The Economy and the Banking Sector: Discussion (Resumed)

Friday, 9 September 2011

Joint Committee on Finance, Public Expenditure and Reform Debate

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Chairman: Information on Alex White  Zoom on Alex White  This morning’s business is a continuation of our overview of the issues facing the economy and the banks. I welcome Mr. John Corrigan, chief executive officer, National Treasury Management Agency, NTMA; Mr. Frank Daly, chairman of the National Asset Management Agency, NAMA; and Mr. Brendan McDonagh, chief executive officer of NAMA. The format of the meeting will be that Mr. Corrigan, Mr. Daly and Mr. McDonagh will make some opening remarks which will be followed by a question and answer session. When all members of the committee have had an opportunity to put a question, I will call upon members who are present but who are not members of the joint committee to ask questions should they wish to do so.

I remind colleagues that all mobile phones should be switched off. Where a member has occasion to step out of the meeting on some urgent business, there appears to be a tendency to forget the good practice that obtained earlier in the morning and to leave the phone on when they return. I ask them to remember to turn off the phone again when they return to the meeting.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If you are directed by the committee to cease giving evidence in relation to a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given and you are asked to respect the parliamentary practice to the effect that, where possible, you should not criticise nor make charges against any person(s) or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the Chair to the effect that members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

I invite Mr. Corrigan to begin.

Mr. John Corrigan:  I am pleased to have the opportunity to meet the committee today. In my opening remarks I propose to concentrate mainly on the areas of debt management and the banking system as, along with NAMA, these are the NTMA activities most pertinent to the committee’s discussions. Before I get into these issues it would be useful if I briefly outline the remit of the NTMA and update the committee on recent developments regarding the transfer of certain banking functions to the Department of Finance.

The NTMA was established with a commercial remit outside the public service structure to borrow for the Exchequer and manage the national debt. Since its establishment the NTMA has grown considerably and now has a range of functions assigned to it by the Government which provide financial and risk management services to the State. These include the State Claims Agency, the National Pensions Reserve Fund, the National Development Finance Agency and the National Asset Management Agency. From March 2010 to August 2011, the functions included certain banking system functions of the Minister for Finance related to the oversight and management of the State’s interest and holdings in those financial institutions covered by the 2008 Government guarantee.

The NTMA has taken on two of these functions - NAMA and banking - as part of the State’s response to the financial crisis. In particular the establishment of NAMA from a standing start in December 2009 to become fully operational with a €30 billion balance sheet by the end of 2010 was a major logistical challenge and has increased the complexity of the organisation. Due to NAMA’s size, the NTMA has seen a major expansion in staff numbers since the end of 2009, rising from 169 then to 384 currently, of which 164 are assigned to NAMA. Management of NAMA’s operations is a matter for the NAMA board and its chief executive officer. The NTMA’s role is to provide NAMA with staff and business and support services including human resources - HR, information technology - IT, market risk, communications and the execution and processing of treasury and hedging transactions.

The Minister for Finance announced, in April 2011, the creation of a stand-alone unit accountable to him through the Department of Finance to provide State oversight of the banking system and drawing on the resources of the NTMA to carry out its work. The delegation of banking system functions to the NTMA was revoked with effect from August 2011 and the NTMA banking team has been seconded to the Department of Finance. I am pleased that the staff recruited by the NTMA form the cornerstone of the new banking unit in the Department and that their valuable commercial and specialist skills continue to be utilised by the State. While the NTMA itself no longer has any statutory responsibilities in the banking area, resolution of the banking sector issues, as well as being critical to the recovery of the broader economy, is crucial in driving down yields on our bonds and enabling a return to the international debt markets.

The EU-IMF programme was designed to meet both the cost of running the State day to day and the cost of recapitalising the banks. The banking stress tests carried out by the Central Bank in the first quarter of 2011 quantified the additional capital support required by the banking sector at €24 billion. The NTMA banking unit has worked very hard to minimise the amount of this additional capital to be provided by the taxpayer. Through initiatives such as burden sharing with the junior bondholders and the sourcing of private capital for Bank of Ireland, the net amount of this capital provided by the State is now expected to be around €16.5 billion. The savings generated can be redirected to funding the day-to-day operation of the country. This means that €68.5 billion of the total €85 billion funding under the programme is available to the Exchequer, an amount sufficient to meet our funding needs through to late 2013.

The NTMA has maintained a low level presence in the very short-term bond markets throughout recent months. Subject to broader circumstances, we hope to expand that programme through the latter part of 2012 by slowly extending the maturity of the debt we raise before beginning our efforts to raise long-term debt. Ultimately the timing of these decisions will depend on many different circumstances - national and international - and our continued success in implementing the EU-IMF programme. We envisage a phased re-engagement with the markets before we fully resume normal debt raising operations.

Given the events of late 2010 and our seeking financial assistance through the EU-IMF funding programme, it is easy to forget that the NTMA was able to raise its full 2010 funding target of €20 billion at an average interest rate of 4.7%. We achieved this through frontloading our borrowing programme to take advantage of the positive investor sentiment towards Ireland which existed early in the year. I mention this point to emphasise the fact that investor sentiment can change very quickly and in both positive and negative directions. We need to use the breathing space afforded by the EU-IMF programme to address those issues which led to us being unable to access the international markets. A core task for the NTMA is to ensure that international investors, most of whom do not spend a lot of time analysing the Irish economy, are fully informed on the progress being made by Ireland in addressing its fiscal and banking issues and to apprise the Government of the views of the international investment community.

In the sovereign debt markets, Ireland is a small player with a strong dependence on international investors, who hold more than 80% of Ireland’s long-term bonds. Therefore, even though we are currently out of the longer-term markets, we continue to work hard to maintain strong, supportive relationships with key international investors in Irish Government debt and to identify and develop relationships with prospective new investors. Indeed, with the recent downgrading of Ireland’s credit rating, a part of Ireland’s existing investor base which has credit rating constraints on the bonds in which it can invest is no longer open to us, and a key challenge for the NTMA is to broaden the prospective investor base further.

Since the publication of the results of the bank stress tests under the Central Bank’s PCAR and PLAR process on 31 March last, the NTMA has met more than 200 investment institutions in Dublin, North America, Europe and Asia as part of an intensified investor relations programme. Investors we have met are mostly of the view that Ireland is the best positioned of the eurozone periphery countries to deal successfully with the crisis as it has a more flexible open economy and is recognising and taking action to deal with its problems on the basis of the measures set out in the troika programme.

The clear messages coming out of these meetings are that the key criteria investors will consider in deciding to invest in Irish bonds are continuing progress in meeting fiscal targets agreed with the troika, completion of bank recapitalisation, progress on bank deleveraging, further sale of NAMA assets, and action at EU level on the wider eurozone crisis. I would like to touch briefly on each of these issues.

Investors demand that the fiscal targets agreed with the troika are at the very least achieved. Beating these targets would be the ideal result and would further distinguish Ireland from other troubled countries. In order to stabilise our debt to GDP ratio, Ireland needs to get back to running a primary budget surplus - that is, the budget balance excluding interest payments - as soon as possible. Indeed, in the context of debt sustainability, this metric is far more important than the absolute level of debt per se. Ireland still has the biggest primary deficit of any eurozone country, a fact not lost on investors. I note the projections published by the Department of Finance in last April’s stability programme update are for the general Government debt-to-GDP ratio to peak at 118% of GDP in 2013, when the debt is projected to reach a nominal value of some €200 billion, and start to decline thereafter. The troika calculates that Ireland requires a 1% primary budget surplus to stabilise the debt as a percentage of GDP.

Ireland’s economic recovery so far has been led by the export sector. However, risks to the global economy have increased and global growth is already slowing. This has negative implications for official forecasts for the Irish economy and, indeed, the IMF has signalled its intention to lower its projection for Ireland’s GDP growth in 2011 and 2012. Although exports are proving to be very resilient, there is still a risk that slower export growth will result and that GDP will be lower than projected. This would make the achievement of the fiscal targets more challenging.

Ireland has made huge strides in restoring its banking system to health during 2011. The publication of the results of the bank stress tests under the Central Bank’s PCAR and PLAR process on 31 March last and the resultant recapitalisation finally drew a line under the Exchequer exposure to the banking system and will ensure that the banks are adequately capitalised to meet even the most stressed scenarios. We also secured an important commitment from the ECB when, in its statement of 31 March welcoming the Irish authorities’ decision to strengthen the banks, it expressly affirmed its commitment to continue to provide liquidity to banks in Ireland.

The implementation of the troika programme has been a fundamental driver of the work of the NTMA banking unit, which has been closely engaged in the development of deleveraging and restructuring plans for the relevant institutions. It has also managed the State’s capital injections into the institutions. The banking unit has engaged with the banks to drive an agenda of burden-sharing with subordinated bondholders. Since 2009, burden-sharing measures have delivered €15 billion which would otherwise have had to be provided by the taxpayer. This includes €5.2 billion in burden-sharing since 31 March 2011, following the Central Bank’s PCAR and PLAR review. The bank recapitalisation and burden-sharing programme was substantially completed by the end of July. As I have already said, the NTMA banking team has been seconded to the Department of Finance with effect from August and will continue its work as part of the new banking unit established in the Department of Finance.

The next step in the resolution of the banking sector issues, and the main focus of investors, will be the execution of the banks’ deleveraging plans. The Central Bank has required the institutions to prepare deleveraging plans targeting a reduction in loan-to-deposit ratios to 122.5% by the end of 2013. This will require the run-off and disposal of up to €70 billion in loans. This deleveraging will reduce dependence on wholesale funding while helping to place the banking sector on a stable footing to support the economy.

There are significant challenges inherent in the deleveraging process. The disposal of non-core assets will be dependent on the market appetite for such assets at a time when there are a large number of potential sellers of similar assets. Not only do assets held by NAMA and Anglo Irish Bank-Irish Nationwide Building Society fall to be disposed of, but there are substantial portfolios of assets held by non-Irish banks in Ireland which may also be on the market. The objective of the deleveraging process is to achieve a more prudent loan-to-deposit ratio for the institutions concerned through a reduction of their balance sheet assets of some €70 billion while avoiding sales at fire-sale prices which absorb excessive capital.

Sales of NAMA assets are important to investors for a number of reasons. They reduce the State’s contingent liabilities, provide evidence that NAMA is working and help to improve liquidity in the property market. I will leave it to my colleagues Mr. Brendan McDonagh and Mr. Frank Daly, the CEO and chairman of NAMA, to brief the committee on the progress made in this area. Continued progress is important to boosting investor confidence. Similar challenges to those to which I referred in respect of bank deleveraging also apply to NAMA as it seeks to dispose of assets in an orderly and phased manner and to generate the maximum return for the taxpayer.

