Archive for June 14th, 2012

There’s a midly vulgar expression we use in my neck of the woods “you have your shite” which roughly means “you have no chance whatsoever” as well as implying criticism of your efforts. I have a feeling – unconfirmed, I should stress – that this expression or something similar is being muttered at NAMA HQ this afternoon.

This afternoon, Dublin-based developer Treasury Holdings which is involved in colossal legal wrangles with NAMA has called – presumably “called” on NAMA – to appoint mediators to deal with Treasury’s loans now controlled by the Agency. Treasury is the company founded by Richard Barrett and Johnny Ronan and is understood to be one of NAMA’s Top 10 developers. NAMA has appointed administrators and receivers to Treasury assets on foot of over nearly €2bn in outstanding loans. NAMA is also pursuing Messrs Barrett and Ronan for up to €20m following a transfer of assets by the duo on the eve of NAMA taking over its loans and NAMA has obtained security for costs in its legal battles (should Treasury lose of course). On the other hand, Treasury itself is suing NAMA over its dealings with the Battersea Power Station inLondonand is also pursuing a judicial review of NAMA’s dealings generally with its loans. During this past week alone we learned that the NAMA v Treasury court case involving the so-called TAIL transaction is to be heard in October 2012, whilst Treasury’s judicial review is set to commence in July 2012. Treasury is a formidable company led by “big beasts” but NAMA has not shied away from its objectives and seems to be giving as good as it gets in the ongoing legal battles.

This afternoon, Treasury has released its version of its dealings with NAMA. In response NAMA has not yet commented on the publication today and I don’t think it will, but it goes without saying that NAMA may not necessarily agree with the Treasury interpretation of events. Treasury’s version is available here as a MS Word document, and it says “its aim is to question NAMA’s refusal to engage with it or potential investors in order to maximise the return to the taxpayer and keep intact what is currently the only full spectrum property asset management and development company in Ireland.”

Treasury has also called for “third party mediation” to help sell Treasury’s loans owed to NAMA and the company recalls that it has previously engaged with at least three non-Irish investment companies to help resolve its loans owed to NAMA.

There is a personal statement from what are described as “current shareholders of Treasury Holdings Richard Barrett and John Ronan” who say

“The property crash has brought a new reality to this company.  One part of it is that if a deal is done to bring new investors into Treasury Holdings or to sell our loans, the company will then be controlled by others, and not by us. Any deal will have to be approved by NAMA.

What we will get out of any deal is the satisfaction of seeing this company and its unique collection of skills and expertise kept intact and continuing to provide the top quality office and other accommodation that Ireland, and potential foreign direct investors, need. We will also see the jobs of the 300 people who work for Treasury Holdings safeguarded and the company playing a role in Ireland’s economic recovery”

Treasury’s version of events doesn’t appear to add very much to the content of affidavits previously discussed on here, and the nature of the interactions between Treasury and NAMA would suggest on here that these matters will conclude only through a legal process. To stress, there has been no response from NAMA to the developments this afternoon, but the view on here is the unspoken response will be “you have your shite”


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As we all know, this country is facing into a very challenging three years as we try to close the gap between the tax generated in the State and the cost of welfare, public sector and interest on our massive debt. No-one should be surprised by the overall adjustments that will be set out in Budget 2013, Budget 2014 and Budget 2015 because the adjustments are set out in black-and-white in the Memorandum of Understanding which Ireland signed with the bailout Troika of the IMF/EU and ECB. We have in store €19bn of adjustments in 2013, 2014 and 2015 with 2015 alone being €8.6bn or €5,000 per average household. It is going to be difficult and an attempt was made on here recently to provide some clarity on the challenges and options.

So for any economist or politician or citizen considering the future of the country, they would at least like to know the basis on which the next three years projections have been prepared. After all, circumstances change for the better and worse, and we would like to have a sense of the impact of those circumstances on our deficit.

