Category Archives: Irish crisis

17/6/15: 10 Cases Worth Asking Nama About…

So we are having an inquiry into IBRC on foot of an allegation that the 'bank' sold Siteserv asset at a loss to the taxpayers of some EUR10 million or so compared to another bid. Or you might want to hike that loss to EUR15 million if you consider a simple fact that EUR5 million gifted to the Siteserv shareholders in this deal was at best bizarre, at worst negligent.

Then again, we are not having an inquiry (yet) into the ways in which Nama has been trading.

May be we should. For one, there are questions worth asking in the context of economic value destruction concept outlined in this post:

Why? Because there are some, shall we say, slightly exotic things that might be happening over there.

Define: value destruction as an action or a strategy for managing assets that results in asset value realisation at sale that is below the alternative value that can be obtained by adopting different approach to managing the asset. Now, take some public domain information:

1) In late January 2014 Nama sold project Holly portfolio of Irish non-performing loans to Lone Star Funds for "around €220m and reflecting a circa 41% discount" on par value of the loans. "The nominally-valued €373m Project Holly is comprised of 28 commercial property investment and development loans all lent to Sean Reilly’s McGarrell Reilly Group, secured by around 40 assets," as reported in CostarFinance ( In March 2015 Lone Star Funds sold Project Holly portfolio to US fund Starwood Properties for €350 million. Which means the vultures got a return of 59% over 13 months or cool annualised rate of return of 53.5%. That is doubling your money every 16 months. The portfolio included already developed and operating properties, so Lone Star did not add any value to them to make this sort of a return - it simply put up funds in early 2014 to cover the purchase and the sat on the assets for just a year before flipping them. Thus, Nama lost taxpayers a cool EUR130 million and it also wasted EUR130 million of Sean Reilly’s asset. Question is - any inquiry into this transaction by Nama forthcoming? Question two is: did Sean Reilly incur a claim from Nama due to this loss?

2) Property at One Warrington Place, Dublin 2 was sold by Nama to the US fund Northwood Investors for €27 million on 25th of April, 2012. Based on reports in the media, Nama provided 'staple finance' on the deal, whereby it took an unknown percentage of the final price paid as a deposit from the buyer, and allowed the buyer to repay the remainder of funds over some period of time. In July 2014, the building was sold for €42 million to Irish Life This implies an annualised rate of return of 27.2% doubling your money every 31 months. Zero value was added to the building by Northwood as it was fully leased. Given this was a staple finance deal, Northwood most likely had to put down not much more than a few million for taking charge of the asset. Again, we have no idea how the original developer was treated with respect to this loss that Nama crystallised, but we do know that taxpayers got shortchanged on some EUR15 million. As an aside, here is Namawinelake description of the 'financing' side of this deal: "the Northwood deal was NAMA’s first vendor finance deal, whereby NAMA, accepted part of the purchase price by way of a loan. The interest on the loan would have been around 3%, and repayable within five years. The property was yielding 7.25%, based on a €27m purchase price." So Nama 'gifted' Northwood a guaranteed 4.25% uplift via staple financing arrangement on the amount covered by deferred payment - a margin that could have remained taxpayers'. Reports had it, Northwood only put EUR8 million down on its EUR27 purchase.

3) The Forum Building, IFSC, Dublin 1 was sold by Nama for €28 million to Atlas Capital Group ( in late December 2012. Subsequently, it was flipped for €37.8 million to Hibernia REIT ( in late August 2014. There was no value added to the building as it is fully let to Depfa Bank on an annual rent of €40 per square feet on lease which expires in 2029. So over 20 months, the return on this purely speculative holding totalled 89% with annualised rate of return of 46.5% or doubling of your money in roughly 18 months. Taxpayers lost EUR9.8 million.