The eurozone Heads of State and Government announced a broad range of measures on 21 July 2011. They agreed to expand the role of the European Financial Stability Facility. They also agreed a new second aid package for Greece. They further agreed to a lower interest rate and longer maturities for borrowings under the existing aid programmes relating to Ireland, Portugal and Greece. There was also a commitment to continue to provide assistance for Ireland, Portugal and Greece until such time as they can regain access to the capital markets and provided they continue to implement the agreed financial programmes. The Heads of State and Government are working to construct a permanent crisis resolution mechanism which is robust enough to deal with the current crisis and also with future crises which might possibly involve other, larger countries. The measures announced on 21 July were very significant for Ireland. The lower interest rates, the longer maturities and the promise of continued support should facilitate Ireland’s return to the markets.

This year we finally drew a line under the Exchequer exposure to the banking system. The focus now is on reduction of the deficit and stabilisation of the debt. We have had public affirmation from the troika expressing complete satisfaction with how Ireland is dealing with its problems on all fronts. Despite the more general difficulties across the eurozone during the summer, Irish bonds have rallied and yields on ten-year bonds fell from about 14% in mid July to approximately 8.5% at present. By comparison, Portuguese ten-year bonds are trading at 11% and Greek ten-year bonds trade at 19%.

Our ultimate aim, of course, is to regain access to the bond markets. While resolution of the wider eurozone issues is fundamental to Ireland being able to achieve bond market access, this does not obviate the need to continue to address our domestic issues. International investors have made very clear what they expect of us in this regard. These expectations are priced into the current yield on our bonds and a further decline in the yield will be hugely dependent on us delivering on investor expectations. Irish bonds comprise only 1% of the eurozone sovereign bond market. Unlike larger countries, there has always been a job of work in selling Irish bonds and in building up the liquidity and range of maturities that appeals to a diversified international investor base. The NTMA will continue to work with investors to make the investment case for Ireland in order that we can exit the EU-IMF programme as quickly and smoothly as possible.

Before I conclude, I wish to inform the committee that I am accompanied by Mr. Oliver Whelan who is head of funding and debt management at the NTMA and by Mr. Michael Cunningham who is one of our financial controllers.

Mr. Frank Daly:  I thank the Chairman and members for the opportunity to discuss with them NAMA’s progress to date and its contribution to Ireland’s economic recovery. Many members will be aware that NAMA reached a significant milestone in July when it published its first annual report. In that report we looked back on our first year in business and reviewed what had been achieved over a relatively short period. To summarise, we have acquired from the participating institutions 11,500 property-related loans involving 850 debtors, 16,000 properties and loan balances of €72.3 billion. We have paid €30.5 billion in Government-guaranteed securities for these loans and the objective that has been set for us by the Legislature, under section 10 of the NAMA Act, is to recover, at a minimum, that amount plus whatever additional funds we need to advance as working or development capital for projects. Our intention is to recover well in excess of this break-even point and in our business plan, which was published last year, we projected a net current value gain of €1 billion in our central scenario.

NAMA is only part of the overall solution to fixing the banking system. Members of this committee will know better then most that there is still some way to go in this regard. However, through the State’s collective efforts, good progress has been made. We have taken the initial key step of removing almost all of the land and development and associated loans off the books of the banks and of paying them more than €30 billion in redeemable securities.

By so doing, we have enabled them to access liquidity, helped them to deleverage quickly and removed a major obstacle inhibiting their return to normal banking business. That the €30 billion of liquidity provided by NAMA proved to be insufficient owing to withdrawals of liquidity from the banking system and the banks’ other troubled loan portfolios is a point that is fully recognised, but without the €30 billion the system would have been much more fragile.

In facing the enormous challenge set for us we have been subject to comment from many quarters and perspectives. That is totally understandable and some of it is constructive, but some is not well informed or coherent. We do not mind fair comment, but some of the commentary does not acknowledge the legislative provisions enacted by the Oireachtas to which NAMA is obliged to adhere. For example, it is regularly suggested we are secretive and lack transparency, notwithstanding the fact that the law, under sections 99 and 202 of the Act, prohibits us from disclosing confidential information, including information on debtors. We have, however, a clear policy to be as transparent as we can within these legal constraints and we try to be as accessible as possible to public representatives, the media, interest groups and representative organisations.

The Legislature has handed us an ambitious commercial mandate which is to realise the best achievable financial return by reference to the value of acquired assets; at the very least, we are expected to break even over time. However, it is necessary to point out that this objective is in conflict with calls for greater transparency. Greater transparency would mean that we would have to reveal our hand to the very people who are in negotiations with us - potential purchasers of NAMA loans and underlying property. This would be commercially foolhardy; it would be like showing one’s hand to an opposing player in a card game.

It seems NAMA can be a fully commercial operation focused on maximising the return to the taxpayer or it can be a fully transparent public body, but it is difficult to see how we can be both. I wish to make it very clear, however, that NAMA is and will always be a fully accountable public body. It is subject to regular scrutiny by this committee and the Committee of Public Accounts. We report on a quarterly basis to the Minister and the Oireachtas. Our accounts are audited by the Comptroller and Auditor General who has full access to all our records and a permanent presence at our offices.

A feature of the NAMA debate from an early stage has been the differing and, in some cases, unrealistic expectations of commentators, market participants and others about what NAMA is expected to do or can do. It was, apparently, expected by some to have an instant galvanising impact on the property market, whereas others had expected that it would work out its assets over a long time horizon. Some expected that it would offer a comprehensive solution to the banking crisis, notwithstanding the fact that the depth and diversity of the crisis proved to be far greater than the property loan portfolios which fell within NAMA’s remit. Some, apparently, expected that it would work out its assets without any co-operation from the 850 debtors whose loans it had acquired, all this in an economy which has a domestic banking system which is undergoing massive deleveraging and also dealing with the withdrawal of foreign-owned banking operators. Still others expected NAMA to provide a strong commercial return for the taxpayer but somehow manage this without using the professional expertise and services necessary to operate the business in a commercial manner. NAMA exists because the Legislature took the view that those responsible for the profligate property lending of the recent past were not best placed to deal with the aftermath. If one sets up an agency with the exacting commercial remit of recovering in excess of €30 billion for the taxpayer from the realisation of loan and property assets, one has no choice but to recruit the requisite expertise in property, law, finance, credit, insolvency and banking to carry out the remit professionally for one. That is what we have done and we have recruited the expertise both within Ireland and abroad.

I make these points to emphasise that NAMA’s choices have been dictated by the statutory remit given to it and that it could not possibly have hoped to satisfy the diversity of expectations placed on it. We have been heavily guided in interpreting that remit by the current and previous Governments. Shortly after taking office, the Minister for Finance made it clear to the board that he expected us to give priority to generating asset sales in the coming three years. This is also very much the message we have been receiving from the troika and it aligns with the debt repayment targets set in the board’s business plan which set a repayment target of 25% by the end of 2013, equivalent to a sum of €7.5 billion.

We are now getting on with that job. To date, we have generated €3.5 billion in cash from our acquired loan assets. We have reduced our debt by more than €1 billion by redeeming €750 million in NAMA bonds and repaying €299 million of advances received from the Minister for Finance. Moreover, we plan to redeem substantial additional NAMA debt before the end of the year.

It is important on an occasion such as this to point out that NAMA is fully aware, not only of its commercial remit, but of its public and social policy objectives. We do not see these objectives as being in conflict but to be realistic there will be occasions when there is tension between them. We do not have a monopoly on ideas as to how the property securing our loans might best be utilised. We intend to be creative and flexible, particularly when it comes to finding suitable alternative uses for property assets. With that in mind, we have engaged readily with various Ministers, Departments, State agencies, local authorities and civic bodies to explore ways in which we can help to advance public and social policy objectives. In particular, we have endeavoured to identify the scope there may be for NAMA to dovetail its activities with State policy as regards housing and we are in active discussion with the Minister of State, Deputy Penrose, and his officials in this regard.

I thank the Chairman and now will hand over to my colleague, Mr. Brendan McDonagh.

Mr. Brendan McDonagh:  I am glad to report that since the Chairman and I last appeared before an Oireachtas committee in January of this year, significant progress has been made in terms of setting the agency on its way. We have now recruited more than 190 staff with the specialist skills and experience required to manage a portfolio of property loans with balances in excess of €72 billion. We expect to have in place our full complement of 200 staff by the end of the year. By and large, the loan acquisition process has been completed apart from the €2.6 billion in loans that are subject to consultation with the debtors involved. We asked them to make written representations to us on the eligibility of their loans and on the potential impact that NAMA acquisition might have on their businesses. This process is now complete. The NAMA board has reviewed the submissions received and yesterday made decisions, based on its discretion under section 84 of the National Asset Management Agency Act, on which of the residual loans were to be acquired. Over the next week or so we will write to those debtors who made representations to us to let them know of the board’s decision.

This means our attention now is increasingly focused on dealing with the 850 debtors whose loans we already have acquired. Our intention is to manage directly the largest 180 of these debtors, whose debts total approximately €62 billion. The other debtors, accounting for approximately €10 billion in loans, are being managed under delegated authority from NAMA by approximately 500 staff in the participating institutions. NAMA will pay a fee of up to ten basis points or 0.1%, which is equivalent to €74 million per annum, to these institutions. Most debtors are co-operating and they appreciate that if they are to survive and work their way through their predicaments, they must engage meaningfully with us. This will require reaching agreement on asset disposal schedules and debt repayment targets, securing unencumbered assets and reversing asset transfers to relatives.

In the case of a second group of debtors, their financial circumstances are such that they have no prospect of achieving viability on any reasonable timescale and nor do they have the ambition or wherewithal to deliver. In such cases, we already have enforced or will enforce against these debtors. There is a third small group of debtors who may be inherently viable and with whom we could work but who are not co-operating adequately with the process and who appear to believe that after all that has happened in recent years, the taxpayer somehow still owes them a living. We have been as fair, reasonable and patient with these people to date as any court could possibly expect us to be but in the circumstances it is likely we will be left with no option but to instigate additional enforcement actions before the year is out. Above all else, we will act vigorously to protect the interests of taxpayers and in that context, the self-indulgent behaviour of a few has no place in resolving the national crisis with which collectively we now are grappling.

By the end of the year, we expect to have completed our review of the business plans of the largest 180 debtors and we also expect the participating institutions acting under our supervision will have reviewed a substantial proportion of the business plans of the other 670 debtors. Our expectation is that more than 90% of the portfolio by value will have been evaluated by the end of the year. It has been suggested that because we have not reached the stage of final legally-binding agreements with debtors, we somehow are not in a position to deal with them. This is not the case. We are processing about 400 credit decisions every month. These include debtor requests such as applications for working or development capital, lease and sales approvals.

Generally speaking, once a credit application comes into NAMA, a decision is made within a week. I point this out because we are increasingly hearing from members of the public - members may have heard of similar cases from their constituents - that developers are telling them that sales approval applications are being held up by NAMA. When we investigate individual cases, we invariably find that the developer has not actually submitted the application to NAMA. The accusation that NAMA is bureaucratic and slow in dealing with approvals is unfair and unwarranted, but, unfortunately, in the current environment, when it comes to NAMA, many seem to feel they have no obligation to check the facts before making the accusation.

