Nama audit committee chair Brian McEnery, a partner on the Corporate Finance & Recovery Team at BDO Ireland; and RTÉ’s Marian Finucane
On RTÉ Radio One’s Marian Finucane show.
The chair of Nama’s audit committee Brian McEnery gave a one-to-one phone interview with Ms Finucane while her panel was in the studio, in light of the recent C&AG report into Nama’s Project Eagle sale.
Ms Finucane explained, before the 25-minute interview began, that the accountant, who was in London, did not wish to be a part of the panel discussion.
Ms Finucane didn’t mention that Mr McEnery was a member of Nama’s Northern Ireland Advisory Committee, of which Frank Cushnahan and Ronnie Hanna were members.
She also didn’t mention that Mr McEnery was director of elections for Fine Gael’s Michael Noonan, now Minister for Finance, before the general election in 2011.
Mr McEnery was first appointed to Nama on December 22, 2009, for a four-year term, by the late former Minister for Finance Brian Lenihan, while he was re-appointed for a five-year term on December 22, 2013.
The Northern Ireland Advisory Committee was established on January 7, 2010 and dissolved in September 2014, after the sale of Project Eagle.
In 2013, the then Minister for Health James Reilly appointed Mr McEnery as chairman of the Health Information and Quality Authority (HIQA).
Mr McEnery was also on the board of directors for Limerick City of Culture board in 2014.
Readers may wish to note the following excerpt from the book, The Untouchables: The people who helped wreck Ireland – and are still running the show, written by the now Minister for Transport, Tourism and Sport Shane Ross and Nick Webb in 2012:
McEnery was a partner at Horwath Bastow Charleton, which, according to its website, ‘can support businesses in preparing business plans and in dealing with Nama and their other bankers’. In April 2012, he joined BDO Ireland as a partner.
The firm examined developer business plans on behalf of Nama and is on the state agency’s panel of receivers.
in June 2011, McEnery’s new employer was appointed as a receiver to developer David Daly’s Irish and UK assets. Daly owed €457million and was one of Nama’s biggest clients.
BDO was also a close adviser to one of Nama’s top ten clients, Dundrum Shopping Centre developer Joe O’Reilly.
Turlough Flynn, who works at O’Reilly’s Crossridge Investments, was listed as a guest of BDO at the Chamber of Commerce dinner in the Four Seasons in February 2012. Nama chairman Frank Daly was the keynote speaker that night.
Nama’s board is in receipt of commercially sensitive information, the kind of stuff that clients of a firm like BDO would kill for. Having the inside track on an organisation as secretive as Nama would be hugely valuable for dealmakers trying to buy assets from Nama or even for negotiations with clients.
McEnery will need all of his wits to avoid all the potential conflicts of interest that his new career move has brought.
But back to the interview…
Marian Finucane: “Brian McEnery, good morning to you, and you’re welcome to the programme.”
Brian McEnery: “Good morning, Marian, thank you very much.”
Finucane: “From your perspective, can you address this secrecy issue?”
McEnery: “I will, Marian. Well, I’ll try my best. We’re, I suppose, in a way, Marian, we’re like a bank. And, when you’re dealing with a bank, but it’s even worse cause we’re dealing with a bank which is effectively trying to deal with debtors where their assets are distressed. And that means that a lot of value they once upon a time had, or felt they had, is now gone, and so, it is, the relationship, quite frankly, I suppose, is that it is around distressed debt. And, for us, take the one or two times, Marian, and you say, I do need to say, it isn’t as if everything has been perfect in Nama, there have been one or two leaks…”
Finucane: “Oh my goodness.”
McEnery: “…of information.”
McEnery: “And when that happened, you know, we came in for a mighty, mighty amount of criticism that items of information got out into the public arena and so, in some ways, and I believe we justifiably got criticism for that. Former employees of Nama who intentionally did things wrong and, but, in those instances, you know, the secrecy is terribly important around debtors’ commercial dealings, the level of debt that they have outstanding, how it’s going to be best achieved, income on behalf of the State and if we did operate in a much more transparent way, I think, we would not get the same kind of yield that we have got back on behalf of the taxpayer. So, to go back to your discussion a minute ago…”
McEnery: “Where, it was said, if it was known about the strategy, as to the realisation of the Northern Ireland portfolio, wouldn’t that damage Nama’s commercial interests and that is true, Marian. If there is a lot of information out there, which is commercially sensitive, it absolutely will damage the commercial interests of Nama which is the commercial interests of the taxpayer.”
