Pat Leahy: Report raises unsettling issues about Project Eagle

Yesterday’s report by the Comptroller and Auditor General has set two of the most important and powerful organs of the State against one another on a matter of high national importance.

Nama vs the C&AG; the bad bank vs the auditors. Nama is about cutting deals; the C&AG’s job is to see that the State gets value for money and does not cut corners.

This shaky Government now finds itself caught between the two antagonists, treading an especially precarious political minefield. Loath to choose a side, it did what Irish governments usually do – it kicked the issue into an inquiry. The story, as they say, will run and run.

But beyond the political theatre and the battles of the bureaucrats – diverting for those who spend their working lives in the politico-administrative bubble, but of limited interest to those outside it – the C&AG report raises unsettling questions about the management of a key element of the economic recovery that followed the great crash of 2008-2009.

Charged with cleaning up the mess left by Ireland's spectacular property and banking collapse, Nama has sold €30 billion worth of loans secured on Irish property. A lot of the people who bought chunks of Ireland when it was going cheap – and subsequently made out like bandits on it, netting huge profits – bought it from Nama.

The agency has been a linchpin of the recovery, helping to clean up bank balance sheets and putting a floor underneath a collapsing property market. Derided at its foundation as a bailout for developers, instead they have come to regard the agency as a scourge.

Nama has not been much more popular among bankers and Opposition politicians. But it has stuck to its task and is likely to return a healthy profit – currently estimated at about €2.5 billion – when it winds up in 2020.

If Nama’s integrity, probity or competence is called into question, it opens an appalling vista – that having tumbled into bankruptcy, Ireland then flogged itself for a song. Or at least for billions less than it was worth; billions subsequently heaped on the back of the Irish taxpayer. In a way, being taken for fools in the recovery would be worse than falling into the bailout in the first place.

Cut corners

The Comptroller and Auditor General’s report on Nama published yesterday is confined to the sale of the Project Eagle loans in

Northern Ireland

(and some in the UK) and does not conclude that the agency sold Ireland off too cheaply. But it certainly says that in the Project Eagle process Nama cut corners, used questionable valuations, probably lost money and managed the conflict of interest of its advisory board member

Frank Cushnahan

badly.

Nama has insisted that there are no “irregularities” highlighted in the report. But the report does find that in the case of Project Eagle, Nama departed from its regular way of doing things. And it finds – clearly – that the sale probably cost the State up to £190 million.

Not surprisingly, it prompted public calls from Opposition politicians about the need to examine other Nama transactions. And it prompted a lot of private worry in Government and elsewhere. It is the most damaging blow to the agency since its foundation.

Nama’s angry denunciation of the C&AG is, if not unprecedented from a State agency, certainly highly unusual.

Nama does not just says that the C&AG is wrong in its calculations, an assertion for which it supplied voluminous supporting evidence yesterday. Nama says that the C&AG doesn’t know what it is talking about. It is clear that finding a way through the forest of accounting detail in the report is really a question for experts.

But other shortcomings outlined in the report are not. The continued involvement of Cushnahan as a member of Nama’s advisory board in Northern Ireland after he had declared he had commercial relations with businesses that owned half the entire value of the loan book, seems inexplicable. It will be one of the questions of the inquiries to come: who – if anyone – was giving Cushnahan political cover?

Furious rejection

For the Government, the report – and Nama’s furious rejection of it – places

Enda Kenny

and his Ministers in the middle of a dispute between two of its most important and trusted agencies. Minister for Public Expenditure

Paschal Donohoe

said yesterday he accepted the report’s findings, but that he also had confidence in Nama. Those two positions may not ultimately be reconcilable.

The Government’s decision to order further investigations into the affair is a recognition of political reality.

Though few people in Government really want to open yet another inquiry, recent weeks – and further revelations – have brought them to the realisation that they have no real option but to sanction some sort of an inquiry.

The view in Government Buildings, shared by the Taoiseach, is not that an inquiry is desirable, but that it is politically inevitable. Kenny knew that pressure from the Independents and Fianna Fáil would force the Government into an inquiry, whatever it wanted. He came more quickly to this realisation than his Minister for Finance Michael Noonan did.

Even if you accept Nama’s defence of its conduct – and the State’s auditor and spending watchdog clearly does not – it seems that there was something different about how the agency conducted itself in Northern Ireland.

The question now is why. With two separate inquiries in prospect, that will be the next stage.