To date, we have approved the sale of an estimated €4.6 billion of property assets held by debtors and the proceeds are being used to pay down debts, either to us or non-NAMA banks that co-lent on developments. We have also approved the provision of more than €900 million in new money advances, which will enable unfinished developments to be completed or otherwise enhance the value of such assets. Regrettably, we have also had to approve the appointment of receivers in 84 cases. It is important to note that, depending on the structure, a receiver may be appointed to some debtor entities within a connection but not necessarily to the whole connection.

In terms of what we need to do, there are formidable challenges ahead. Some 60% of the loans we have acquired are secured by commercial or residential property, while 40% are covered by undeveloped land or properties under development. More than 90% of the loans are secured by property in Ireland and the United Kingdom, with almost €18 billion of the underlying property relating to assets in Ireland. As the economy regains momentum in the coming years and investor confidence grows, we expect that demand for commercial property will improve. There is, of course, over-capacity in all commercial sectors, but there are significant sectoral and regional variations. For example, vacancy rates for city centre office space in Dublin are falling, and with no significant completions expected in the near term and evidence of strong demand from technology companies and new multinational companies, the outlook for this sector is positive. On the other hand, a pick-up in activity in the retail and industrial sectors is heavily dependent on a general resurgence of economic activity.

The outlook for residential property in Ireland depends very much on location and local supply and demand conditions. Members will know that we recently began to publish on our website a list of properties which are under the control of receivers appointed by us and the participating institutions and which are currently for sale or will be offered for sale shortly. There has been great interest from the public, with more than 100,000 downloads to date, and there is particular interest from younger people who are keen to use the current correction in property prices to purchase their own homes. It suggests to us that there is substantial latent demand for residential property in the right location and, more important, at the right price.

One constraint is the fear on the part of many prospective purchasers that prices may have further to fall. The Minister for Finance asked us to suggest initiatives that could address the issue and we are in discussions with a number of Departments about the workings and potential impact of a residential mortgage proposal we are developing with the banks. We are also working on another initiative to facilitate the sale of Irish commercial property through the provision of stapled debt financing.

As for the stock of undeveloped land that secures 40% of our loans, most of it by value is within or close to major centres of population and will be developed in time, although in Ireland’s case perhaps not for the foreseeable future. Some might not be developed and will revert to agricultural use. However, with milk production quotas to be phased out from 2015, I note that the strategic blueprint for the agriculture and food sector published last year set a target of 50% growth in milk production in the next decade. The improved outlook for agriculture in the medium term is, therefore, likely to create solid demand for agricultural land.

As 40% of our assets are outside Ireland, for the coming year or two, this represents our best prospect of generating the sales that our debtors need in order to meet their debt repayment targets. A significant proportion of the underlying property is located in the south-east of England and attracting strong interest from international investors. Some of the interest is from investors who expect to pick up property at fire sale prices and in off-market transactions without any element of competitive bidding. We are not interested in doing business on that basis. Whether we sell loans or approve the sale of property, our interest is best served by ensuring we achieve the best attainable price, which requires the participation of a number of genuine bidders. We are in dialogue with quite a number of these. We expect that some substantial transactions that are in the pipeline will proceed to sale in the coming months and the proceeds will help to reduce our debt and that of some of our debtors.

NAMA is one of several policy responses to the economic and financial crises Ireland has had to confront in recent years. It is unrealistic to expect that these crises can be resolved swiftly. What we can say is that the crises are being addressed in a considered and comprehensive manner across a number of fronts, including the Exchequer finances, the banking system and NAMA, as has been acknowledged by the EU, the ECB, the IMF and the OECD.

We in NAMA will play our part in an energetic and committed manner. We will have to be creative and resourceful in our approach because to succeed we have no choice but to be that way. We are not merely a debt collection agency. Yes, we are in the business of recovering for the taxpayer what the taxpayer is due and we make no apologies for that; I do not think the taxpayer would be too impressed if we told our debtors they could repay us at a time of their own choosing. However, a balance must be struck to meet competing objectives, namely, those set by NAMA and those set for NAMA, and if we were to take the view that our job was only to collect debt, we would fail. With so much property indirectly under our stewardship, we are acutely aware of the potential impact of our decisions on businesses and communities.

Our job is to strike the appropriate balance between meeting our commercial mandate and accommodating various public and social objectives. Our door is always open to those who may have fresh or innovative ideas or those with capital to deploy. It is our intention that NAMA will be a creative and dynamic force in the property market and, more generally, that it will contribute significantly to the economic resurgence of Ireland in the years ahead.

In a brief address such as this, I can only outline some of the key points that may be of interest to the committee. No doubt during the course of our discussion today additional points or concerns will be raised by committee members and we welcome the opportunity to respond.

Chairman: Information on Alex White  Zoom on Alex White  Thank you, Mr. McDonagh. I will now invite my colleagues to ask any questions they may have of the three speakers. I appreciate that we are dealing with two bodies, although they are linked, and I ask colleagues to specify as much as possible to whom a particular question is put. We cannot have a different question and answer session for each speaker because we would not be able to get through the business and I hope this is understood by all.

Deputy Michael McGrath: Information on Michael McGrath  Zoom on Michael McGrath  I welcome all of our guests to the meeting this morning. I will direct my initial questions to Mr. Corrigan of the NTMA and I will then move on to Mr. Daly and Mr. McDonagh.

Chairman: Information on Alex White  Zoom on Alex White  I will wait until Deputy McGrath has concluded before going to the delegates for responses.

Deputy Michael McGrath: Information on Michael McGrath  Zoom on Michael McGrath  Mr. Corrigan made quite a comprehensive opening address on the funding of the State. I wish to tease out with him the issue of when Ireland needs to return to the sovereign debt markets in a meaningful way. He referred to the NTMA maintaining some presence in the very short-term markets. We have some additional headroom with the final phase of the bank recapitalisation bill coming in significantly under what had been expected. In his remarks, Mr. Corrigan mentioned that we are funded through to late 2013. As he knows, a significant bond of approximately €12 billion is due in the first half of January 2014. I am sure we will not allow a situation to develop whereby the cash reserves are run down to quite a low level. In Mr. Corrigan’s professional opinion, when must Ireland raise money on the international bond markets to ensure it is fully funded for however many months ahead he believes it should be funded?

With regard to the forthcoming budget, Mr. Corrigan referred to the demands by investors that the fiscal targets agreed with the troika would be at the very least achieved. He stated that beating these targets would be the ideal result and would further distinguish Ireland from other troubled countries. May I take from this that Mr. Corrigan implicitly endorses the Government going beyond the minimum €3.6 billion adjustment in next December’s budget? It would be very helpful if Mr. Corrigan gave us his views on this issue.

Will Mr. Corrigan give an overview on where we stand on Ireland’s national debt and its sustainability? What is the national debt of Ireland at present? At what level does Mr. Corrigan expect it will peak in nominal terms and as a percentage of GDP? What is his view on the sustainability of the debt in light of current domestic and international economic data? This would be most helpful.

In his opening statement, Mr. Corrigan referred to the eurozone July summit which was very significant for Ireland. We all acknowledge this. Mr. Corrigan referred to a commitment to continue to provide assistance for Ireland and the other programme countries until such time as they can regain access to the markets, provided they continue to implement the agreed financial programmes. Perhaps he will explain how that will work. We have been told this will not be in the form of a second programme. If we come to the end of the current programme and Ireland is still not in a position to return to the sovereign debt markets because of prohibitively high cost of borrowing, how then will that work in practice? Perhaps also Mr. Corrigan will set out his understanding of the level of savings achieved for Ireland in 2012 and subsequent years from the interest rate reduction secured.

On the issue of burden sharing and the outstanding unguaranteed senior bondholders in Anglo Irish Bank and Irish Nationwide Building Society, the delegation will be aware that Mr. Jean Claude Trichet has again during the past 24 hours reiterated his opposition to Ireland imposing losses on those bondholders. The CEO of Anglo Irish Bank, Mr. Mike Aynsley pointed out that the benefit may be limited given that the largest bond coming up is trading about 95 cent in the euro. It would be helpful if Mr. Corrigan, as head of the NTMA, could give us a sense of the impact of Ireland proceeding with that and could state what advice he would give to Government on the issue of imposing those losses, including the up side and down side risks.

On bonuses, Mr. Corrigan will be aware that it was revealed by way of parliamentary question earlier this summer that more than 80% of staff at the NTMA received a bonus in respect of 2010. As I understand it, that bonus was paid in February 2011, the average amount being €7,700. Does Mr. Corrigan believe that was appropriate given the state of the Irish economy and the real difficulties being experienced by ordinary families in terms of surviving on a daily basis? Is it fair that people earning an average salary of €100,000 would get a bonus of almost another €8,000 on average given Ireland has been in a bail-out programme since November of last year? In light of that, does the NTMA intend to review its policies in that area? The level of remuneration generally in the agency is staggering, with 122 people earning more than €100,000, 14 of whom earn more than €250,000. I acknowledge that there are a number of different entities within the NTMA, all with their own management structure but the salary levels appear exorbitantly high. The bonuses paid on top of those salaries were highly inappropriate. I am interested to hear Mr. Corrigan’s views on that matter and whether there are changes planned.

I would like now to direct some questions to Mr. McDonagh and Mr. Daly. How many business plans have been agreed at this point? Speakers referred to the top 180 debtors. It was stated that NAMA expects to have business plans agreed for all of those by the end of the year. How many have actually been agreed at this point? It would be interesting if Mr. McDonagh could give us a profile of the type of buyers purchasing properties held by NAMA debtors. Mr. McDonagh referred to €4.6 billion of property assets which NAMA has approved for sale. Who is buying those properties? Are there still in the markets Irish investors with access to finance who are snapping up properties at good value or are they predominantly overseas institutional investors? It would be helpful if the joint committee could get some feedback on that issue.

On NAMA’s policy on refinancing, there remain some developers, albeit a modest number, who are in a reasonably strong financial position and who want to work outside of the constraints of NAMA. If they can put forward a refinancing option through, for example, a foreign owned bank, is NAMA open to that and has it concluded any such deals to date? Any information in that regard would be helpful. Mr. McDonagh has stated in the past that NAMA would insist that the transfer of assets by the top developers to their wives, sons, daughters and other family members prior to the enactment of the NAMA legislation would be reversed and that, if necessary, court action would be initiated to ensure that objective is achieved. Perhaps he will tell us how many such transfers have been reversed at this stage, if they have been voluntarily reversed and how many court cases are pending in that regard. Mr. McDonagh told us in the past that the majority of top developers had engaged in transferring assets to family members, presumably with a view to putting those assets beyond the reach of NAMA. It would be helpful to get some information on that.

With regard to the sale of assets, Mr. Daly referred to the website, which is helpful and brings transparency to the operation of NAMA. However, will every property that is put up for sale by NAMA appear on the website? How can he ensure that he is getting the best possible price for all the assets being sold? NAMA is not required to put them up for public auction, as I understand it, but if they were all put on the website, it would be a helpful measure in that regard.