Finucane: “Well, what people are puzzled by, is that if Mr Cushnahan informed Nama that he was acting for six or seven of the clients, he would have been part, maybe not, we don’t know, it’s an allegation, of the actual figures, but he would have been aware of the strategy?”
McEnery: “I tell you. So. To go back into talking about Mr Cushnahan for a second and it’s, I think, you’ll, you’ll recognise it’s important that I don’t say that he has done anything wrong…”
McEnery: “Those investigations are ongoing and we’ll see where they go to. But. Firstly, I can tell you, if, if they do come out to be true, there will be nothing form my perspective other than utter disgust. However, that said, originally, Marian, the Northern Ireland government wanted a director on the board of Nama. If that had happened, I believe we would be in a terrible place now – if we had the same cast of characters. [Late former Finance Minister] Brian Lenihan resisted very heavily and, clearly [Finance Minister] Mr Noonan has done the same. That was a recurring request, from the Northern Ireland government, that it wouldn’t just be on a little committee of Nama, that it would be at the main board, thankfully that didn’t happen. In relation then, and on the basis, of some element of diplomacy, this Northern Ireland Advisory Committee was established. We continuously resisted the request for board membership from Northern Ireland, for good reason. It’s the Irish taxpayers that are, the Republic of Ireland taxpayer who’s funding this, not the Northern Ireland one. So, that was resisted, and that is really the critical point. In terms of Mr Cushnahan and the Northern Ireland Advisory Committee – he was nominated by the DUP. And the other nominee was Brian Rowntree. They were the two nominees on it. We absolutely made it clear, from day one, there would never be a debtor discussion, of any description, there would never be a screed of information about a debtor given to the Northern Ireland Advisory Committee. They never saw…”
Finucane: “But, presumably, they would have known of the decision to get rid of the loans, all in the one go, so to speak. And they…”
McEnery: “In actual fact, Marian, when that arose, the Northern Ireland Advisory Committee was not consulted…”
Finucane: “But would they have been aware of it?”
McEnery: “I don’t believe so. When. Because. It was kept from the Northern Ireland Advisory Committee, in actual fact, we didn’t meet. The Northern Ireland Advisory Committee would only meet periodically.”
McEnery: “And when Nama, as a board, was making its decision making around, around this, it did not consult with the Northern Ireland Advisory Committee.”
Finucane: “So, what did you talk to the Northern Ireland Advisory Committee about, when you met?”
McEnery: “I tell you what we did talk about, we talked about commissioning research from the University of Ulster, around the property indexes in Northern Ireland and whether property was going to generally going be going up or going down or, that’s what we talked about, we kept it intentionally at a very, theoretical high level. And I can tell you this: in terms of the so-called data that Mr Cushnahan had, he didn’t get it from Nama. Because if he did, the data would have been right and it was very wrong. It was up to 80% out on some of the balances in relation to the Miskelly letter. So, he didn’t get it and I think, quite frankly, I believe, and my sense is, that Mr Cushnahan was peddling influence that he didn’t have..”
McEnery: “Peddling that he had data which he didn’t have.”
Finucane: “Well that remains to be seen now and there will be investigations done on that. It is alleged that, in some of the sales, if we leave the [Project] Eagle one aside for the moment, that, in some of the sales, and I presume aggrieved debtors, that the property changed hands, big property, big money, was sold off at such a low price, that it was flipped by the buyer, within one or two years – is that true?”
McEnery: “Marian, I tell you what we, what we do. We have a very, very robust process. And, you see, take, take a house, Marian, as an example…”
McEnery: “I want to give you a very fair but accurate answer.”
McEnery: “Say you buy a house and I’ve sold it to you for 100,000 but let’s say, nobody knows, Marian, that you might have put in another 20,000 euros into it and redecorated it because I hadn’t put any money into it in 10 years beforehand and you go and sell it for 125,000 and you’d say, jeez, they made a 25% increase on the value of the property, wasn’t he an awful fool for selling it for 100,000 euros..”
Finucane: “But if you go back to the principle of the bad bank, my understanding of the bad bank was that you took the toxic loans off the balance sheets of the banks.”
Finucane: “…to allow them to function and the idea was then to hold on to some fantastic properties until the market would start to rise again which it has always done. But it seems that..but, just to come back to this.. because from more than one story, I was told by three different sources, about certain properties and the loans were sold off, say at around 200million and were flipped for 400million.”
