Time to wrestle mysterious Cerberus out into the light

In mythology, Cerberus was the multi-headed dog that guarded the underworld, whom Hercules subdued and brought into the daylight.

It may not be a giant guard dog, but the US fund Cerberus Capital Management has grown to become a very big beast indeed in Irish affairs over the last two years. In that time, it has snapped up property debts worth €18.75 billion, including two big deals that it did with the National Asset Management Agency (Nama).

In total it paid €3.2 billion for those “assets”. Buying the loans gave it the right to seek their full repayment or take possession of the 16,500 properties against which they were secured. By last month, it had written €4.6 billion off the total due, leaving a little more than €14 billon to be repaid.

Some debtors have sold properties while others have refinanced, meaning that they have found new lenders willing to give them the cash to pay off Cerberus, normally at a discount to the original loan.

That pattern is likely to continue, so there will be more write-offs to cut into the €18.75 billion total. Nevertheless, some sources estimate that its rate of return here is 18 per cent a year, which is good by its industry’s standards and indicates that its investors will be happy it came to these shores.

Cerberus manages €26 billion around the world for those investors. One area in which it specialises is “distressed assets”, that is, commercial properties or businesses sunk by debts that outstrip their value and which they cannot repay. The firm buys the liabilities at a discount that it believes will allow it to generate a good, and often quick, return.

While it would like to get on with that quietly it keeps getting dragged into the row over Project Eagle, the name for the package of Northern Ireland property loans that it bought from Nama in April 2014 for €1.6 billion.

In the latest twist, former Nama adviser Frank Cushnahan was recorded as saying that £6 million transferred to the Isle of Man from Belfast law firm Tughans – without its knowledge – was meant to be a payment to him for working on Cerberus's bid.

The problem is that he was not supposed to be doing that work, as Cerberus had assured Nama that no one connected to the agency was involved in the bid. The money was part of a success fee that the US company paid to advisers Tughans and US lawyers Brown Rudnick for advising on the transaction.

Ethical standards

Cerberus maintains that it did nothing wrong, conducted itself to the highest ethical standards and expected the same of its advisers. However, it has refused to appear before a

Northern Ireland

Assembly finance and personnel committee investigating the deal. It says that it does not want to prejudice other inquiries, including one by the UK

National Crime Agency

(NCA).

This is a little thin. The NCA is investigating the Isle of Man transaction, an arrangement with which Cerberus says it was not involved. Also, it is court cases, with juries, that are generally considered to be at risk of prejudice, rather than police investigations, which simply gather evidence. Still, given that it is a potential legal minefield, you could say the company has some grounds for this excuse.

However, it used the same line last month with the assembly's Committee for Enterprise, Trade and Investment, which wanted to follow up claims by insolvency practice Bell & Co that Cerberus took a heavy-handed approach to debtors whose liabilities it bought in Project Eagle.

That stretched the point. It is hard to see a connection between any investigation and its day-to-day dealings. Cerberus also argued that Bell & Co was referring to a small and unrepresentative group of debtors. That may be the case, but the key issue was its approach, not the number of businesses involved.

In all its responses to these committees, Cerberus pleads that it is a good corporate citizen. That is hard to swallow. The US company has structured its affairs in the Republic to ensure that it pays minimal tax.

It uses a series of Dublin-registered subsidiary companies to hold property loans that it bought in Ireland, Britain and other European countries. They are in turn controlled by another set of Dutch-based Cerberus subsidiaries. These lent the Irish firms money at high interest rates to buy the debts. The repayments are so high that they eat up most of the profits.

Tax affairs

Their figures show that six of those companies generated income of about €350 million in 2014 and repaid €245 million in interest.

After taking out their costs, they paid a total of €15,500 in tax, less than most working people. Cerberus will not answer questions about its tax affairs, but does say that its operations stimulate activity and help to create jobs.

That is probably true, but unlike other multinationals such as Apple or Google, whose tax arrangements regularly draw fire, it does not employ thousands of people directly. Agencies handle most of its work and it is hard to say just how many jobs its activities have helped create.

Cerberus now has as many heads as its mythological namesake. Thousands of borrowers and businesses in this country are beholden to it. At the same time it seems unwilling to pay meaningful tax to a State that sold it large blocks of assets at what some argue were deep discounts. To top that off, it avoids answering any questions about its activities. All in all, it is time that somebody dragged this particular beast into the light.