Is it still NAMA’s policy to pursue developers for the full amount they owe the agency? That is something on which the committee received assurances on a number of occasions in the last Oireachtas. Mr. McDonagh appeared before the committee last year and said, for example, that he wished to dispel any notion that NAMA is a bailout for developers as it was no such thing. He said that just as any borrower from a bank must expect to have to repay his or her debts, the same will apply to anyone whose debts are transferred to NAMA. He went on to say that NAMA has a clear commercial mandate to recover debt and its purpose is not to let developers or any borrowers walk away from their responsibilities. However, there appears to be a theme running through Mr. Daly’s remarks that the objective is to recoup the €30 billion the State has paid through NAMA, plus costs. He referred to section 10 of the National Asset Management Agency Act in that regard. I have a different interpretation of that. I believe NAMA is obliged to pursue developers for the full amount owed, but there appears to be back-tracking by NAMA in that regard.

At the time of the publication of the annual report, Mr. Daly referred to a bonus arrangement that NAMA was willing to enter with developers whereby if a developer repaid their loan to the amount for which NAMA bought the loan and additional NAMA costs, where there were further repayments beyond that there would be a profit sharing or bonus element paid to the developer. That would be a great surprise for many people. Perhaps Mr. Daly would elaborate on what that mechanism is, how it would work and whether NAMA is moving away from the objective that was articulated many times, that is, that it is not a bailout for developers and that developers would be pursued for every cent they owe. I detect from Mr. Daly’s comments today and those he made when the annual report was published that NAMA now appears to be satisfied to pursue developers only to the extent of securing the amount that NAMA paid for the original loan.

Finally, on a related point, NAMA has sanctioned some salary payments to developers. Will Mr. Daly give us an idea of the type of salaries being paid and the highest salaries that have been agreed and approved by NAMA for developers who are remaining in operation with a view, presumably, to repaying the maximum amount possible of their loans?

Mr. John Corrigan:  The first question was about when Ireland needs to get back into the capital markets. The Deputy is quite correct to frame that question in the context of the very substantial bond issue which we must repay in 2014. It has been our contention since the onset of this crisis that ideally, and it is probably stating the blindingly obvious, the earlier we get back into the market, the better. Realistically, as I said in my opening remarks, we have a small active programme in short-term paper, which would be paper of maturity of between three and six months. The total quantum outstanding is small at approximately €500 million or €600 million. There is growing investor interest in that, and the first credible sign of our ability to return to the markets will be when we are in a position to substantially expand that programme.

These matters, as the members of the committee will appreciate, are not entirely within our control. The domestic authorities here can only control certain matters; there are certain exogenous factors, such as what happens in Greece, which could throw us all off course. Our plan is to try to grow that short-term paper programme in a substantial fashion towards the middle of next year. As to when we return to the long-term bondmarkets, as I said earlier, the earlier the better. Obviously the later in 2013, the more the capital market would ratchet up the price against us. On the other hand if I was to signal today a precise date I would be giving a hostage to fortune. It would not be wise to comment beyond those qualitative terms but we could return to the short-term market in mid 2012 and thereafter as early as possible into the longer term markets. There are several related issues as to how we would access the markets, for example, whether we would automatically return to the bond option programmes, which were the cornerstone of our capital market raising pre-crisis, or have more reliance on other types of issuance such as syndicated bond issues, which we have used from time to time. They are the ingredients. I apologise if I am not answering the Deputy’s question in precise pinpoint fashion but that is as far as I can go.

Deputy McGrath mentioned the reference in my presentation to the budget that the market would like us to beat, namely the target of 8.6% for the general Government balance in 2012. The question was whether I would endorse the view that the Government should go further than the 8.6% target. What I am doing is reporting the international market view. Clearly, I have reported that view to the markets. Markets always want better news. For the people who have bought our bonds so far this summer, obviously various constituencies will be pushing for different targets. It is not up to me to endorse particular targets. Clearly, if the figure is lower than 8.6% it follows that our job will be made easier but, obviously, policymakers have to weigh up considerations other than what the NTMA wants.

Deputy Michael McGrath: Information on Michael McGrath  Zoom on Michael McGrath  Does the NTMA advise the Government on that issue or does it just pass on what market commentators and investors tell it? Mr. Corrigan does not have to tell the committee his view but I presume he has a view.

Chairman: Information on Alex White  Zoom on Alex White  Could Mr. Corrigan address that issue?

Mr. John Corrigan:  I could express a view. Our view is just one of the many ingredients that go into the soup which the Minister for Finance has a difficult job in addressing. The Deputy asked about the sustainability of the debt.

Chairman: Information on Alex White  Zoom on Alex White  The size of the debt.

Mr. John Corrigan:  At the end of 2011 we expect that the nominal value of the debt, which I think is one of the figures the committee is interested in, will be fairly close to €120 billion, that is, 108% of GDP. GDP is the measure used by the EU for cross country comparisons and it is the metric on which the troika focuses. Based on the growth forecast from the Department of Finance and the current forecasts from the IMF, the debt to GDP, the general Government deficit, ratio will peak at 118% in 2013; in money terms that is equivalent to €200 billion. The key issue in terms of sustainability is the primary budget balance which is the balance on the budget excluding debt service costs. The troika has forecast that we need to get to 1% on the primary Government balance by 2014. Based on the current budgetary trajectory and assuming we keep faith with the troika programme, which we must, we will exceed that by 2014. That is why many market participants are taking the view - which is our view - that the debt is sustainable.

Chairman: Information on Alex White  Zoom on Alex White  Mr. Corrigan has given us the total global projected figure for the debt and also, doing the best he can, the figure for the debt-to-GDP ratio. Is it possible for the public to attribute any percentage of that global figure to the legacy of the banking collapse? In other words, is it possible to say a certain figure is due to what has happened with the banks?

Mr. John Corrigan:  It should be. Obviously-----

Chairman: Information on Alex White  Zoom on Alex White  Can you do that?

Mr. John Corrigan:  I cannot do it today, but I can certainly give the committee a note on it. We can strip out some figures and look for it. It is a notional calculation, but it is a fair question.

Chairman: Information on Alex White  Zoom on Alex White  If Mr. Corrigan could do the best he can, I would appreciate it. I would also like to know the associated likely cost of that in terms of repayments in the future.

Mr. John Corrigan:  We will be happy to do that.

Deputy Michael McGrath: Information on Michael McGrath  Zoom on Michael McGrath  The ESRI had a more optimistic view. Taking into account the July summit, it predicted that the debt-to-GDP ratio would be something less than 118%. Is Mr. Corrigan sticking with a nominal debt value of €200 billion and a debt-to-GDP ratio of 118% at the peak?

Mr. John Corrigan:  That is a fair question. The details of the July interest rate concessions are still being worked out. The EU works in its own ways. Assuming the interest rate concession is somewhere between 2.5% and 3% per annum, which is where it is likely to land, although there are lots of technical factors, and some political, determining this, the figure of 118% would fall by about 1.5%. Thus, we are looking at a debt-to-GDP ratio of 116.5%. The ESRI forecast was a little more optimistic, but it would be generally in the same ballpark.

A question was asked about the eurozone summit and the level of saving that was made. As I said, in debt-to-GDP terms, it will result in a saving of about 1.5%. In terms of cash, over the lifetime of the loans, the total savings will be of the order of €8.5 billion. That is what we are looking at. The precise number is still being worked out by various parties.

Deputy McGrath also asked what would happen if we came to the end of the programme and were faced with a situation in which we could not access the markets. At the moment, the new European stability mechanism, ESM, which will absorb the two existing facilities, is being established. Unless we had built up, for other reasons, substantial cash buffers from other sources, I believe we would probably have to start considering the ESM at that stage.

The Deputy asked about burden sharing and the Anglo Irish Bank bonds. He referred to the substantial bond of the order of €700 million which is a senior, unguaranteed, unsecured bond and which will mature in early November. The Minister for Finance has raised the possibility of some burden sharing on that front. Unlike my colleague from Anglo Irish Bank, I think it would be most unwise for me to express a view. If I say it is unlikely to happen, the price of the bond will soar on the basis of that view, and if I say it is likely to happen, the price of the bond will fall. I have no desire to enter this area of market sensitivity, with the committee’s agreement.

The Deputy referred to the issue of remuneration within the NTMA. As he may be aware, the NTMA was established in 1990. Initially, it was set up on the basis of stripping the funding and debt management function out of the Department of Finance because the latter could not recruit and retain the experts necessary to manage the debt in a professional fashion. At that time, the financial services sector in Dublin was expanding and many of the people working in that area within the Department had left. I was among those who did so and I headed off for greener pastures. A view was formed during that period that substantial value could be added by taking a more professional approach. Consequently, the National Treasury Management Agency was established. Under its governing legislation, the NTMA was deliberately set up outside normal public service arrangements. At the time it was a hybrid for which there were not many precedents, either here or in other jurisdictions.

It is not for me to say but there would be a general body of opinion that in respect of its funding and debt management functions, the agency has done reasonably well. It did not fall foul of the financial crisis and as my colleagues and I have stated, the NTMA is very much seen as part of the solution to the current problem.

The notion of a dedicated debt management office has been copied by a large number of countries throughout the world, including France, the UK, Germany, etc. However, the functions of the agency have been expanded dramatically in light of its perceived success. I referred earlier to these functions, which include the State Claims Agency, the National Development Finance Agency, the National Pensions Reserve Fund and, more recently, NAMA and the banking sector.

I wish to provide members with an indication of the scale of the work done by the NTMA in its various guises. If one took the combined value of the assets and liabilities under management by the agency, one would be contemplating an amount in the region of €250 billion. This is a very serious business. If one considers cash flows - which may or may not be a reliable indicator of the scale of our operations - last year the amount of money pushed through the NTMA by way of its various businesses was €1.2 trillion. We are of the view that we have added value. In the debt management area, for example, last year we managed the funding and raised it at an average rate of 4.7% in very difficult market conditions. If we had paced ourselves at 12-month intervals, we would have paid a much higher amount and we would also have failed to meet our funding target. In the event, we met that target and we came into this year with €16 billion under our belts. It was not the failure of the NTMA to fulfil its funding function that blew up the country, it was the failure of the banks and the fact that their funding blew up. The latter transmitted itself to the State and the rest is history.

In the context of our activity, the National Pensions Reserve Fund is probably one of the closest analogues to the private sector. Many of the businesses which exist within the NTMA do not have direct comparators within that sector. The National Pensions Reserve Fund was established in 2001. During the ten years of the fund’s existence, its discretionary portfolio, which is under the management of the NTMA, delivered an average annual compounded return of 3.2% per annum. I have stripped out the banks in this regard because in recent years these were invested in as a matter of public policy. The return to which I refer compares, as reflected in the Mercer tables, with an average return of 0.6% for private sector funds. That is a very substantial outturn performance when compared with an inflation rate of 2.6%.