4) Per Irish Independent report: "The site, at 1-6 Sir John Rogerson's Quay in Dublin's Docklands was sold by NAMA to Australia-based student accommodation firm Urbanest for €7.5m in June 2013. Property investment company Hibernia Reit then paid €17.75m for the same site in August this year - a 136pc increase." The set of transactions involving the site is quite bizarre. Urbanest bought the site with a plan to develop student accommodation. It failed to secure planning permission for that and sold the site with no new value added to it for "close to EUR10 million" to "a consortium of private investors" February 2014. Four months later, with no value added to it, the site was resold once again to Hibernia Reit for €17.75m. Adding insult to the injury, the site "has planning permission for 102,000 sq ft of offices, about 5,000 sq ft of retail, two live & work units and one residential unit along with 34 parking spaces. The planning permission expires in 2018". Which means large share of the site value is already attached to it (planning permissions attached to sites carry a large share of the value of the site). At least Urbanest were trying to add more value to the site, but - here's additional farce - it couldn't. Taxpayers lost EUR10 million.

5) Dock Mills, Grand Canal Dock, Dublin 2 was sold in 2013 by Nama to the developer Chris Jones for €1.3 million. Spent €1.4 million converting to offices and then sold on for €13 million to Google in January 2014 ( At least Jones added some value to the building, raising his original investment a return of 381 percent in one year. Taxpayers loss (remember, Nama employs 'the best specialists in property markets' available in Ireland, who, in theory, should have been able to do what Jones did many times over) EUR12 million.

6) There is a big issue with Nama operations as the example of the Battersea Station in London exemplifies. Nama held a loan attached to Battersea that is 'acquired' for roughly EUR480mln. Nama sold the loan in a fire sale in June 2012 for EUR600mln, making, officially a 'profit'. The loan recovered 100% of the value. However, Battersea is expected to generate EUR9-10 billion in profit for the buyers, led by SP Setia. The site is 40-acre sized South Bank of the Thames location with a planning permission for 8.5 million sq.f. of development attached to it. At the time of sale, there were plans afoot for the Tube new northern line extension and a pedestrian bridge linking Battersea with the northern part of London. In other words, the key value points related to EUR9-10 billion in expected profit have already been in place. The sale by Nama represents a clear case of opportunity cost being generated to expedite sales of non-Irish properties under the pressure from the Troika for Nama to generate early disposals. It is also a sign of just how poor Nama development opportunity foresight is. In a joint venture as a passive participant, Nama could have expected to get around 20 percent  share of the profit. Assuming net profit of around EUR5-6 billion, that means an opportunity cost of early disposal of some EUR1.0-1.2 billion. There was virtually no cost for Nama to carry the loans into longer term development. Even if Nama were to hold off on selling the site for another 12-24 months, the likely foregone return on the site would have been some EUR120-150 million. (

Update: in response to some queries about Batttersea Station sale, here are couple of links: and Contrary to the arguments presented to me by some readers, Nama was in the driving seat of the process, at least Nama is the one that ended up facing the risk of defending the sale:

7) Nama sale of the Chicago Spire was a massive miss. Chicago Spire is a large development project located in the U.S. city of Chicago, on 2.53 acre site located immediately north of the Chicago River and bisected by the Lake Shore Drive. The site is zoned as a planned development with present zoning allowing for FAR of 25:1, which means the site can sustain 2.75 million sq.ft. of improvements. Nama-held liabilities associated with the Chicago Spire totalling US$93 million, including rolled up interest. Liabilities to the contractors added some USD22 million but were not held by Nama. CBRE estimated in January 2014 the value of the Chicago Spire site and associated assets at US$327 million at the upper envelope of valuations and with lower applied density at the lower envelope of US$255 million. Nama refused to fund further development of the project or to allow such funding to be raised by the developer in the markets. Nama sold USD93 million (EUR68.4 million) of its loans at close to 40 cents on the dollar, for USD37.2 million (EUR27.4 million). Many turns and twists in this saga aside, the loss to taxpayers on this transaction by Nama can be computed, at lower end, as the loss on the fact that the original developer had a connected party willing to bid some USD110 million on the project and that CBRE's lower end estimate is at USD255 million. Which means a conservative loss of some USD70-USD185 million. This disregards the fact that the Spire had pre-sold a large share of properties to be developed, and Nama actions on the Spire forced these pre-sales to be cancelled.

