Dáil Diary no 9 - 10th June 2016
NAMA- Why don't Fine Gael and Fianna Fáil want to hold NAMA to account? Government burying their head in the sand...
Here's my speech during the Single Resolution Board Bill 2016 yesterday in the Dáil, with new Minister of State, Eoghan Murphy -
"The European Central Bank and European Union have inflicted a huge injustice on Ireland. Sadly, the Minister for Finance now wishes to compound it by getting Ireland to co-operate with the single resolution board, which wishes to continue the current practice of regulating banks even though it is aware that banks are hiding losses from the regulator. Patrick Honohan has confirmed at various times that banks have hidden losses and also confirmed that it is difficult for regulators to ensure that banks are safe.
It now is well recognised that the ECB was a major contributor to Ireland's banking crisis. In 2001, the ECB knew that banks were about to start hiding losses yet it simply stood aside to please bonus-hungry bankers, allowing them to amass substantial bonuses while destroying economies like Greece and Ireland. Members should not allow this to continue. In 2001, the ECB was aware that banks were going to hide losses but did nothing about it. It stated: "This approach would allow two criticisms associated with the current accounting standards to be overcome, notably that potential credit losses remain hidden until signs of deterioration are evident and that market participants have insufficient information about the interest rate risk profile of banks." In 2006, the ECB reconfirmed that the amortised cost system of accounting allowed banks to delay the recognition of losses. It stated "given that these assets could be accounted for at amortised cost – the actual recognition of a loss or an impairment of the assets may take longer to materialise". In 2001, the ECB and the European Union received warnings from a consortium of French banks and bank regulators that carnage would result. Does the Minister of State agree with the local authority pension fund in London which stated that financial statements of banks and their regulation must be comprehensively reviewed?
Its report stated:
The forum’s analysis as set out in this publication leads to some radical conclusions, not least the need for a comprehensive review of financial reporting where we believe there are significant deficiencies. Yet, in reaching this view, we are driven solely by a desire to understand how major financial institutions appeared, on paper, to be solvent at one moment, only to require enormous taxpayer support at the next, just to survive.
Mr. Michael Buckley, a former chief executive of AIB, told the banking inquiry that 99% of bankers knew that the practice of hiding losses would cause difficulty. Mr. Buckley is not alone in this view. Bank of Ireland also knew that the rules were a disaster. Its former group chief financial officer, John O'Donovan, stated:
Once the EU adopted IFRS and by extension IAS 39, Bank of Ireland had no choice, as a listed entity, but to apply the new standard. Bank of Ireland understood the pro cyclical nature of loan loss provisioning under IAS 39, was not entirely comfortable with its outcomes but there was nothing the Regulator/Central Bank or indeed the Court or management of Bank of Ireland could do to change what had been adopted by the EU.
The list of those criticising banks for hiding losses is never-ending. Even the Chartered Accountants Regulatory Board confirmed that its members were hiding losses and, therefore, not showing the financial position correctly.
In April, I tabled a question to the Minister for Finance asking for his views on claims by the Chartered Accountants Regulatory Board that accounting standard IAS 39 forces banks to portray an inaccurate financial position. I further asked for his views on his assurances provided in the reply to Parliamentary Question No. 185 of 14 February that banks had not systematically overvalued loans in their published accounts, which could be misleading. I asked the Minister to make a statement on the matter. He replied:
I have answered a number of Parliamentary Questions in the past in relation to rules adopted by banks when valuing assets including loans. These rules are determined by the relevant accounting standards and it is the responsibility of the directors of the respective banks to ensure these rules have been properly applied. To provide assurance that this is the case, the proper application of the rules is subject to an annual independent external audit review.
As I have stated in the past, nothing has been brought to my attention to suggest that these rules have not been correctly applied by the banks.
In February 2014, when Deputy Pearse Doherty asked the Minister for Finance if the Central Bank had ever investigated any bank in the State for hiding losses in its accounts, Deputy Noonan replied: "I have been advised by the Central Bank that the Bank is not in a position to provide me with a response to this question." It is not very satisfactory.
I believe that these statements, along with the Single Resolution Board, are an attempt to protect the bonuses of destructive bankers who have caused such huge losses to the Irish economy. I also have a legal opinion confirming that the practice of hiding losses is a potential criminal offence. I believe that by making misleading statements, the Minister is representing the interests of bankers and their lobby groups.