Because managers in the NTMA had the prescience to take out portfolio insurance, so far this year, when markets across the world have fallen out of bed, so to speak, the National Pensions Reserve Fund discretionary portfolio has outperformed the average pension fund, as reported in the Mercer tables, by 7.8%. That represents substantial added value.

I can understand why people raise their eyebrows at the salaries and bonuses - a dirty word - paid to those in the NTMA. The debate in the first instance is on the NTMA’s business model; the question is: do we believe in having dedicated skilled personnel to do what are very demanding market-facing tasks? That is what the NTMA has done. That is the model that was used in the debt management, to take the two examples I have given. It is the model that was used for the pension fund and, more recently, the one adopted for NAMA. To do this, we have to pay salaries that are close to those paid in the private sector. We must have some incentivisation which aligns how people perform with the objectives of the organisation.

I will take NAMA as a case in point and I am sure my colleagues in NAMA will be happy to comment on this. Those who have been recruited to NAMA who, as we said, are all NTMA employees are all employed on fixed purpose contracts. They are not in permanent, pensionable employment. They are employed on fixed purpose contracts and their objective is to throw off as much cash for the taxpayer in as short a period as possible. Their objective, in terms of the alignment of interest, is to put themselves out of business as soon as they can. The incentive package blended into NAMA has to reflect this. The concern about remuneration is understandable, but such provision has to take place initially in the context of what business model one wants. One can then decide to dial up or down the reward system, depending on which business model one wants. If it is the desire to push this back into a Civil Service-type structure, I will leave members of the committee to make their own judgment on the consequences of this.

We have very flat structures within the NTMA. In the debt management unit which manages the debt and has conducted a very aggressive investor relations programme, to which I referred, we have 12 people employed - we do not have hundreds of people employed there. On the banking team which was transferred to the Department of Finance, we have ten people employed. On the pension fund which has generated the magnificent outturn to which I referred - I believe it is magnificent, there are currently 13 people employed. We have downsized the pension fund because of the shrinkage we are facing. We have lost many good people who have gone to London - young men who are chartered financial analysts and who easily picked up jobs with top investment firms there.

There should be a legitimate debate on remuneration in the NTMA. We are having that debate with the Minister who said at the launch of the NTMA’s press conference that he looked forward to discussing the issue with the NTMA in the coming months. While it is for the policymakers to decide, I caution against throwing the baby out with the bathwater.

Senator Sean D. Barrett: Information on Sean D Barrett  Zoom on Sean D Barrett  Deputy McGrath asked for-----

Deputy Michael McGrath: Information on Michael McGrath  Zoom on Michael McGrath  I asked for numbers which were not given.

Mr. John Corrigan:  The numbers for the bonuses we pay?

Chairman: Information on Alex White  Zoom on Alex White  Were the numbers quoted by Deputy McGrath accurate?

Mr. John Corrigan:  Yes. He was quoting from the reply to a parliamentary question.

Chairman: Information on Alex White  Zoom on Alex White  Mr. Corrigan confirms the numbers.

Mr. John Corrigan:  Yes.

Chairman: Information on Alex White  Zoom on Alex White  We need to make some progress. Perhaps Mr. Daly and Mr. McDonagh might address the questions posed on NAMA.

Mr. Frank Daly:  With the agreement of the Chairman, we might divide the questions.

Chairman: Information on Alex White  Zoom on Alex White  Yes.

Mr. Frank Daly:  I will take the final two questions first because Deputy McGrath referred to them as the overall question. The first was: is it still our policy to pursue developers for the full amount? My answer is yes, it is. I referred - the Deputy referred to this matter - in the presentation of our annual report to our concentration on recovering what we had paid for the loans, plus any other moneys advanced as working capital or for development, plus interest on these moneys. Certainly, that is our primary target, but we remain of as strong a mind as ever to pursue developers for the full amount of the loans. Moreover, I would not be satisfied if we were not trying to so do. As we consider the portfolio and examine the business plans, a sense of realism is creeping in. One could argue in the extreme that if everyone was going to be able to pay the full amount of their loans, there would be no need for NAMA in the first place. While we are focusing in the first instance on recovering what we paid for the loans, we are not taking our eye off the ball in going after anything else that may be there. However, despite our best efforts, in many cases there will not be anything else there.

I revert to the second point of the Deputy’s question. While he referred to it as a bonus, this is not the case, but we have an arrangement, whereby on a case-by-case basis, we might categorise the loans in different sections. Obviously, our first target is recovering what we paid for the loan, as we want to get that back in full, plus anything else we laid out, plus something on top of this. Thereafter we have the difference between what we paid for the loan and its par value on the books of the bank. The question is whether we can get the developer to work with us to recover anything that may be there. I must be realistic by stating that in many cases there will not be a lot there. I do not like working with the people concerned any more than would the Deputy or anyone else present. Ultimately, however, on a case by case basis, we must make a commercial decision as to what is the best way for NAMA to recover value. This may entail working with the developer or getting the developer to remain involved in the business.

This brings us to both points of the Deputy’s question, as he also asked about whether NAMA was paying salaries to developers. I would love to be able to tell him that we could walk away from all 850 developers, throw them out and get someone else to run these businesses. While it could be a highly popular decision, it would not really be a businesslike decision or in any way a commercial decision because, regardless of whether one likes it or likes what they have done, they are the people who know the business. Our view is that if they will co-operate with us on our terms, which are very stringent, and if we make a commercial judgment to the effect they will achieve a better return for the taxpayer than we could by putting in a receiver or taking down the company, we will consider so doing on a case-by-case basis.

There have been cases in which we have not set a salary for a developer or a debtor, but in which we considered the overheads in the company or business, drastically reduced them in comparison with the pre-NAMA days, typically by 75%, and told the debtor he or she will pay all the overheads, including himself or herself, from that figure. In some cases which I believe to be the majority, the range of salary is between €75,000 and €100,000. There may be one or two exceptional cases, to which I will refer because already they are public knowledge, in which there are salaries of €200,000. However, one should remember that in such cases several billion euro of taxpayers’ money could be at stake and NAMA is trying to get the best return by having the person which it believes is best placed to help it to achieve that return. It is a hard decision over which we agonise, but, ultimately, it is a realistic commercial decision. In many of these cases the alternative would be to employ receivers at exorbitant rates of €180 per hour or something similar who might take a very long time and may not have the same interest in getting out of this as would the debtor. We are trying to align the interests of the taxpayer with those of NAMA and the debtor who wishes to get out of this and to repay his or her debts. That is the overarching question.

Deputy Michael McGrath: Information on Michael McGrath  Zoom on Michael McGrath  I asked how such an incentivisation arrangement would work when NAMA was trying to get back more than it had paid for the loan. How is the developer benefiting?

Mr. Frank Daly:  While there is no set policy in that regard, it could work on the basis that after we get back our initial target which could be what we paid for the loans plus a premium on top, we will then set another target. Incidentally, none of this will happen until way down the road or several years hence, but we will engage with the debtor and tell him or her what will happen if he or she chooses to work with us. If the debtor repays everything he or she was directed to pay under the first tranche - what we paid for the loan, what we advanced with interest and perhaps some money on top - and goes on to do more work and recover another €10 million for us, we will give them perhaps 10% of that, so 90% will go to the taxpayer and 10% will go to the debtor. It is an incentive - I make no bones about calling it that - to get the debtor working not so much for himself but for the taxpayer and NAMA. That is the way it will work.

Deputy Michael McGrath: Information on Michael McGrath  Zoom on Michael McGrath  The effect is that NAMA is giving developers a cash reward for repaying their loans.

Mr. Frank Daly:  We know that, if that does not happen, we will get nothing. That is the call we have to make. I find it as unpalatable as the Deputy does, perhaps, but at the end of the day we have a commercial-----

Deputy Michael McGrath: Information on Michael McGrath  Zoom on Michael McGrath  It is beyond the spirit with which NAMA was set up.

Mr. Frank Daly:  The spirit of NAMA is reflected in the commercial mandate we have.

Mr. Brendan McDonagh:  I will take the other questions that Deputy McGrath asked. With regard to how many of the business plans have been agreed, we have completed our reviews of 113 of the 180 directly managed debtors by the end of August. Fifty have been agreed, just over 30 have been enforced and the residuals are under discussion between us and the debtors with a view to achieving agreement if possible. If that is not possible, we will go in another direction.

With regard to the profile of buyers of NAMA assets, there are different types of buyer, but most of the assets have been sold overseas and the typical buyers have been pension funds, insurance companies, private equity firms, distressed debt managers and UK property companies. There has also been a fair amount of interest from Middle East and Far East investors and sovereign wealth funds.

Deputy McGrath asked what view NAMA takes if a debtor comes to it with a refinancing option from a foreign bank. We have had a number of such approaches. The proposal that is put to us must be realistic, because we must ensure we get value back for the taxpayer. Let us say, for argument’s sake, that a debtor had €100 million of debt and we paid €60 million for it. A foreign institution might come in and say that it is happy to refinance the debt for €50 million, but in that case we would make a €10 million loss straight away. I could not stand over that if I believe that the assets are worth €60 million, which is what we paid for them. Many of the approaches that are made are from those who are trying to buy assets for less than NAMA paid for them. That is not in the taxpayer’s interest.

With regard to the transfer of assets to family and relatives and the issue of court actions, I have been through the business plans associated with about €22 billion of the €30 billion that we paid and there has been no huge pot of gold in that connection. As I said when we spoke to the committee previously, some of the major debtors transferred substantial assets to family members. As part of our agreement with them, a number of those debtors have brought the assets back to the table. That is one of the first things to be done and it must happen before we will sit down and agree a deal with a debtor. In other cases, however, debtors are refusing to bring the assets back. As it is in the public domain, members will know that we are involved in a number of actions against such debtors in terms of the pursuance of personal guarantees. We are about to kick off a number of court actions in cases where we believe that transfers were made with the intention of trying to keep assets out of our reach and the debtor will not co-operate with us. Receipt of legal advice on this matter is well advanced.

With regard to how we can be sure we achieve the best possible price in the sale of assets, NAMA has two types of assets. The first type is where a debtor has property which is secured on loans, and in such a case we ensure that whoever is appointed to sell the assets has a duty of care to NAMA and we are fully involved in the process. The second type of asset is a debtor’s loan. Yesterday, our board approved a loan sale strategy, and under EU procurement rules we will appoint a number of loan sales brokers to sell the assets. It is not a very well-developed market in Europe although it is well-developed in the US.

Our fundamental bottom line on this is that the asset must be openly marketed and at arm’s length. We have gone even further and before we agree to sales we ask for declarations from buyers that they are unconnected parties to the original debtors. I hope this answers the question.