One of the key components of our deficit is the amount of interest we have to pay each year on our national debt, and remember that our gross government debt is set to rise to over €190bn next year according to official sources. And we know we will need find funding of about €40bn in 2014-2015 in deficits and rolling over maturing debt. Seamus Coffey sets out here our deficits for 2014-15 here which shows €8.3bn of cash interest payable in 2014 and €8.5bn in 2015. When you consider our deficits overall are projected to be €8.3bn in 2014 and €5bn in 2015, you can appreciate that the interest payable is significant. But what interest rate assumptions underpin the projections?

In the Dail on Tuesday, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan to set out the interest rate assumptions in the projection of our deficit. A fair enough question, you might think in an economy where even small differences to the interest payable can have a big impact on the budget adjustment comprising new taxes and spending cuts. But alas, Minister Noonan is of the opinion that letting us know the interest rate assumptions would be “unwise”. The full exchange is here (with emphasis added)

Deputy Pearse Doherty:  the projected interest rates used in his Department’s April 2012 Stability Programme Update for new debt issued by the State in each of the years 2013, 2014 and 2015.  [27957/12]

Minister for Finance, Michael Noonan: Having consulted with the National Treasury Management Agency (NTMA), I am of the view that it would be unwise to outline the interest rate assumptions underpinning new debt issuance over the period 2013 – 2015 as this would compromise the State’s ability to access funds at the most competitive rate possible. As the Deputy is aware, the majority of the State’s financing needs to the end of 2013 will be met through the funding provided under the EU/IMF programme of assistance. However, the NTMA is planning to return to the markets before the end of the term of the programme once conditions have become more receptive.

The NTMA is in constant contact with market participants and will advise me when it feels that the time is right to re-enter the markets. The NTMA will also advise me in relation to the interest rates that it feels are appropriate.”

Despite Minister Noonan’s refusal to provide what is a key assumption in our projections – we need to issue about €18bn of debt to cover our needs for 2014, and there is a €180m annual difference for each 1% that we need pay on that issuance – we can have a stab at the overall interest rate by dividing the interest payable by the estimated debt. So in 2014 we expect to pay €10bn on debt of about €200bn. And it works out at a shade under 5%. It would be good to know the assumptions though, because if the ESM is actually available at 3% then we might have perhaps €400m extra in 2014 to either accelerate the budget adjustment or to cushion the austerity.

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Ah remember the innocent old days of 2009 when NAMA was just a glint in Peter Bacon’s eye? The assumption was that loans extracted by NAMA from the banks would see the banks crystallising losses of €23bn, after an average 30% haircut – we were so innocent in those days that even the term “haircut” meant something different. And you might also recall the assumption in the draft business plan published in September 2009 that 40% of the loans acquired by NAMA would be performing. Since then, NAMA has actually forced €42bn of losses on banks and we have been constantly disappointed with NAMA reporting fewer and fewer loans performing, and in its most recent report and accounts for Q4, 2011, the Agency said that only 20% were performing, down from 21% the previous quarter. Alas it seems that even this was an overstatement.

In the Dail this week, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan for the up-to-date statistic on NAMA performing loans, but this time he asked for the statistic by reference to the original loan contract. And it turns out that just 18.4% of NAMA loans, by reference to the original contract and by reference to the original loan value, are performing. NAMA has restructured some loans and these account for another 1.6% of all NAMA loans which is why NAMA claimed to have 20% performing loans. The full exchange in the Dail is here (with emphasis added)

Deputy Pearse Doherty: further to the publication by the National Asset Management Agency of its 2011 management accounts and its report for the fourth quarter of 2012, the proportion of performing loans held by NAMA by reference to loan nominal values excluding the effect of any restructuring of loans following acquisition by NAMA.  [27943/12]