McEnery: “Yeah, you see, you just don’t know what happened the assets in the intervening time period, Marian.”
Finucane: “In a very short period of time. In other words, there was a feeling that there was a fire sale going on and that there was a rush to get rid of all this…”
McEnery: “I tell you what we did..”
Finucane: “Instead of holding on to it, which, I understood, was the principle behind a bad bank.”
McEnery: “No, absolutely So, we took the assets over in 2010, Marian and the objective was, was to have all of Nama completed by 2020. Government sent Nama the objective of expediting that to 2018 – for the benefit of the sovereign, for the benefit of Ireland to get back out and show that it was dealing with its issues and 2020 became 2018. So that’s fine. And that became our objective but to do exactly what you have also said, Marian which was to be, to give you an example, Project Jewel, Dundrum Shopping Centre held until we were at the very height of the market and sold for about a billion euros profit into Nama. Other assets that we have dealt with, sold, now what we did do in the early days of the strategy, was not to, was in actual fact to try and sell the London assets because there was good yields in London property and, aswell as that, if we put a lot of the Irish property into the marketplace in 2010 and 2011, we’d have made the Irish property market an awful lot worse so we did warehouse Irish property and it was only, as you know, in the relatively recent times that we sold off, and we are still selling some of the prime assets and I can tell you we are making profits and, overall…”
Finucane: “But, if you take the overall sums you’re dealing with.”
Finucane: “Like 2 billion, we’ve got so used to billions in this country, that we talk about them like snuff at a wake but, anyway, in the order of things, proportionally, 2 billion doesn’t seem like a huge profit, given the level of billions we’re dealing with?”
McEnery: “Well. Ok. What are we going to do, so? The goals have been set that we develop 20,000 housing units and we further do out and put in all the infrastructure and to put office accommodation into the Dublin Docklands. That’s the, the three objectives now of Nama, at this point in time are: continue to sell off the loans and deleverage and to repay the bonds. The original objective and it was the prayer, I think, of all Irish taxpayers back in 2009/2010 was that Nama would not lose money and there was an awful lot of commentary that this was going to be a disaster; it was going to be an unmitigated burden on the taxpayer forever more. It won’t be, Marian. We are guiding that we will make a 2.5billion euro profit…”
Finucane: “On what turnover?”
McEnery: “On. So. We, we issue bonds to the tune of about 32billion and we will repay both the senior and the subordinated bonds and we will make a profit for the exchequer of about an extra 2.5billion. It may vary upwards by the end of the day but that’s what we’re guiding at the moment. In addition, we will have developed 20,000 housing units by 2020. We’ve over 4,000 developed in the last year and a half and we will put infrastructure in the Dublin Docklands which will allow big new companies to come into Dublin city centre. That’s, they’re the three objectives but it won’t be a loss, it will be a profit..”
Finucane: “Yeah but..when you say a profit, that sounds very positive and we’re all very glad, thank you very much for any profit we can get but you couldn’t call it a mega profit.”
McEnery: “No, no it isn’t a mega profit..”
McEnery: “But you know what…when we bought the loans..”
Finucane: “It comes back to the point that if you take the story about the 200million flip to 400million, you know, it looked like this was a fire sale and I know that on that one, the person involved had never missed a payment to a bank and it seemed that they were all treated the same way – whether they were performing or whether they weren’t performing and, indeed, that was the point that Mr Kelly was making in his article today, too.”
McEnery: “Well, Marian, and I listen to your, I listen to your programme every Saturday and Sunday.
Finucane: “I’m delighted to hear it.”
McEnery: “I’ve heard debtors who give out about Nama on your programme, and I’ve heard debtors who come in and say Nama is tough to deal with but we’ve got on, we’ve had a relationship with them and we’ll continue to develop with finance that Nama has put out. I can tell you, but truthfully, we would, we would, there would be a much, much, much bigger issue for the Irish taxpayer if people were coming on, saying Nama is nice, they’re great people to deal with…”
Finucane: “The other thing is, some of these guys, and I’ll come back to the Eagle project then, some of these guys that we’re talking about, would have described in the past as like masters of the universe and, as I understand it, from another contributor on the programme, who used to work with Nama, and she was saying that they, the debtors, had to sign a confidentiality. Now I fully understand how Nama has to be, have to have confidentiality about everybody’s business. But each individual should surely have the right to talk about their own business and they were terrified to.”