Speaking of criminal offences, I have just written to the Central Bank to report possible criminal offences under the Market Abuse (Regulations) 2005 by the former NAMA committee member Frank Cushnahan and former NAMA executive officer Ronnie Hanna. Both men were arrested in Northern Ireland last week.
The NAMA code of conduct-----
... members may potentially have access from time to time to “inside” or “confidential” information regarding financial instruments and the issuers of such instruments. As such, Committee members-----
As such, Committee members should be aware that it is a criminal offence for a person who is in possession of “inside information” to:
(a) deal or try to deal the financial instruments concerned or their related derivative instruments;
(b) disclose inside information to any other person; or
(c) recommend or induce another person to deal in such financial instrument.
We do not have a very good record of holding banks to account. Not only did we rescue them when they collapsed, but we have not been able to tell them what to do since. If I had a site today that I owned fully and I had planning permission for 30 houses on it, I would not get money - and neither would anyone of my size, for that matter - to build on the site. The pillar banks are not lending, and that is one of the problems we have in the delivery of housing.
The Government argues, and I have often heard it argued here, that the State should not be interfering with private businesses such as banks. First of all, I do not agree with that and, second, AIB is State-owned. The idea that a state has no control over or does not hold to account private institutions that work within that state does not stack up. It really does not make any sense.
I will not name the individuals again, but the gentlemen I referred to both worked for NAMA. Is anyone even remotely concerned about the fact that they have been arrested by the National Crime Agency? The notion that these guys were only involved on the sale side has just been blown out of the water. The National Crime Agency is not investigating the sale side; it is looking at the purchase side of Project Eagle.
We have the same attitude to NAMA as we have to the banks. It is as if we do not want to know, and they can do what they like. This is incredible. I guarantee that, in time, this is going to fall down around their ears. I have not said anything close to the full amount of information as we have around this whole area because I have been short of paper proof sometimes. I can tell the Minister of State, however, that the way NAMA operated left a lot to be desired, and it will be proven in time. The fact that it has nothing to say about the fact that the two gentlemen were arrested last week is mind-boggling. Why is the Government not asking them to come to the House and explain why this happened? Am I missing something? It just does not stack up. I do not know what way the Minister of State sees it. Over the last year, I have brought NAMA up eight times on Leaders' Questions and, every time, NAMA spokespersons came out and contradicted most of what I said. They said I was not being accurate, even thought I was. Most of what I said has been borne out slowly. This time they have nothing to say, which is very interesting. How can they defend the role that these two gentlemen played in this transaction?
Last autumn, I asked NAMA how it could still engage with Cerberus on Project Arrow, given the fact that it is part of a criminal investigation in the North by the National Crime Agency and is being investigated in America by the Securities and Exchange Commission. How can it still deal with that organisation? Does the Minister of State know what NAMA said back to me? "As far as we are concerned, we have no evidence that Cerberus are being investigated under any criminal charges."
Last week, when the National Crime Agency arrested our two friends, it said this was part of a fraud investigation. The last time I checked, a fraud investigation has a strong connection to criminal activity. Am I right?
I am getting my interpretations or words wrong if that is not true. It said that this is a fraud investigation. What will the Irish Government do about it? Is it going to wait? Nobody might be charged for 12 months and if it was in the South, it could be even 18 months. Are we going to stand idly by and wait that length of time? I am not saying that we shoot the two individuals but it is about time we checked things out. Has it bothered the Government that enforcement against Northern Ireland borrowers who were in Project Eagle was less than 30% of the enforcement against Republic of Ireland borrowers? How is it that Republic of Ireland based borrowers appear to have been far more aggressively treated than those in Northern Ireland?
I am sure most Members saw the last "Spotlight" programme in which Frank Cushnahan said to Mr. Miskelly that only for Ronnie the lights would have been put out. Does it not bother anybody that he said that? Maybe he made it up. I doubt it but maybe he did. I am not saying it is a fact, even though I have good reason to believe it is. However, why do we not investigate it? Do we not want to know exactly what happened? This speculation surrounding the work of NAMA will not go away. There will be speculation about how NAMA has operated until kingdom come unless it is investigated. NAMA does not have to be accountable for what it does. Its representatives were able to appear before the Committee of Public Accounts in July and October 2015 and say what they wished. That is no disrespect to any member of that committee. I am not saying that if I had been a member of it I would have been able to hold them to account. I would not. It is not a body that can hold them to account. They can say what they wish and we cannot prove them wrong unless we hold an investigation. To date, however, we have not wished to conduct one. Will that remain the case?