Minister for Finance, Michael Noonan: The NAMA Report for the fourth quarter of 2011 confirms that of the loans transferred to end December 2011, 20% of the nominal debt was classified as performing and 80% was reported as non-performing. This is a disimprovement on the third quarter when 21% of the nominal debt was classified as performing and 79% was reported as non-performing. NAMA advises that performance can only be accurately measured based on the terms and conditions recorded on participating institutions’ systems at the reporting date. The overall performance was reported as being 20% at end 2011. However, based on an analysis of the performance profile of these loans prior to the restructure event and comparing it to the performance profile at 31 December 2011, the Agency advises that the impact of debtor restructures on the performance of the portfolio to be a positive 1.6%. Accordingly, the proportion of performing loans held by NAMA by reference to loan nominal values excluding the effect of any loan restructuring is estimated to have been 18.4% at end-December 2011.

It should be noted that as NAMA divests itself of assets it is more likely to be selling performing assets and therefore each disposal will mean that the percentage of performing assets in the remainder will fall, even where no material change has occurred in that status of the remaining assets.

NAMA is continuing to address the issue of non-performing loans in the course of the Debtor Business Plan process. The outcome of NAMA’s deliberations on the viability of a Debtor’s business plan will determine whether these delinquent loans will be enforced or re-financed on new terms set by NAMA. It should also be noted that where Debtor Business Plans are agreed, the loans may be restructured and the performance profile of the overall loan book will change as performance is assessed against the restructured loans. The restructuring of loans will not reduce the amount owed to NAMA.”

So not only is the current number worse than previously thought, but it is likely to deteriorate further as NAMA selected a strategy to dispose of better quality loans first and these tended to be better performing. What this means for NAMA is that its current healthy cash flow which means the Agency is sitting atop a €5bn cash mountain – or at least it will be next week if Bank of Ireland shareholders give the greenlight to the controversial Anglo promissory note loan arrangement – but as time progresses, NAMA will find it harder and harder to generate cash, not just to redeem NAMA bonds but to pay its own operating costs and interest. The revelation this week should act as a wake up call now.

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It seems that Spain is carefully considering creating its own version of NAMA to sort out its banking sector which seems to be sinking deeper and deeper with each passing week. NAMA in its essence extracts loans which are of doubtful value, uses a transparent process to value those loans, and then manages those loans hopefully better than the banks would, and over an extended period of time realises the values of the loans at times when the stress in the economy has passed. As a principle, it makes sense. Implementing it is an altogether different matter, and this blog tries to keep track of what the Agency is doing.

One aspect of NAMA thatSpainwill be interested in, is the cost of transferring loans from the banks to NAMA. In the Irish case, this involved NAMA and the banks both valuing the loans, which included valuing the underlying the property and checking the loan paperwork. In total, NAMA is acquiring €74bn of loans at par value, and paying €32bn for these loans. We found out this week the scale of the cost of making the transfers.

In the Dail on Tuesday, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance, Michael Noonan for the cost of valuing the loans transferred, including due diligence on loan documentation. The answer: €246.1m to date excluding costs incurred at Bank of Ireland. Bank of Ireland loans comprised about €10bn compared with €20bn at AIB, so a back of the envelope estimate might be ½ of AIB’s costs which totalled €102m to date, or in other words €51m for Bank of Ireland giving an overall figure to date of €297m. The full exchange in the Dail is here (with emphasis added):

Deputy Pearse Doherty: following the recent publication of a special report by the Comptroller and Auditor General, the final total of the gross cost of due diligence and valuation of loans acquired by the National Assets Management Agency, the gross cost including NAMA’s costs and costs incurred by the participating institutions.  [27954/12]

Minister for Finance Michael Noonan: I am advised by NAMA that it has incurred gross due diligence costs of €74 million in acquiring the portfolio of loans from the participating institutions. These costs include legal due diligence costs, loan valuation costs, property due diligence and audit costs. The loan valuation methodology approved by the EU Commission and used to value acquired loans makes an allowance for due diligence costs as a reduction from the acquisition value of the loans. Arising from this, NAMA was in a position to recover most of the costs of due diligence from the participating institutions. NAMA does not have access to data on participating institutions due diligence costs. However, AIB have advised that total costs to date incurred by AIB in relation to NAMA are circa €102 million.