Deputy Liam Twomey: Information on Liam Twomey  Zoom on Liam Twomey  I welcome the witnesses to the meeting. Most of my comments will be directed to NAMA rather than the NTMA. However, as the NTMA is so tied into what happens with NAMA and the banking system, the two bodies are almost mixed together. I was struck by some of the comments made by Mr. Daly and Mr. McDonagh. Mr. Daly stated the Oireachtas handed NAMA an ambitious commercial mandate. He stated a feature of the debate on NAMA has been unrealistic expectations of commentators, market participants and others of what NAMA can do. Mr. McDonagh stated a balance must be struck in meeting the competing objectives set by NAMA and set for NAMA. Since NAMA was established, many of the loans have deteriorated. Notwithstanding that production might improve in years to come, the value of many of these assets, particularly agricultural land and other commercial properties, will not improve dramatically and they will probably have worsened quite significantly. Do the witnesses feel the legislation with which NAMA is working needs to be altered radically? Do they feel hamstrung or that they have their hands tied behind their back by the objectives set out in the legislation?

By making NAMA a footnote in history, the objective of getting the issue of the Irish economy off the table will be achieved because the Irish economy will have improved. How is NAMA fulfilling its role? It is taking on 850 people. It looks like average loans are €80 million and NAMA paid approximately €35 million. I know some amount to billions of euro and others amount to far less.

I was interested to hear about business plans. NAMA seems to have three categories of people: the self-indulgent, and I am interested to know the value of their loans; the unrealistic, whose loans are unviable and I would also like to know the value of these; and those co-operating with NAMA whereby NAMA is working through the transfer of assets, properties and former deals. I presume work on the latter category takes into account the issues raised by Deputy McGrath on looking back to what happened in the past. Only 113 business plans of the 180 for which NAMA is responsible have been agreed.

Mr. Brendan McDonagh:  Of the 180 directly managed cases, 113 have been analysed and we expect more than 200 of those cases managed by the participating institutions to be completed by the end of the year. This will represent 95% of the €30.5 billion we paid, so by value we will have dealt with the most important portfolios.

Deputy Liam Twomey: Information on Liam Twomey  Zoom on Liam Twomey  By value, the majority will have been dealt with. This is very important because NAMA has moved into a second tranche of operation in which it will examine loans of less than €20 million. This will bring hundreds of individuals into the NAMA project. How will they be affected and how will this impact on NAMA? NAMA will examine loans to developers and people involved in property which amount to less than €20 million and which are connected to loans already covered by NAMA. NAMA will treat them differently from those who have loans of under €20 million and no connection with those who went into NAMA in the first tranche.

Perhaps a member of the NTMA delegation might answer the following question. Is it true that loans of under €20 million, as part of the transfer of €3.5 billion to NAMA, were not part of the PCAR assessment of the banks? That is the impression I was given. I would be interested to hear the reason for this and if Mr. Daly believes the business plan for NAMA needs to be looked again. We have to be realistic about the objectives NAMA can achieve in the next couple of years. We do not want to be beating NAMA on the back and expecting it to make a profit when there is no profit to be made. Many commentators have pointed out that it is far more difficult for NAMA to fulfil its objective than is being acknowledged. We need clarity in that regard.

When the Governor of the Central Bank and the Financial Regulator appeared before the joint committee last week, they spoke about the banks and what was happening therein. We also discussed the issue of distressed mortgages. However, problems may arise in respect of all loans, not only NAMA loans or the second tranche of loans under €20 million. The purpose of this meeting is to obtain a realistic picture of what is happening in the economy. That is what I would like to hear from the delegation today.

Mr. Frank Daly:  The Deputy has asked whether NAMA’s objectives and commercial mandate are too ambitious and if there are any impediments in the legislation which affect our mandate. There is nothing particular in the legislation that is impacting on our ability to do what the agency was set up to do. We are conscious that a little tweaking from time to time would be useful for us and that the Minister is open to our suggesting changes, if such are necessary. I cannot say that, to date, there is anything that is a real barrier to progress.

The problem is that the expectations of NAMA, when set up, were, to some extent, extraordinary. I referred to NAMA being expected to do an awful lot of things in relation to the banks and property, perhaps, because people were not aware of the true extent of the problems in the banks, in particular. We did what we had been set up to do, namely, take land and development loans from the banks. We did this expeditiously, given the complexity of what was involved and the state of the documentation in the banks. We have pretty much completed that process, in particular given the decision by the board yesterday on residual loans. We are now focused on the assessment management element of our role. I cannot say at this stage that there is any barrier in the legislation to our doing our work. We are probably all more realistic at this stage in terms of our expectations of what NAMA can do.

The Deputy referred to our business plan and the deterioration in the value of loans and property. It is true that that has happened. However, our business plan in July 2010 was predicated on a discount of approximately 50%. We ended up with a discount of 58%, which has given us a cushion. To a certain extent, that is one of the strong reasons our business plan remains valid. It will be challenging in the next year to dispose of assets. We have a clear target, which was originally NAMA’s but has now been copperfastened by the troika, of realising a sum of €7.5 billion by 2013. As I mentioned, we have already raised €3.5 billion. At present, we have repaid debt of more than €1.25 billion. We have a very definite plan to repay a substantial amount of debt again before the end of the year. Given that we are only 18 months in operation, that is good progress. While we have not met the expectations of everyone for NAMA, I would argue that the expectations were probably overstated in the first place. However, I take the Deputy’s point, and if there is a legislative barrier to what we are doing, we will not be shy about raising it.

I will hand over to Mr. McDonagh to reply to some of the other questions.

Mr. Brendan McDonagh:  The Deputy asked about the breakdown in terms of the three types of debtors we are dealing with. I will talk about our experience to date because there are a number of business plans we have not been through yet. However, I will try to extrapolate. In terms of the people whom we regard as somewhat self-indulgent and who have not yet accepted the reality three or four years later, they probably represent debt of 10% to 15%, by value, of our portfolio. In that instance, we end up appointing receivers. We regard that as most unfortunate because some of them could work with us but they will not come around to doing business, whereas they must accept direction from someone else.

Those who are unviable and those who are probably at a stage of their lives where they believe they do not want to put the effort into working it through probably account for 20% of the debtors. The debtors who are co-operating and want to see the process through probably account for 65% to 70% to date. I am not saying they were in that space on the first day we met them but over time they got there. They probably see that there is no alternative and have become much more realistic in those terms. However, there are many good debtors who, from the first day, were very realistic. They said, in effect: “We are in this mess, we need to get it sorted out, I want to survive and get through to the other side, so let us get on with it.”

The Deputy asked about the loans of less than €20 million. The new Government and the troika agreed that the sub-€20 million loans in AIB and Bank of Ireland would not come to NAMA. That was fine by us because there was a huge volume of loans and a small number of debtors. My understanding is that the PCAR 2 exercise took account of an expected loss on those, in terms of what would be realised on those loans, and that was put into the capital of the banks. With regard to NAMA, if it had acquired debtors who might have had loans of €20 million or less before that decision, as we certainly have, those people will be directly managed by the institution they went to originally under delegated authority from us. Some of those people will be like other debtors and will work through. Many of them, unfortunately, are people who should never have got into property development. They came together in syndicates to buy land speculatively and that land has now reverted back to agricultural value. In that instance, the price we would have paid the banks for the loan, which would have led to our big discounts, would have been close to agricultural value.

The chairman dealt with the expectations about NAMA in terms of NAMA making a profit. I have the same view as the chairman.

The Deputy asked whether the legislation should be altered. I agree with the chairman that the legislation does not need to be altered. However, we are finding that the big issue in attracting the international investor to buy Irish assets is that he wants absolute clarity about the different positions. Effectively, he will come into the market as the buyer. There are no Irish buyers in the market. Generally, even during the boom times there were not many Irish buyers in the market because all the Irish guys were themselves foreign investors. Some German funds came in last year. Of the €320 million in transactions, they bought €75 million. They have not been there in 2011. I can give the committee an example. Yesterday, a major German fund, which has £1 billion in assets in London, announced to the market that it is selling its portfolio in the UK. International capital moves around very quickly. It is very difficult to attract. We meet many people coming to Ireland who are told to buy these assets as there are good yields but they are seeking absolute clarity for their investors and in what they are investing. We are at the stage of creating an investment structure to get in some foreign capital. If there is one thing the Government can do it is clarify the issue of upward-only rent reviews. Whatever decision the Government arrives at we will have to live with it. The sooner that issue is clarified the better for us because at the end of the day for the people who are interested in buying the assets it is only a question of price depending on the Government’s decision. I hope that answers the Deputy’s question.

Chairman: Information on Alex White  Zoom on Alex White  Does Mr. McDonagh agree with the prediction in some quarters that the value of assets would drop by 20% in circumstances where there was no rent review?

Mr. Brendan McDonagh:  We have seen that analysis by IPD which states that the value would drop by between 18% and 20%. We have done some calculations with our people in-house as to whether that is valid and we have spoken with potential investors who might buy assets. They have said to us that a full ranging change would be a 20% hit. All these investors are not coming to Ireland because they love us, they come here because they believe there is an investment proposition in which they can make money. Then they look at the context in terms of how Ireland is performing overall. Therefore, as my colleague, Mr. John Corrigan, has said the differentiation between Ireland and the rest of the eurozone is very important and whether we are moving towards recovery. If they believe Ireland is not heading in that direction they will shift the price even further. It is an issue on which we would welcome clarification.

Chairman: Information on Alex White  Zoom on Alex White  I am not sure if there was clarification from Mr. Corrigan. Perhaps he could pick up on the issue as we proceed.

Deputy Pearse Doherty: Information on Pearse Doherty  Zoom on Pearse Doherty  Cuirim fáilte roimh na finnithe. Tá cúpla ceist agam don NTMA ar dtús. I wish to direct a few questions to Mr. John Corrigan and the NTMA and to refer briefly to some of the earlier comments. Mr. Corrigan went to great lengths to defend the type of business model within the NTMA which is based on bonuses. In reality they are not just bonuses but performance related bonuses. It is a valid business model which applies in much of the private sector. The bonuses paid for 2010 must be performance related.

In his opening statement Mr. Corrigan said the remit of the NTMA is to manage the national debt and to access funds for the Exchequer through the international markets. In 2010 we were locked out of the international markets. I am not blaming the NTMA for that but in terms of its primary remit there was a complete failure in that it could not get access to the international markets. The national debt doubled from 2008 to 2010 and we were not able to manage it without entering an EU-IMF programme. There are many other factors involved. Does Mr. Corrigan believe it was appropriate that performance related bonuses were paid at a time when our national debt doubled within a period of 24 months, that we were not able to manage the national debt without assistance from the EU-IMF and that access to the markets was shut down for the second half of 2010? I appreciate that the NTMA very successfully sold bonds at the earlier part and funded the State during 2010 and half of 2011. However, the overall performance was not good and, therefore, bonuses should not be paid. That is separate from the type of business model in place. I have no problem with bonuses being paid if performance is good and the environment is right but in this case I have major problems with it. Perhaps Mr. Corrigan will outline the highest bonus that was paid in 2011 for 2010?