8) There is an issue of Nama interest rate hedging, which was costing the agency, at around 2012-2014, some 1% of the interest-paying bonds, or roughly EUR200 million per annum. Not exactly cheap pennies when one considers that the rates have been declining, not rising. Here's a living example: in 2013 Annual Report, Nama shows that it made gross profit of EUR6 million on its underwriting the IBRC. But Nama hedging of the interest vis-à-vis IBRC cost the agency EUR8 million. Net result - a loss of interest of EUR2 million. Nama also rung in administrative expenses relating to IBRC of some EUR6 million in 2013, which means total net loss for Nama from its dealings with IBRC stood at EUR8 million in that year. Total cost of dealing with IBRC for Nama was, therefore, greater than the total cost charged by IBRC liquidators.

9) In CAG report looking at Nama operations over 2010-2012, the agency was shown to be net yield of 5% on its holdings of rented properties. Net of funding cost, the yield was around 4% pa. At the same time, Nama was aggressively disposing of rented properties. The only way that strategy made sense was if Nama expected declining capital values in the markets where it was selling properties: U.S., UK and (smaller segment) Ireland. Nama was, during that time, of a view that property prices will rise in all three markets, directly contradicting the logic for accelerated disposal. Namawinelake provided an example of "the madness of NAMA’s strategy to dispose of rent-producing properties. Take a €100m commercial property which is generating €5m per annum. NAMA’s cost of funding is 1% or €1m. So,NAMA is generating a profit of €4m. In addition, the likelihood is that the value of the underly-ing property is increasing. Commercial prices are up 7.7% in the UK in the 12 months to April 2014, commercial prices in Ireland are up 14.1% in the four quarters to Q1,2014. So, by selling the property at the start of 2013, NAMA will have foregone €4m in profit in 2013, [and] the benefit of the capital appreciation of €7.7-14.1m." Chop change this ain't: hold a rent-yielding asset for an extra year, get a return of EUR11.7-18.1 million on each EUR100 million, net of all costs. Speculation aside, actual numbers: Nama's interest income was down 20% in 2013, but Nama's non-disposal income (primarily income from rents) was down €400m or 33% in 2013, having declined b EUR300 million annually in 2010-2012. That's cool EUR1 billion foregone in just 3 years in rental income alone, and capital gains lost of some 21% - estimating very conservatively.

10) Small, but visible, Booterstown Marsh site was sold by Nama for EUR400K and resold less than two years after that for over EUR1 million.

You can follow the topic of overcharging and other sharp practices and questionable strategies deployed in the post-banking crisis resolution process in Ireland here:

  1. Deputy Peter Mathews June 2015 speech on the issue of overcharging by Anglo, its legacy and issues relating to Nama was covered here:
  2. My summary view of the Anglo’s sharp practices toxic legacy:
  3. Mr. Declan Ganley’s Affidavit from 2013 concerning overcharging:
  4. Deputy Mick Wallace’s speech in June 2015 delivered in the Dail on the subject of Nama and Anglo legacy with my introduction of the concept of value destruction: 
  5. John Morrissey’s legal letter on overcharging: 

14/6/15: Why Read Wallace’s Speech on Nama & IBRC?

Mick Wallace, TD speech from earlier this week is worth a read:

Let me quote some choice bits relating to the way Ireland operates at the level of IBRC, Nama et al. Italics and bold typeset are added by me.

"We are discussing the alleged preferential treatment of the private sector, in particular deals that may have cost Irish taxpayers startling sums of money. …The number of people who have complained to me in the past couple of years about trying to buy assets from financial institutions controlled by the State, including NAMA and banks, but have not been able to do so despite being prepared to pay more than others, is frightening."

So Deputy Wallace is saying here that, allegedly, Nama has been turning down higher bidders and accepting lower bids. This can take place perfectly legally, in cases where bidders are connected to the original borrowers (Nama does not allow such bids, although this practice is rather bizarre to begin with and is in contrast to normal practice in the U.S., past practice in Sweden and Finland, and even IBRC practice). If Deputy Wallace's allegation stands for cases excluding bids by parties connected to the original borrowers, then we have a problem.