IBRC have similarly advised that the total gross cost of loan transfers from the former Anglo Irish Bank to NAMA is c. €59.3m. Separately, the total gross cost of loan transfers from the former INBS to NAMA is c. €10.8m. These figures relate to all loan transfers made to NAMA across all jurisdictions.

Bank of Ireland’s published annual reports and other relevant public disclosures made by the bank in relation to the costs of participation in NAMA included the costs of due diligence on loans sold to NAMA, within the overall costs of selling such loans to NAMA which costs, also included amongst other things, discount to the face value paid by NAMA. The cost of due diligence on loans sold to NAMA has not been separately disclosed by Bank of Ireland.”

It should be noted that the final due diligence and valuation work is not completed, so the above costs could rise, but you would hope any increase would be modest. Remember also that this will exclude direct costs incurred by NAMA on its own staff etc.

So for Spain, it may want to examine the cost of gaining transparency on loans that might be acquired by any El NAMA. In Ireland’s case, the costs have been meaty. Those who suspected NAMA would be a gravy train for professionals can probably draw some support from this week’s revelations. Others might want to know why AIB incurred more costs than Anglo remembering Anglo transferred €36bn of loans, nearly twice the value of those transferred by AIB. We own 99% of AIB, so it is us that have footed this bill.

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“In terms of the pillar banks’ progress in achieving the 2012 targets, the information reported to my Department and the Credit Review Office (CRO) is commercially sensitive.” Minister for Finance, Michael Noonan responding to questioning in the Dail this week

So far, this State has injected €62.8bn into Irish banks. In addition, NAMA has paid the banks almost €5bn in state-aid when it took mostly-toxic loans off their books. In addition, a deputy governor of the Central Bank of Ireland, Financial Regulator Matthew Elderfield has recently said banks will need another €3-4bn of new capital in the next five to six years. In addition, Deutsche Bank has said that our banks will need another €5bn of capital imminently. Earlier this week, a review on here showed that the banks would need another €40bn of capital should the economy not recover, and should banks see their loans fall in value to “fair values” rather than the “carrying values” currently published in the financial statements of the banks. All in all, this country has put a massive amount of money into the banks, some would say the country has to a large extent damaged our future prospects to prop up the banks.

And what do we get in return? ATMs that still work. But we are also supposed to have a banking system which delivers credit to the economy, to households and businesses. In fact, so concerned were we that we imposed lending targets on the two so-called “Pillar Banks”, Bank of Ireland and AIB/EBS. The lending targets were for lending to the Small and Medium Enterprise (SME) sector only, no imposed targets for lending to households. The lending targets were for three years only 2011, 2012 and 2013. The targets were €3bn in 2011, €3.5bn in 2012 and €4bn in 2014 in total for both Pillar Banks.

So how are the banks doing?

On Tuesday in the Dail, the Sinn Fein finance spokesperson Pearse Doherty asked Minister for Finance, Michael Noonan for the performance of the banks in 2012. A fair question, you might think given that we are five months into the year. And the response? “It’s commercially sensitive”! No, seriously, that was the response, here is the full exchange (with emphasis added)

Deputy Pearse Doherty: if he will set out any targets agreed by him with the pillar banks for lending to the domestic economy and to the small and medium enterprise sector in 2012; and the progress made in meeting these targets.  [27959/12]

Minister for Finance, Michael Noonan: As the Deputy is aware, the banking system restructuring plan creates capacity for the two Pillar Banks, Bank of Ireland and AIB, to provide lending in excess of €30 billion in the period 2011-2014. SME and new mortgage lending for these banks is expected to be in the range of €16-20bn over this period. This lending capacity is incorporated into the banks’ deleveraging plans which allow for repayment of Central Bank funding through asset run-off and disposals over the period to 2013. The Government has imposed SME lending targets on the two domestic pillar banks for the three calendar years, 2011 to 2013. Both banks were required to sanction lending, including lending for working capital purposes, of at least €3 billion in 2011, €3.5 billion this year and €4 billion in 2013 for new or increased credit facilities to SMEs. Both banks achieved their 2011 targets.