McEnery: “That was around the original business planning and, I mean, ultimately, when you say that it’s important that Nama keeps its strategy close and plays its cards close to its chest because that’s important in delivering value to the taxpayer, that’s what we try and do, we do try and ensure that if, that if there’s a strategy agreed with debtors that it’s not, no more than, if you go in and you borrow from, from other banks..”
McEnery: “You know, you don’t go around, telling other people exactly what you’re…”
Finucane: “But I could, I could, like the bank couldn’t. But I could. And I could say I borrowed 125,000 to buy a house off Brian McEnery, I mean I can say that because it’s my business. I mean the bank has to retain confidentiality but I can tell the pope of Rome if I want to..”
McEnery: “Yeah. Well. I can tell you this. If a debtor, and we are working with a number of debtors around Dublin where they’re building houses and they’re absolutely perfectly free to go out and talk about their interactions. We would actually be happy for them to go and talk about their interactions with Nama.”
Finucane: “Then why did they have to go and sign a contract to say they wouldn’t?”
McEnery: “That was in relation to the original business planning process. They don’t now, they don’t now have to go off and sign confidentiality agreements.”
Finucane: “All right. Now, every time it comes up at the PAC, the Public Accounts Committee, about the non-answerability, the secrecy, oversight and all of that, it has always been said, by the two gentlemen, oh the C&AG, the Comptroller and Auditor General’s office has oversight, we are answerable to the Comptroller and Auditor General, as somebody said, it was the blanket behind which it was hidden and the minute the Comptroller and Auditor General says, I don’t like this, I’m not happy with that, you get very, very exercised. We have invited Nama, for a spokesperson on this programme, I cannot tell you how many times and not a dickie bird, not questions to be answered and I’ve no doubt that other journalists, and print journalists, have done the same. But, out of the traps, was Frank Daly. Then we see Brendan McDonagh iand thank you very much for coming on our programme but you don’t accept the Comptroller and Auditor General’s authority?”
McEnery: “No, and I’m going to tell you why. I’m going to tell you why. And I’m glad cause I’d like a minute or two to talk about this, if I could. And, firstly, I’d be delighted to come on the Marian Finucane show anytime..”
Finucane: “Oh, well, that’s good, thank you.”
McEnery: [Laughs] But. So. I’m an auditor and accountant myself, that’s my background, Marian. And I’m chairman of the audit committee [at Nama]. I interact with the C&AG every month. It comes to our, or his [Seamus McCarthy] staff come to our audit committee meeting and, you know, when I do hear Michael McDowell saying, it’s wrong, the C&AG shouldn’t be challenged. It’s wrong for anybody in Nama to say that Nama shouldn’t be challenged..”
Finucane: “He didn’t actually say that. What he said was: neither speaks ex cathedra. He was referring to yourself and to the Comptroller and Auditor General. That’s [him] writing [in the Sunday Business Post] today.. in other words, neither party, everybody should be questioned in other words.”
McEnery: “Ah well, yeah. Let me. So. I believe, and I’m going to try and go through the, go down through one or two points as to why I believe, as an experienced auditor, I’m president of our accounting body and I’m going to try and tell you why I believe he’s wrong. Firstly, I do agree with somebody who said if the C&AG is right, Nama is wrong. And for Nama to be right, the C&AG has to be wrong. And I think he is wrong and I’ll tell you why. Firstly, I think it was [former Labour leader] Pat Rabbitte said, earlier on, the discount factor of 5.5%. It’s as if they’re the prima facies in the whole of Ireland, the United Kingdom and Europe to use a discount factor of 5.5% – it’s ridiculous.
I made my decision that this was the right thing to do. The carrying value of the loans, Marian, at that day, at the 31st of December, 2013, was 1.48billion pounds. I said the minimum discount factor, because these, and another one of your commentators is absolutely right in saying these were poor and secondary Northern Ireland assets and they were assets out of the north of England. We had German, one or two Northern Ireland borrowers had German assets, we sold those off separately. So, these are secondary assets, it would be at least a 10% discount. C&AG has we’ve made that point to C&AG on a number of occasions and how he can say that a 5.5% discount is the right discount factor to use, is, in my opinion wrong. Now, second thing is originally the C&AG went out and tendered for expert commercial advisory services, to help him with this report. He didn’t get any and he didn’t appoint any and, as a consequence, I think even by the fact he went out looking for it is an indication that he did not have good commercial expertise on this and this is ultimately…whether the taxpayer got…”
Finucane: “Yeah, but, do you know, can I just cut across you there?”