"…I was also shocked at how NAMA, ...operated. I understood NAMA was going to hold assets until their value recovered and would not offload stressed assets for less than what they were worth. Some of the apartments I built have been sold for €100,000 each during the banking crisis, Apartments which I could not build now for €200,000, even if I got the land and the money for nothing."

Now, Deputy Wallace is an ex-developer with quite an experience under his belt. So he knows what he is talking about. Deputy Wallace goes on to cite several examples, where combined loss to the taxpayers due to Nama premature sales of assets amounts to ca EUR165.1 million. From just a handful of examples.

What he is arguing is that Nama has been engaged in a destruction of value - selling assets at depressed valuations compared to what could have been achieved if it properly managed these assets.

The deals cited by Deputy Wallace are all on the record, in the media. I have been made aware of at least one case of an asset originally pushed by Nama into the market, subsequently being withheld from the market due to legal actions, staying off the market for a year or less. The asset was subsequently sold by Nama for a hefty upside on the original asking price. An upside comparable with what vulture funds reap in their own operations. In other words, delays by developers in this case produced actually higher returns to Nama. These delays were actively resisted by Nama. I have been made aware of at least one asset sold by Nama seemingly in disregard for its upgrading and/or development potential and possible uplifts to asset value arising due to completion of major adjoining public infrastructure project. In another project, I was told of a situation whereby Nama presided over termination of a value-additive joint venture with another organisation that could have nearly doubled the value of the original asset.

In economics, there is a term of 'opportunity cost' - the cost arising from pursuing one course of action as opposed to opting for a different course. In Deputy Wallace-cited examples of public knowledge, that cost is non-negligible EUR165.1 million. Or, roughly, 2/3rds of the the 'savings' achieved in one year from imposing higher costs onto users of insurance-funded health services. That too is an 'opportunity cost'.

10/6/2015: A Bombshell Goes Off on Anglo, IBRC & Nama

Here are the excerpts from the very important speech delivered today in the Dail by Deputy Peter Mathews. And I urge you – the public and professional readers of this blog – to read through the length of this.

My focus here is one core aspect of the IBRC scandal that remains largely ignored by the Government and the media and that Deputy Mathews raises. For those inclined, full official transcript is available here. In the quotes below, bold and italics are emphasising points of major importance and are added by me.

… I want to talk about how the so-called profits of IBRC were inflated for a period starting in 1993 and travelling forward to the present date. There were two ways this was done.”
Note, the word ‘inflated’ in relation to reported profits. If such inflation indeed take place, it would imply that Anglo reported profits were fraudulent. And this covers years from the early 1990s through 2003. That is a lot of years of potential major corporate fraud – fraud that (if proven such) would involve deliberate overcharging of clients, concealment of such overcharging and reporting this overcharging on the revenue and profits side of the company accounts.

The Act
“First was the direct manipulation of interest charges and the concealment of loaded interest, which happened in the majority of cases. An extensive exercise carried out by Bank Check revealed this. … Some 494 separate DIBOR-EURIBOR rates were reconciled and found to be loaded to a degree ranging from 0.5% in the early 1990s to between 0.03% and 0.05% in 2002 and 2003. Some 80% of all the loans examined, relating to many clients, were found to have this loading.” So the [alleged] fraud was systemic, not sporadic.

The Concealment
And it was actively concealed from the clients: “The statements which clients received never showed the breakdown of the base rate and the DIBOR 3-month rate plus a margin, which had been agreed by loan agreements, plus the reserve asset cost, RAC, if and when it applied.” Does this show an intent? For one has to ask if not intent, then how could this ‘error’ or ‘omission’ be perpetuated across 80% of examined cases?

The Size
The [alleged] fraud was also on a large enough scale to makes it material. “The quantum of the loaded overcharging was in the order of 0.3%. A margin of 1.5% would comprise two elements, namely, the amount that goes to cover overheads, which is usually about 0.9% of the 1.5%, and the remainder, 0.6%, which is the profit of the bank. A loaded secret dark pool profit of 0.3% would represent one third of the overall profits, including that dark pool profit.”