In terms of the pillar banks’ progress in achieving the 2012 targets, the information reported to my Department and the Credit Review Office (CRO) is commercially sensitive. As such there is limited specific detail that can be divulged on the tracking of the banks’ performances. However, Head of the CRO John Trethowan notes in his eighth quarterly report that combined loan sanction levels in quarter one are broadly similar to the figures for quarter one last year. Lending transactions recorded by the two banks in quarter one are 15% lower than quarter one last year. He goes on to state that these numbers are a function of a number of variables:

(i) A softness in demand for lending reported by the banks, and observed by both the Mazars survey and recent Central Bank reporting:

(ii) Borrowers paying down debt rather than seeking new loans:

(iii) The tighter credit conditions in banks.”

In other words, banks which have drained 40% of GDP (so far) and which in return were required to offer basic credit levels to business (a) can’t have their lending figures divulged but (b) they appear below target anyway, partly because those banks have imposed “tighter credit conditions”

In a proper democracy – the UK – their banks have also been the recipients of state funding and in return, these banks are required to meet minimum lending targets. The UK even has a project name for the targeting of lending which is seen as vital in supporting the economy – it’s called Project Merlin. Both UK government, especially Minister Vince Cable and the Bank of England harry the banks to deliver on lending targets. Here? Not so much. We can’t even find out if the banks are meeting basic lending targets because of a bizarre interpretation of “commercial sensitivity”.

UPDATE: 6th August, 2012. AIB has reported that “AIB exceeded its SME lending target of €3bn in 2011 and is 17% ahead of its year to date target of €3.5bn for 2012”  If AIB is ahead of target, then in light of Minister Noonan’s comments above about lending by both Pillar Banks being behind last year’s levels, an implication is that Bank of Ireland is way behind its targets. You might also wonder why Minister Noonan claimed this information was commercially sensitive given AIB’s willingness to make it public.

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With €74bn of assets being managed, NAMA is by the far the biggest state company in Ireland. And although it mightn’t be the biggest property asset management company in the world, it is significant on the global stage as well. The Irish state is on the hook for €30bn of bonds which NAMA has issued, and in addition the (slightly forlorn) hope is that NAMA could recoup not just the €30bn it paid for the loans, but some or all of the €42bn haircut it imposed on banks which the State has consequently had to recapitalise. NAMA is a massive, massive undertaking which is disposing of up to €750m of assets – loans and property – each month EVERY MONTH, by reference to original loan values. And yet we know next-to-nothing about how well or how badly the Agency is doing when it does dispose of assets.

NAMA will huff and puff and reject allegations that it is a secretive organisation lacking transparency. It will say that of ALL state companies operating in Ireland, it is subjected to MOST scrutiny. It will correctly say that it is subject to parliamentary oversight through committee hearings and parliamentary questions, it will correctly say it must produce quarterly reports and accounts, as well as an audited annual report. But perhaps most impressively, it will tell you that there is a team from the Comptroller and Auditor General’s office permanently on site at NAMA HQ in Dublin city. How many? It was recently revealed that the CAG expended “nine man years” examining NAMA in 2011 so you can assume there will be a handful on site at any one time. And these people are supposed to be constantly poring over NAMA’s operations to ensure it delivers on its objectives set out in the NAMA Act. So are you re-assured?