I refer to a point made by the Minister for Finance at the committee last week. He said, and Mr. Corrigan has repeated it here, that the savings over the lifetime of the loans would be €8.5 billion as a result of the reduction in the interest rate as agreed by the eurozone leaders in July. I question those figures from the NTMA. My understanding - correct me if I am wrong - is that the €8.5 billion figure was calculated based on the assumption that the life span of the loan would be seven and a half years. However, under the agreement in July, the loan has been extended to a minimum of 15 years. Thus, when we consider the overall net effect, there will be no saving because of the extension of maturity; and, because we will pay a lower interest rate but over a longer period, the net effect will be an increase in the amount. I do not disagree with the decision that was taken; I welcome it. I believe an extension of maturity is right and that the reduction in the interest rate was long overdue - we argued for it beforehand - but it is important to point out that it is wrong to say we will save €8.5 billion as a result of the reduced interest rate over the lifetime of the loan, because Mr. Corrigan did not factor in the extension of the maturity. I ask him to either correct me or correct the record in this regard.

In an extension of that point, can the NTMA now provide us with the figure for the actual saving for 2011, 2012 and 2013 as a result of the reduction in the interest rate, based on the assumption that the interest rate will be 3.5%? Can that be furnished to the committee?

What strategy does the NTMA have for re-entering the bond market? Mr. Corrigan touched on this here, but he was not providing a direct answer to one of the previous questioners. I have the NTMA’s press release stating that Ireland is fully funded to the end of 2013, although there are caveats. It is fully funded up to the end of 2013 but we will have to go to the market within that time for a small portion of money, so the headline was a bit misleading. However, the general public was misled in an even bigger way. People may accept that the State is alright up to 31 December 2013, but are forgetting that two weeks later we will owe €12 billion on a bond. Does Mr. Corrigan agree with my view that this State will need to have accessed around €15 billion of market funding by late autumn 2013, otherwise we will need to either engage in a second programme or receive additional funding from the EFSF? The reason I have come up with that conclusion is that we will need to pay the €12 billion, and we will also have ongoing costs in the first quarter of 2014. Would Mr. Corrigan agree with that sentiment? Whether we get it from short-term loans, long-term loans or wherever, it will be additional to the EU-IMF bailout package and the reserves we have at this point. There will be a need, by autumn 2013, for us to secure €15 billion of market funding.

What are the views of the NTMA on the ESRI’s proposal - with which I completely and utterly disagree - that it use some of its reserves to pay down the national debt? That is one of the conclusions of the paper released by the ESRI this week. Some economists in Sinn Féin have argued that we should use some of these reserves to stimulate the economy through a job creation stimulus. I ask Mr. Corrigan to outline how much of the €10 billion in directed EU-IMF programme funds from the National Pensions Reserve Fund were used in the recapitalisation of the banks in July. How much of the €16.4 billion came from the NPRF, and how much of the NPRF is left at the disposal of the Government to use, if it so wishes, in the form of a stimulus?

I may be paraphrasing Mr. Corrigan, but he said in his speech that a line had been drawn under Exchequer funding of the banks. This was stated by previous Ministers for Finance and the Governor of the Central Bank and a number of months later they were embarrassed by what they had said. Is Mr. Corrigan completely confident that the line has been drawn?

I will discuss this matter with our guests from NAMA a little later in the meeting. I have been pursuing for some time the question of upward-only rent reviews, to which a direct answer had not been forthcoming until recently. If Mr. McDonagh’s comments to the effect that such reviews will result in a reduction of at least 20% - the estimate is for a reduction of between 20% and 30% - in respect of commercial property are borne out, this will put the relevant section of the stress tests on the banks beyond the adverse scenario. As a result, losses additional to those estimated in the latter scenario will be imposed on the banks. Given that more stress tests will be carried out next year, how confident is Mr. Corrigan regarding his earlier assertion? We all hope it is accurate, but is he in a position to be completely confident about it?

I wish to put a number of questions to the representatives from NAMA. The most notable matter to which reference has been made at this meeting is that NAMA is involved in debt forgiveness for property developers and speculators. It is appalling that this is happening. It goes beyond the remit of NAMA and runs contrary to the spirit in which the agency was established. How many developers have been offered the 10% model of forgiveness? What is the total value of the debt that has already been or which may be extended by NAMA - that is, the State - to these developers? Do our guests have a view on an arm of the State providing for such debt forgiveness when 95,000 people are in mortgage arrears as a result of buying homes from the developers in question?

In its annual report for 2010, NAMA indicated that it had made a €1.1 billion loss for that year. The agency also indicated that it was able to absorb that loss as a result of the 5% subordinate debt which it has classified as capital. The value of commercial property in Ireland has fallen by 7% - I again refer to the comments to the effect that, as is the intention of the Government and on foot of changes which are imminent, a further 20% of upward-only rent reviews will be abolished - while the value of residential property is down by 9%. In addition, there has been no recovery in the residential property market in Britain. In that jurisdiction the value of commercial property has risen by just 1% and residential property by 2%. In the light of these figures, do the representatives from NAMA share the view expressed by others that the agency will probably make a loss of at least €1 billion in 2011? Will it be the case that as a result of its capital being depleted - this was 5% of the consideration or approximately €1.5 billion - NAMA will be required to ask the State for more funds at the end of the year?

In the context of the mortgage property to which NAMA and the media have referred, the agency has signalled its intention to introduce a mortgage product. Mr. McDonagh indicated that NAMA was in discussions with a number of Ministers on this matter. When will people be informed about the actual nature of the product to which I refer? Media reports have indicated that it is a type of insurance clause which relates to the possibility of a property decreasing in value over a number of years. What impact will this product have on the property market? Will it stifle the market in finding its floor? What impact will it have on those who might wish to sell properties which are situated adjacent to NAMA properties and who will not have access to the same type of insurance clause which the agency can offer?

Another issue to which I wish to refer is the level of transparency relating to NAMA. Our guests referred to the constraints they were operating under in this regard. A number of people have been appointed to positions by NAMA to carry out its functions but these positions have not been tendered. Do the delegates believe that is good practice and that it represents best value for money for the organisation and for the State? When did this practice begin within NAMA?

Although the delegates refuse to divulge any private, sensitive and confidential information as a result of the Act, which is understandable, will they advise how many bonuses in excess of €50,000 NAMA paid out? What was the highest bonus paid by NAMA in 2010? I am not asking for the names of the individuals, but if the delegates could give them, that information would be deeply appreciated, although I do not expect to get it. However, the taxpayer has the expectation and the right to know the amount of the largest bonus paid out.

Under section 2 of Part 8 of the Act that set up NAMA, there is a requirement to contribute to the social and economic development of the State. Many of us who would like to see such a contribution made by NAMA have been waiting a long time to see how it would come to pass. To what extent has this element of the organisation’s legislative responsibility featured in its work over the last 18 months? Has it actively explored the possibility of such transfers of houses under NAMA stock to local authorities? Will the delegates outline their interpretation of this section of the Act and what NAMA is currently doing to meet this aspect of its legislative remit?

My next question relates to Irish Government bonds and the fact that in February 2011 NAMA bought €50 million worth of Irish Government bonds. This was at a time when there was huge volatility within the Irish bond market. What conclusions did the delegates come to or what prodded them to enter the bond market and buy up Irish Government bonds? It was a gamble, as other investors are not buying Irish Government bonds because of the overall debt burden within the State. Is it the intention of NAMA to buy further government bonds of other sovereign states or other products such as gold?

The annual report of NAMA refers to one of its board directors, Stephen Seelig, a former board member of the IMF. He ran up expenses of €35,915 in 2010 for attending meetings. I understand NAMA paid him his expenses directly. Instead of NAMA booking flights and directly incurring the charges, it paid the cost involved to the board member on top of his remuneration. The annual report states that he attended 21 board meetings, nine audit committee meetings and five risk management meetings. Can the delegates confirm that all those meetings required his physical presence or were they meetings that were held via teleconferencing or other IT facilities?

In regard to comments that the developers will not be able to buy back their properties at haircut prices, what is the policy within NAMA to ensure that this happens? Will NAMA reject an offer for an asset if it is not the highest offer? If a developer who has loans with NAMA made the highest offer, would NAMA reject it because its stated position is that it will not allow developers to buy back assets at reduced costs? I would like clarification on that issue.

What was the legal bill picked up by NAMA in the Paddy McKillen case? How much did that case cost NAMA? I want the cost involved including the amounts paid to advisers and experts, the division of employee time, and the amount that NAMA contributed to Paddy McKillen’s costs. Who is responsible in the delegates’ view for NAMA losing the case? Who was responsible for taking the view that a decision had been made validly at NAMA on the transfer to NAMA of Mr. Paddy McKillen’s loans before the agency had even been incorporated? Has anyone at NAMA or any of its advisers faced penalties as a result of the losses incurred in the Mr. Paddy McKillen case which it has been speculated cost between €2 million and €4 million?

In 2010 the late Minister for Finance responded to a parliamentary question pertaining to a major issue within NAMA, namely, the valuation date of 30 November 2009 set by the agency. At the time the question was what would be the cost of changing the valuation date to June 2010. Advice was given to the late Minister for Finance in 2009 that the property sector had reached rock bottom. I believe this advice was given by someone who is now involved with NAMA but who at the time was involved with Jones Lang LaSalle. However, the value of commercial property has fallen by 20% since that advice was given. Nevertheless, in 2010, in response to a question, the late Minister for Finance stated in the Dáil that changing the valuation date from November 2009 to June 2010 would have a broadly neutral effect, as the losses being suffered in Ireland in the commercial and domestic property sector were being nullified by increases in value in Britain. While I am open to correction, I presume this advice was given to him by NAMA at the time. Obviously, it was completely off the mark and the representatives from NAMA should elaborate on the matter. I have mentioned the issue pertaining to tenders.

Although NAMA publishes a monthly enforcement properties list, it excludes non-real estate assets such as art, helicopters, speed boats, cars, jewellery and wine collections. Mr. Daly has expressed NAMA’s desire to be as transparent as possible. In the interests of transparency, will NAMA include these items in future lists to be published? Will it retrospectively include them in the lists already published?

Chairman: Information on Alex White  Zoom on Alex White  As literally dozens of questions have been asked, the delegates should do the best they can. I invite Mr. Corrigan to respond first.

Mr. John Corrigan:  The Deputy’s first question was related to the issue of performance-related pay, as he accurately described it. He cited 2010 and used the word “failure” as characterising the delivery by the NTMA on its debt management objectives. “Failure” is not a fair term, if the word “fair” is allowed. The mandate of the NTMA was to fund the State’s needs in 2010 at a reasonable cost. We funded the borrowing requirement at an average rate of 4.7%, compared with a figure of 4.6% in 2009, which clearly was a better time, at spreads reasonably close to those of Germany. We front-ended that funding, which did not happen by accident, as we saw the storm clouds gathering, and in the process brought forward considerable funds into 2011. In fact, we had €16 billion in surplus cash coming into 2011.

The tsunami that hit the State was not caused by the NTMA but by the collapse in the banking system and the collapse of its funding base. The requirement to enter a troika rescue package was not driven by misadventures in the NTMA but by misadventures in the banking sector. I refer to the question as to whether I believe performance-related bonuses should have been paid in these circumstances. In our approach to performance-related pay we segmented the organisation. In February of this year, which is when we were awarded our performance-related remuneration, the top management group comprising eight people collectively waived its performance-related entitlements. This was prior to the issue of performance-related pay becoming the hot topic of debate it did later in the year. From our vantage point in the NTMA, we could see the state of the country.