The letter from Mr. Morrissey’s solicitors that Deputy Mathews cites states the following: “Bankcheck has advised Mr. Morrissey that, in total, approximately EUR1 billion has been overcharged by you, the Special Liquidators, Nama, private equity and institutional buyers of former IBRC loans, IBRC and its predecessors. This is very material sum and represents a most material proportion of the bank’s declared profits over the past 25 years. You have been made aware of this on several occasions.” Note: “you” references in the above quote joint special liquidators of IBRC. And further note Nama mentioning in the above.

Boom! Remember the case against the Anglo directors that alleges wrongdoing relating to manipulations of the company accounts by means of loans and interbank deposits? Well, that is chips compared to the juicy chunk of meat contained in the above statements: thanks to over-billing of the customers, Anglo might have been over-inflating its margin by a third! Year, after year, after year. 

And, even more importantly, this information was known and is known to the current authorities and liquidators. Who did nothing with it.

Should former shareholders, current investors in ex-IBRC debt, former borrowers from Anglo, and possibly even auditors who were not given pertinent information by the Anglo and IBRC call in the legals now, the hit will be on the state.

Deputy Mathews went on: “That means the market valuation of Anglo Irish Bank in the 14 years up to 2002 when this was going on was overstated by one third. If it had been discovered by proper auditing the market would react with a collapse, …of at least one third of the value of the bank and this would affect the shareholders, creditors and depositors. That would happen irrespective of whether there was an international credit bust and a freeze of credit.

Systemic Failure that Continues Today
This has been brought to the attention of the NTMA, NAMA and others but it has been ignored to date. I have the evidence here and it is shocking.” Let us stress the fact that Irish authorities were and are aware of this.
  • An Irish court ruled on the matter in favour of Mr. Morrissey.
  • Mr Morrissey notified this to the bank.
  • Mr. Morrissey also notified this to Nama and the Department of Finance in early January 2015. It was notified to the Central Bank in late January 2015, and to the Minister for Finance in early March 2015, and subsequently again to the Central Bank in early March 2015. And the case is being ignored. Per Mr. Morrissey, he received no reply to his notifications from any official body.
  • Per Mr. Morrissey letter cited by deputy Mathews today, Mr. Morrissey notified the then Chairman of IBRC, Mr. Alan Dukes of overcharging as far back as in mid-January 2013. Simultaneously, he notified of the same matter the Department of Finance, the Central Bank and the Financial Regulator. 

Mr Morrissey has been ignored since then, according to the record set forth by his solicitors.

It gets worse. Recall that the liquidation of IBRC was undertaken under the procedure that all claims against IBRC were to be notified before the end of 1Q 2015. And again, the notifications in the case of Mr. Morrissey were filed on time. We are at the end of 2Q 2015 and he received no response on these notifications. So the deadline established by the IBRC liquidation procedures has now expired. And the IBRC and by extension the State have not replied to Mr. Morrissey before the expiration of that deadline, effectively undermining the very process of liquidation they themselves set out.
Is this a collusive behaviour? In economics, such actions would be viewed as potentially collusive: all parties responsible and empowered knew, none responded, the wrong remains unaddressed.

The Legal Bits
Mr Morrissey solicitors letter cited by Deputy Mathews has this to say on the matter: “It appears numerous illegalities have been carried out by Anglo Irish Bank and its successors over these 25 years [from 1990 through today]. You, Mr. Wallace, have acknowledged under oath in the US Court proceedings the overcharging of interest by the bank. As the overcharging has continued under your watch, you are jointly and severally liable for same, together with the Minister and Department of Finance, the Central Bank of Ireland and the Financial Regulator.

And per official behaviour in response to the evidence presented: “we most strongly object to this glib attempt to absolve yourselves from responsibility and liability both for historic and current interest overcharging, or the consequences thereof, including the sustained misstatement of the bank’s publicly released annual accounts since 1990.”