In an exchange in the Dail on Tuesday, the Minister for Finance Michael Noonan told Sinn Fein’s finance spokesperson that the CAG “does not have a role in overseeing transactions undertaken by or on behalf of the National Asset Management Agency on a day-to-day basis or in overseeing the terms of granting or refusing approval for specific transactions” The CAG is merely there to “review controls, processes and procedures”. Furthermore the CAG personnel may not have any experience or qualifications in asset management, property or loan sales, in either Ireland or overseas. The Minister says that the CAG will employ outside expertise as necessary to help it review NAMA, but there was no evidence of such employment in the recent CAG report on NAMA’s management of its loans. The full exchange is here

Deputy Pearse Doherty: the role of Office of the Comptroller and Auditor General in relation to overseeing the National Assets Management Agency property sales; if he will provide details of the qualifications and experience which enable relevant personnel at the Office of the Comptroller and Auditor General to form a view on the merits of individual property and loan sales agreed or approved by NAMA; the qualifications and experience these personnel have in asset management, loan sales and real estate sales.  [27958/12]

Minister for Finance, Michael Noonan: I understand that in auditing the financial statements of NAMA, the C&AG reviews the controls, processes and procedures in place in NAMA, including those designed to ensure that transactions achieve the best possible value for the taxpayer and are properly approved in accordance with NAMA’s governance framework. In a special report completed in February of this year, the C&AG reported on the arrangements in place in NAMA in relation to sales of property by debtors and insolvency practitioners. I am advised by the office of the C&AG that in situations where specific expertise is required for purposes of carrying out audits and examinations and such expertise is not available in the Office of the Comptroller and Auditor General, the Office procures the services of appropriately qualified and experienced experts on a consultancy basis.

The Comptroller and Auditor General’s (C&AG) role is to audit the performance and accounts of NAMA in accordance with the NAMA Act 2009 and the C&AG Act 1993. The C&AG does not have a role in overseeing transactions undertaken by or on behalf of the National Asset Management Agency on a day-to-day basis or in overseeing the terms of granting or refusing approval for specific transactions.”

So the next time NAMA tries to use the CAG as a shield to bat away concerns about its lack of transparency, the Agency might be reminded the CAG has no specific expertise in asset management and that it did not engage experts in its recent report on the Agency’s asset management function. And that for all intents and purposes, we still know nothing of the Agency’s performance in disposing of up to €750m of assets each month. It is a shame that Senator Mark Daly’s flawed Bill to impose transparency on NAMA didn’t get a second reading where concerns about contractual, commercial and constitutional matters might have been addressed whilst promoting the central ambition to allow the public see how its money is being managed. If NAMA is subjected to Freedom of Information legislation, I cannot see how we will be any wiser in terms of transactions which NAMA can claim are commercially sensitive and accordingly excluded from the ambit of FoI.

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“our own [NAMA’s] detailed due diligence on a loan by loan examination has revealed a troubling picture of poor loan documentation, of assets not properly legally secured and of inadequate stress-testing of borrowers and loans – all born of a mindless scramble to funnel lending into one sector at considerable pace and of a reckless abandonment of basic principles of credit risk and prudent lending” NAMA CEO Brendan McDonagh speaking to an Oireachtas committee in April 2010

Many people in this State which has been bankrupted by banks, are still seething at firms of auditors which signed off on the financial statements of banks during the boom, financial statements that included loan valuations that have since turned out to be fantasy. The capital bases of most domestic banks were wiped out and the State has so far injected €62.8bn of cash and promissory notes into six financial institutions – AIB, Anglo, Bank of Ireland, EBS, INBS and Irish Life. In addition NAMA is judged to have paid nearly €5bn in state-aid to the banks when it acquired the €74bn of loans, now managed by the Agency. Yet the audit firms have never been held to account, and indeed are prospering during the Depression much as they did during the boom. Why is that?