Finucane: “I mean I have no doubt of the good intentions of everybody that’s involved on your board. But you could equally say about Mr Daly, he was a civil servant who was a head of Revenue, which would have had very little indeed…”
Finucane: “To do with the kinds of deals you’re talking about now but presumably you learn as you go along?”
McEnery: “No but now, there’s a big difference Marian, we do appoint external experts, we do not make a decision without that expertise, we had Lazards. We would not have been able, as a board, to make that conclusion that this was the right thing to do. So..”
Finucane: “And did you, at any stage, consider breaking up the package?”
McEnery: “Oh we did, we did, one of your commentators…”
Finucane: “And why did you decide against that?”
McEnery: “One of your commentators this morning said this was a very big portfolio to bring at 1.3billion. In actual fact, we’ve done transactions on the size of 3billion. There are players, Marian, in the marketplace, these big companies that you talked about: Pimco, Cerberus, loans that are, there’s many of these there and in actual fact, quite truthfully, if they’re not of a certain size, they won’t participate. They need..”
Finucane: “But doesn’t that not also exclude people who would be lesser mortals than Pimco?”
McEnery: “Correct, that is true but, ultimately, we’ve got to try and devise the best strategy that we believe will ultimately get the best value. Now.”
McEnery: “A little question, though, Marian is C&AG, and as I said, I interact with him 10 or 11 times a year. He did the audit himself in 2013, he did the audit in 2014. Project Eagle was across those two years. He gave us clean audit reports, he looked at Project Eagle, he didn’t say there was a problem with Project Eagle in 2013 audit or the 2014 audit. Yes, an audit is about the truth of the financial statements but it’s also about, do the controls exist to maximise the return to the shareholders. He gave, the C&AG looked at that twice before this report and he signed off a clean audit report. The next and most important thing and fair process is awfully important and I’m chairman at HIQA and when we do an investigation in HIQA, where it’s complex, we get external expertise to assist us. So, for instance, in the Portlaoise inquiry, we had four external experts. We always meet with the party that we’re investigating. I requested three meetings with the C&AG and he refused to meet…”
McEnery: “I have to say, I think that’s wrong.”
Finucane: “Well, I mean, clearly, you’re all very cross indeed with the Comptroller and Auditor General but the fact is that he is a constitutional role within Ireland and he’s a very important person as the guardian of our financial welfare so to speak. So, I presume there is now going to be an inquiry..”
McEnery: “Well he is important and, you know what, it isn’t easy for me to, it isn’t, I’m not happy coming out and saying this but I don’t think there was proper process. He didn’t meet Lazards, our expert advisors, for instance, I mean, it’s hard to, it’s hard to see how somebody could come to a conclusion but I want to say one other important thing…”
Finucane: “Yeah, and then I’ll have to go, yeah.”
McEnery: “Yeah, which isn’t known. We get, we got a number of drafts from the C&AG, where he was doing his work and he’d send a draft. We’d go through it and then put in a response and that happened on maybe three or four occasions. And in every one of those, the word [s] ‘potential loss to the taxpayer’ was inside in it. When, when he published it, without us having a chance to go through it and having left us with the previous version which is that there was a potential loss of value to the taxpayer, he changed his wording and said there was a probable loss…”
Finucane: “Well, there you go. He arrived at that conclusion.”
McEnery: “But, well he did, but I mean, ultimately, when you talk about interacting with somebody you’re investigating, you don’t let them know about that. I mean, that’s. I have to say, that’s, I thought that was extraordinary. He gives us the draft and, down on them, the one where he asks us to give us the comment back on the word, there was a potential loss, which we would contest anyway…”
Finucane: “But I mean obviously you would because you had arrived at the decision. But it doesn’t necessarily mean that you are infallible..”
McEnery: “No, we’re not..”
Finucane: “The general tone, from Nama, is one of absolute infallibility..”
Finucane: “No queries, no questions, no criticism, no differences of opinion, it could be the fact that the man, and his office, differ in their opinion to the opinion of your board and that’s..”
McEnery: “But I’m trying to say, Marian, there is a process and that process would be at very much variance with how investigations would be done by, for instance, HIQA, as an example..”
Finucane: “Ok, listen, I’m going to have to, I’m going to have to leave it there cause I’ve to come back to my panel here in studio, Brian and thank you very, very much indeed for talking to us this morning. That was Brian McEnery of Nama. We’ll take a break.”
Listen back in full here
Previously: ‘The Taxpayer Got Full Value For Money’
‘A Probable Loss Of Value To The State Of Up To £190million’