During his employment at NAMA as head of asset recovery, how many connections did Mr. Hanna approve enforcement against? If it has been found that he has not behaved quite how he should have, it has huge repercussions for all of the transactions in which he was involved with NAMA. It is important that we look at this sooner rather than later. If Cerberus is found to have behaved badly in Project Eagle, what will happen to all of the deals Cerberus has done in the South? It has bought more than €20 billion par value worth of assets on the island of Ireland. There is huge activity with it either looking for its money, selling on assets, trying to sell loans and so forth. Will all of this stack up? Will it unravel if Cerberus is found to have behaved badly? I believe it will. We will save ourselves a great deal of hassle by starting early rather than late. Kicking this can down the road will cost the State a lot of money. I suggest that we establish a commission of investigation sooner rather than later. The Government should initiate it and should not wait until more pegs fall and it all becomes overbearing. Why not start now and do the State a favour? If this is allowed to drag on until somebody is charged, many things will happen in the meantime. NAMA is already considering selling Project Ruby, Project Emerald and Project Abbey. If Cerberus buys more of these, the problem will be amplified if it is found that it has not behaved well.
Given the way everybody was carrying on, it was as if Cerberus was always going to get away with this and that NAMA was always going to get away with whatever it did and would never be held to account.
Acting Chairman (Deputy Thomas P. Broughan): Deputy, you have mentioned an investigation in the neighbouring jurisdiction. I ask you to be conscious of the ability to conduct that investigation in your comments. I realise you are making general comments.
Deputy Mick Wallace: Thank you, Acting Chairman. I accept your guidance. I checked this out with a legal individual in Dublin who assured me that what takes place in that jurisdiction is legally disconnected from what happens in this one from that point of view. There is no problem there. I have been interviewed by the National Crime Agency at length on two occasions, in August 2015 and in March 2016, and I can assure the House that it is not hearing anything new today. Trust me on that. I am very hopeful that the National Crime Agency will deal with this affair in the manner in which it should. I am confident that it seeks the truth and I will continue to believe that until proven otherwise.
My appeal today is that the Government take action. There is more bad news coming down the tracks for NAMA. It will get a great deal worse before it gets better. The Government should act now. This has been ongoing for more than a year and the Government has stonewalled most of what I have said in this Chamber. I have asked so many questions it is not funny but I do not believe I received one answer from the Taoiseach or the former Tánaiste on NAMA. I got some answers from NAMA. I know now that some of them, to put it politely, are seriously inaccurate and will prove to be so. This matter will not go away.
I am not seeking to be sensational. I could mention another dozen names of whom the Minister has not heard but I will not do it. However, I will quote from a letter that Cerberus sent to the First Minister, Mr. Peter Robinson, one week before closing the deal on Project Eagle. It outlines the nice cosy relationship it was offering: "Cerberus will release personal and corporate guarantees as a key part of consensual workout plans with cooperative borrowers." The related to when it would take over Project Eagle. It was quite confident it was going to get it because it was not a competitive process. It was the only body in the game. The letter continues:
Cerberus' underwriting of the Loan Books has not, to date, included the value of any assets other than the direct collateral assets securing the loans, and as mentioned above we would be willing to waive guarantees for cooperative borrowers who agree to execute a consensual workout plan. Assuming the applicable borrowers cooperate in good faith in connection with such a workout plan and their agreement regarding a consensual restructuring transaction, any and all contingent liabilities and or personal guarantees from the Borrowers would then be released in accordance with the terms of the plan. Consequently, only the assets which are the principal subject or collateral for the underlying debt would be retained as security. The existing guarantees would be released so they would no longer be an impediment to borrowers or grantors from undertaking new business ventures.
It would have been lovely if the Irish people who ended up with Cerberus had received that offer. A different game has been played out in the North. What happened there is that a deal was done in advance behind closed doors.
When Cerberus paid 27 pence in the pound for Project Eagle, with the other 73 pence being picked up by the Irish people in the South, it knew what it would get for the assets because the whole thing was sorted well in advance. It stinks to high heaven. It could offer a cosy deal like this because it was not a competitive process. It had people working for it in Dublin and the North to make sure this was one of the great deals of all time. That is a fact