process, the broader strategic context and the particular examination
approach which has been adopted by the C&AG.
ô€¸ The C&AG’s report states that NAMA’s decision to sell the Eagle portfolio at a minimum
price of £1.3 billion involved “a significant probable loss of value to the State”. NAMA
categorically rejects this conclusion which is based on an analysis of the transaction which is
fundamentally flawed by reference to the conventional market-standard valuation
methodology and the appropriate discount rate for estimating the market value of a loan
portfolio such as Eagle.
ô€¸ The NAMA Board is strongly of the view that achieving £1.322 billion for the Eagle portfolio
in 2014 – in excess of Board’s minimum sales price - was the best commercial outcome
achievable either in 2014 or now.
ô€¸ The report implies that the alleged ‘probable loss’ was of the order of £190m which is the
difference between the minimum price set by the Board and the C&AG’s view of what it
considers to have been the portfolio’s ‘probable’ accounting value. The report’s view of the
‘probable’ value of the portfolio is based on a discount rate of 5.5% which the C&AG alone
considers an appropriate discount rate for estimating the market value of a portfolio with
the characteristics of Project Eagle.
ô€¸ By contrast, NAMA’s position, supported by expert market evidence from four
internationally recognised loan sales experts, is that a discount rate in the 10%-15% range
was appropriate to apply to the cash flows associated with the Eagle portfolio. If the
evidence of market experts on the discount rate is accepted, the price actually achieved on
the Eagle sale was the best price achievable in the market and there was, therefore, no
‘probable loss’ by reference to the market price of £1.322 billion achieved.
ô€¸ NAMA has the utmost respect for the C&AG and his staff but this report was prepared by
staff who have no experience and expertise in the loan sale market. The report fails to
provide any market or expert support for the use of the 5.5% discount rate on which its
main finding is based and it ignores strong market evidence which would have supported
the use of a discount rate in the 10%-15% range. This key finding of the report is
therefore fundamentally unsound and unstable and cannot be left unchallenged.
ô€¸ Ultimately, the value of any asset, including the Eagle loan portfolio, is what credible bidders
are willing to pay for it. It would have been commercially naïve of NAMA to maintain that a
portfolio valuation derived from a discount rate of 5.5% could have been realised in
