The chief executive of the National Asset Management Agency (Nama) has defended the agency’s sale in 2020 of a portfolio of property debts at a 97.5 per cent discount to their original value to a company funded by the borrower’s brother, after a receiver over the loans resigned as a result of “intimidation”.
Speaking to the Public Accounts Committee (PAC) on Thursday, Nama chief executive Brendan McDonagh declined to identify the debtor, but said that they were bankrupt at the time.
“There is no suggestion in the report that the sale was conducted improperly, without sufficient due diligence, nor was non-compliant with the Nama Act,” he said. “The alternative was to leave the assets there to the end of the life of Nama [in 2025] and say to the Minister [for Finance], ‘We couldn’t sell these assets, there’s big problems, which, by the way, is not our problem – you find someone to deal with them’.”
A Nama update report published by the Comptroller & Auditor General (C&AG) in July first highlighted the case. The loans, secured against a portfolio of residential units and land in provincial locations in the State, were sold at a 97.5 per cent discount to their original value, plus interest. Nama confirmed to PAC that the assets were mainly in Co Donegal.
Nama paid €4.37 million for the loans in 2010 – representing a 49 per cent discount to their original €8.58 million value – as part of a bigger portfolio linked to the borrowers. Some €1.9 million of unpaid interest was subsequently racked up on the loans.
Nama sold the loans – backed by collateral on 14 occupied rental homes, 28 unfinished units and seven plots of land totalling 20.9 hectares (51.6 acres) – three years ago for €265,000. The loans had not been openly marketed before the sale, as normally required under Nama’s own loan sale policy. Nama incurred a loss of €6 million on the sale.
In late 2018, Nama appointed a receiver over the Irish assets held as collateral. However, the borrowers “strongly resisted” the appointment, alleging the agency had previously forced – through a receiver – the sale of a large UK apartment complex held as collateral against another loan at below its market value.
The receiver resigned in May 2020, after a planned sale of 18 unfinished houses and 3.2 hectares to a local authority fell through “and he could not find a sales agent to market the properties”, the C&AG report said.
Mr McDonagh said that an external independent valuer put a €265,000 on the assets in October 2020, “based on their assessment that the assets could not be sold in the circumstances.”
An offer by a “family relative”, who was not a Nama debtor, to purchase the loans for €265,000 in 2020 ended up being brought before the agency’s board because of the exceptional circumstances of the case, the report said. Mr McDonagh confirmed on Thursday that the relative was a brother of the debtor.
He said that two then-Nama employees had also faced intimidation in 2012 when the borrower was involved in litigation with the debtor. Nama informed the gardaí at the time.
Mr McDonagh said most of the Donegal assets “were in a dishevelled state in very poor quality marshland”. He said that “what shocks me” is that money was originally lent by the original bank to develop the property. He conceded that Nama had “overpaid the bank on day one” for the loans, as issues relating to the assets slowly emerged after the 2010 transfer.
“To pursue or have to defend litigation would have been an expensive and drawn-out process, the legal costs of which would almost certainly have exceeded the value of the properties that were independently valued at €265,000,” said Mr McDonagh.
“Nama’s only viable option to recover cash from these assets and minimise costs was to conduct an off-market loan sale to a third party with both the appetite and the resources to acquire the property assets.”
The loans were ultimately acquired by a special purpose vehicle funded by the debtor’s brother.
“Written confirmation was received from the company’s directors [not related to the original debtors], via their solicitors, stating that they were not connected people as prescribed by Section 172(3) of the Nama Act, although we understand that a relative of the debtor [who was never a debtor] provided funding to finance the purchase,” Mr McDonagh said.
Mr McDonagh said that the case “was absolutely exceptional” among the more than 500 receiverships Nama has been involved in since its inception in 2009.