What many people don’t realise is that it is not the job of an auditor to place a value on a loan in a bank. The bank does that. What the auditor does is check the calculations and underlying paperwork. They don’t do this for every individual loan but they should take a representative sample. If the bank assumes that the borrower will continue repayments or that the underlying property securing the loan will generate enough to cover the loan, then the auditor checks the calculations but it is not the auditors job to get out a crystal ball and foretell property values into the future. And as we know back in 2007/8 there was what is often referred to as a “benign” view of the future of the economy, or as it came to be known, there was a “soft landing” in prospect. Since 2007, the economy contracted by more than 10% in GDP terms and worse in GNP terms, unemployment spiralled to the current record of 14.8%, residential property is down 50% from peak, commercial property is down 65%. Sadly we can’t blame auditors for the awful subsequent collapse.

But we should be able to blame auditors for inadequate or shoddy loan documentation. After all, their jobs should have included sampling the loan documentation to ensure it supported the values being placed on loans by the banks. And we have known for some time that NAMA encountered appalling standards at banks whose loans were being transferred to the Agency. In April 2010 – more than two years ago – NAMA CEO Brendan McDonagh told an Oireachtas committee “our own [NAMA’s] detailed due diligence on a loan by loan examination has revealed a troubling picture of poor loan documentation, of assets not properly legally secured and of inadequate stress-testing of borrowers and loans – all born of a mindless scramble to funnel lending into one sector at considerable pace and of a reckless abandonment of basic principles of credit risk and prudent lending”. In fact some documentation was so bad that NAMA either paid nothing for the associated loans or refused to acquire the loans altogether. It is not precisely clear what over-statement of loans attributable to poor documentation and other practices that should have been uncovered in audits, has cost this State, but it would seem to be at least €477m (see below) excluding loans which NAMA simply rejected.

So where are the consequences? Where is the hunger to pursue audit firms? Where is the public discourse on professional indemnity insurance?

On Tuesday in the Dail, the Sinn Fein finance spokesperson Pearse Doherty had the following exchange with the Minister for Finance, Michael Noonan

Deputy Pearse Doherty:  further to the recent publication of a special report by the Comptroller and Auditor General, if he has sought a report from the National Assets Management Agency on the standard of loan documentation available at the participating institutions and the degree by which the poor standard of documentation diminished the value of acquired loans, with a view to examining if it is appropriate to take action against auditors of those Institutions.  [27953/12]

Minister for Finance, Michael Noonan: I am advised by NAMA that the valuation of loans acquired from Participating Institutions was based on an extensive due diligence process carried out by NAMA on the security held for the loans and the assets securing them. Legal due diligence reports submitted by the participating institutions were reviewed by NAMA’s external legal panel with a view to highlighting any issues which would give rise to legal difficulties for NAMA in managing the loans or in engaging in enforcement actions in respect of them. Arising from these reviews, questions were raised about the enforceability of security in certain cases and as a result, it was necessary to impose appropriate legal discounts. To account for these and to account also for financial obligations identified during the course of legal review, downward adjustments aggregating to €477m were made to the acquisition value paid by NAMA on these loans. As a direct consequence, the consideration paid to the participating institutions was duly discounted to take account of poor documentation.

The question of taking action against auditors of institutions for the poor standard of documentation at those institutions is a matter for the institutions themselves.”

So that you get this straight – the Irish state owns 100% of Anglo and INBS and practically, Irish Life, 99% of AIB and EBS and 15% of Bank of Ireland – though in Bank of Ireland’s case, we were in practical control of that bank until private investors were found last summer. The Minister for Finance is nominally the minister who manages these interests in government on our behalf. And that Minister is accepting there was poor loan documentation, that it had significant financial consequences which are borne by the State but at least two years after NAMA brought this to the government’s attention, the Minister abnegates responsibility.

You can tell we are at the start of a five year term of office – such responses produced in an election year would torpedo a government’s prospects for re-election.

The following is a table of auditors at the six covered banks during the boom.

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