The IBRC Inquiry
Deputy Mathews spoke in the context of the upcoming IBRC inquiry. But what he said is more important than an inquiry itself. Here is why. The inquiry is supposed to provide and independent and objective view of alleged, potential, possible wrongdoing at the IBRC. Deputy Mathews statement shows that in an actual, tangible, established and courts-confirmed case of misdeeds by the Anglo and IBRC, the State is unwilling to do anything to address these misdeeds. Thus, one has to ask a simple question: what’s the point of an inquiry into alleged wrongdoings, when actual wrongdoings are not being dealt with.

Now, take a trip through theory. An inquiry can come back with two possible outcomes: One: nothing found. Two: something worng is identified. In outcome One, under the above revelations about the Anglo overcharging case, one can be pretty certain that no one will believe the inquiry findings. There is no trust in our systems, there is no trust in our processes. No matter how well the inquiry works, its findings, were they to deliver inconclusive verdict, will always be subject to mistrust. In outcome Two, nothing will happen. Just as nothing is happening in the overcharging case. The outcome will be ignored. And so the inquiry, given the context of the cases such as cited by Deputy Mathews is hardly an exercise in building trust. For all its possible merits in design and execution, it is more likely going to be an exercise in further chipping at the little trust still left in this system.

Other Players in the Penalty Box
Deputy Mathews quotes from the letter from the Black solicitors, “following the John Morrissey case:It appears numerous illegalities have been carried out by Anglo Irish Bank and its successors over these 25 years. You, Mr. [Kieran] Wallace, have acknowledged under oath in US Court proceedings the overcharging of interest by the bank. As the overcharging has continued under your watch, you are jointly and severally liable for same, together with the Minister and Department of Finance, the Central Bank of Ireland and the Financial Regulator.””

But remember, there are other players beyond Mr. Morrissey who might want to ask few questions from the Government now that the word is getting out. As Deputy Mathews notes: “This is serious stuff. There are loans that are being operationally processed by the originators of those loans. Now those loans are owned by third parties, including hedge funds, and they are calculating interest on an unlawful basis, even though it has been brought to their attention. This is shocking.

Yes, we have on the line now:
  1.  Borrowers who were [potentially] defrauded of billions in false charges;
  2.  Investors in Anglo shares who were potentially defrauded by over-valuations of the bank;
  3. Investors in distressed loans purchased off Anglo-IBRC who are holding hot paper with [potential] fraud written all over it – the loans of the borrowers potentially defrauded;
  4. Potentially, the auditors of Anglo/IBRC who were possibly misled by non-disclosure of overcharging;
  5. And on top of all of them are the underwriters of the IBRC liquidation: taxpayers, who are facing huge bills for this.

And Another Bombshell
Deputy Mathews did not end just there. 

Here is another bombshell that exploded loud and clear in the Dail today, even through the repeated interruptions: “There is other evidence that NAMA knowingly----- allowed the information memorandum ----- -----for the Chicago Spire ----- to be negligently misleading, which has resulted in unnecessary huge losses for both the Irish people and the developer. I have the evidence for that.” That’s right – you’ve read it here. There are now allegations that Nama – not subject to the inquiry – has ‘mislead’ the markets participants to the tune of [potentially] hundreds of millions on just one, repeat, just one, asset sale.


These are mind-blowing revelations that expose more than just a systemic fraud [potentially] being perpetrated by a rogue bank. These are the revelations that show the current system wanting in respect of acting on the established legal case judgement in addressing the systemic [potential] fraud. And the worst bit is that even that is a tip of an iceberg, for Deputy Mathews statement about potential misrepresentation of the Chicago Spire case by Nama opens up the EUR77 billion can of worms over the Grand Canal. In this context, the current planned inquiry into 2009-2013 IBRC dealings is nothing more than a fig leaf of fake decorum on a rotten corpse of the Irish Solution to an Irish Crisis.

Still feel like the IBRC inquiry over 2009-2013 deals is going to be enough? Or should we not start systemically reviewing all post-crisis dealings and pre-crisis wrong still unaddressed by allagencies involved?