We have a fairly rigorous performance management system and in the main, most people had delivered on their performance-related objectives. The context in which bonuses or performance-related payments were given to members of staff was the 8% reduction we achieved in the overall pay bill in 2010 compared to 2009 on a like for like basis. We sought to manage our affairs as prudently as possible bearing in mind the commitments made to staff who had worked hard over long hours. Senior management waived their entitlements.

In our administrative budget for 2011, we aim to achieve a further saving of 3% in the pay bill. The question of whether performance-related payments will be made for 2011 must be considered in the context of the wider debate, a context I tried to set earlier. A decision must be made on this. However, people delivered on their objectives and as a corporate entity the NTMA delivered on its objectives.

The Deputy asked about savings and questioned our arithmetic which is no bad thing. The sum was based on the current maturity of the facilities. The 21 July package consists of two elements, namely, an extension of the maturity and a lowering of the interest rates. The technical details of these must be sketched out. It is not simply a question of stating that the loans which have been drawn down for seven and a half years will have a 15 year maturity. These loans are backed by market transactions of institutions in the eurozone. An interest rate risk occurs in replacing these loans with facilities when they mature. The sum took the seven and a half year maturity which exists at present and the current interest rate of 5.86% and reduced the interest rate by 2.5% to calculate the net present value, which works out at €8 billion. If the loans could be extended further and one assumed the interest rate on them was 5.8% one would come up with a larger sum. I am quite happy to provide the committee with a note on this and for members to interrogate the arithmetic if they wish.

Deputy Pearse Doherty: Information on Pearse Doherty  Zoom on Pearse Doherty  This is a very important point I would like to tease out. Half of the deal has been applied but the other half has been forgotten, including the point about refinancing what we have already drawn down, which is approximately one third of what is available. We know from the deal that the seven and a half year maturity will not apply to the new tranches of drawdown and will be applied over a minimum period of 15 years. Therefore, the calculations are inaccurate. Extending the period to 15 years and applying the 5.6% interest rate is to compare apples and oranges. This is an important point because people are genuinely interested in what the savings would be and the information provided is incorrect.

Mr. John Corrigan:  The savings are based on the full package, namely, the €45 billion which will come to the State, on a maturity of 7.5 years, which is the maturity currently agreed.

Deputy Pearse Doherty: Information on Pearse Doherty  Zoom on Pearse Doherty  With respect, the deal in July extends the maturity to 15 years.

Mr. John Corrigan:  With respect, the technical details of extending it have yet to be worked out. Whether the loans run for seven and a half years and are extended for a further seven and a half years remains to be considered. If that is the case, there is a roll-over re-financing risk. I am happy to supply-----

Chairman: Information on Alex White  Zoom on Alex White  Is Mr. Corrigan basing his calculations on it not being extended?

Mr. John Corrigan:  I am making the calculation on the full amount of the facility, the concessionary interest rate and the seven and a half years.

Chairman: Information on Alex White  Zoom on Alex White  Were there to be an extension, would that cause that figure to be revised?

Mr. John Corrigan:  We would have to examine the technical basis on which the extension could be done.

Chairman: Information on Alex White  Zoom on Alex White  Can Mr. Corrigan assist the joint committee, although not necessarily now because he may need to examine the detail, in giving us some prospective figures were there to be an extension to 15 years?

Mr. John Corrigan:  I am more than happy to set out the maths and, if needs be, to reappear before the joint committee.

Chairman: Information on Alex White  Zoom on Alex White  Mr. Corrigan could communicate the information in writing because we might not be able to facilitate him that quickly. We would be delighted to do so but Mr. Corrigan might not be able to attend. Perhaps Mr. Corrigan will forward the information to the clerk and we will circulate it to members.

Mr. John Corrigan:  I am happy to do that. The Deputy asked for savings on a per annum basis in 2011, 2012 and 2013. Again, I will have to come back to the joint committee on that. My notes state that the saving in 2012 would be of the order of €830 million, depending upon where the savings actually are settled. I am told that the full disbursements will run out at approximately €1.1 million per annum. Perhaps I will include that information in the composite note which I will send to the clerk.

Chairman: Information on Alex White  Zoom on Alex White  There are a number of issues which Mr. Corrigan might address in that way.

Mr. John Corrigan:  Yes.

Deputy Michael McGrath: Information on Michael McGrath  Zoom on Michael McGrath  The Minister, Deputy Noonan, stated last week that the amount would be between €500 million and €600 million in 2012. Perhaps Mr. Corrigan will clarify that in his note given that we are being told today that the figure is €830 million.

Mr. John Corrigan:  I have taken a note of that.

On the strategy for re-entering the bond markets, Ireland’s credit rating in this process has been seriously undermined. Very few of the traditional long-term institutional investors who bought our bonds are able to do so now because our credit rating with one credit rating agency is at sub-investment grade and with two others is marginally above investment grade. Most of these long-term institutional investors have guidelines in terms of the quality of the bonds they can buy. As I stated in my opening remarks, investor relations is a huge element in terms of our strategy for re-entering the market. That cannot be under estimated.

In terms of the eurozone bond indices, which is the universe within which people operate, Irish Government bonds only represent 1% of that index. Institutional investors and other investment managers will not spend a huge amount of time examining Ireland; some will, but most of them will not. One must have a story to tell them if one is to get their attention. We have segmented the investor base into the people who have supported us in the past, because one cannot desert them, and prospective new investors who would have a higher risk appetite to whom we must tell the story. To date, the move down in the bond yields has clearly been driven by investors who have a bigger risk appetite. We are planning to enter the short term end of the market, which is the less risky as far as investors are concerned, subject to local and international conditions during the second half of 2012. I indicated that it might not and probably will not be a simple return to the traditional method of issuing paper, which is via an auction. We will probably have to go for syndicated deals, where the terms are settled in advance.

On the State’s funding, the State is funded until the end of 2013, based on our simulations which are on our website. Those simulations indicate that we would have a cash balance of the order of €5 billion plus at the end of that period. The Deputy’s suggestion that we might need to raise €15 billion by the end of 2013 to fund ourselves going into 2014 is probably at the upper end of the range, but in ballpark numbers I would not argue with him that we must get back into the market as early as possible in 2013. What was driving the comment I made earlier was that we cannot just leave it until the end of the year to turn the switch back on.

Deputy Pearse Doherty: Information on Pearse Doherty  Zoom on Pearse Doherty  My point is that we would need to have this done by the end of autumn 2013. If we do not have it done by the end of October, we need to look at the other options because we would be in default in February with the 12,000 bond redemption.

Mr. John Corrigan:  I do not agree with the Deputy on that. Bond markets are funny places. Only a year ago we were funding money at 5% and people were throwing it at us in auctions. We were getting cover of two or three times. We have to be very careful in terms of making pinpoint predictions as to when we might go into the market or on the other question people might ask as to at what rate we would go back into the market. There is no box that contains a secret plan with a rate and a date on it which we will open in 2013 and act accordingly. It really has to be driven by market circumstances at the particular point in time. I am not trying to be evasive; I am being realistic.

The Deputy’s last question was about the ESRI and the pension fund. The current value of the pension fund, having paid out the full €10 billion for the recapitalisation of the banks which is gone at this stage, is €5.3 billion. How that is used is obviously a matter for the Government. Technically, without wishing to get into a technical debate, it is not simply an option of spending that money on boosting the local economy. When the money was put into the pension fund, it did not count as expenditure. If the money is taken out of the fund to be spent on job creation and so forth, it runs up against the troika limits. There are technical problems there. This is not a value-laden view, but there is a technical issue there.

Deputy Pearse Doherty: Information on Pearse Doherty  Zoom on Pearse Doherty  Dressed up as a directed investment or something similar.

Mr. John Corrigan:  Yes.

Chairman: Information on Alex White  Zoom on Alex White  I call Mr. Daly.

Mr. Frank Daly:  We might divide the questions again. The Deputy asked about NAMA involvement in debt forgiveness. The reality is that we have not forgiven or written off any debt. The point I was making earlier is that at a certain stage, when it is apparent or if it becomes apparent that in the case of a debtor there is nothing more there, we might have to write off debt. There is absolutely nothing else to do. However, that has not happened to date and, as I mentioned, it is something that will only be considered way down the line when we are absolutely certain there is nothing to be recovered. In terms of the total value of any of that offered to date, we have not engaged in it.

Deputy Pearse Doherty: Information on Pearse Doherty  Zoom on Pearse Doherty  The point I was making about debt forgiveness relates to Mr. Daly’s earlier comments, where the developer would be able to take 10% off the cost so that they would work with NAMA, which is, in effect, debt forgiveness. I am not talking about writing off debts that cannot be recovered.

Mr. Frank Daly:  Deputy Doherty can classify it as debt forgiveness; we are classifying it as an investment so that we get the best value back for the taxpayer but we could argue about what it is. The Deputy referred to the people in arrears with their mortgage payments. As that is a matter of Government policy I do not think I should comment on it. The Minister indicated recently that he is not opposed to debt forgiveness per se in a targeted manner and that there is a working group in the Department of Finance which is doing some work on that matter. I do not think the personal mortgages area is a matter for NAMA.

Deputy Doherty asked how many bonuses in excess of €50,000 were paid in NAMA. The reality is that the only individual in NAMA who was awarded a bonus of in excess of €50,000 was the chief executive but it is important to say he waived that bonus.

In regard to the contribution to social and economic dividend, the Deputy asked to what extent that part of the legislation had featured. It features consistently at the board and at the executive decisions on NAMA. Recently we enunciated a very clear policy in regard to State agencies, State bodies and local authorities that if they have an interest in any property, be it land, houses, apartments or buildings, that NAMA has we will engage with them actively and give them first refusal always on those properties. To put some flesh on that, we have engaged extensively with the Minister for Education and Skills on sites for primary and second level schools. We have engaged with the HSE and the Department of Health on sites for primary care centres and other areas in which it is interested where NAMA has buildings that may be suitable. We have engaged with the Minister for Arts, Heritage and the Gaeltacht in respect of buildings in which he is interested. Those engagements are proceeding well.

We have engaged extensively with the Department of the Environment, Community and Local Government and specifically with the Minister of State, Deputy Penrose, and his staff on the issue of housing. An individual in NAMA from that Department is going through our list of properties to see what properties would be of interest to that Department in the context of social housing. We have already had a sale of social housing to Clúid, the housing association. In terms of the so-called ghost or troubled estates, of which there are 230, NAMA is involved with more than 30 in the worst category, category 4, and has set up a fund of €3 million which is being utilised in those estates on health and safety issues. We expect to be involved in that area. There is quite an extensive involvement in what Deputy Doherty referred to as the social and economic dividend. At the end of the day the best dividend, whether social, economic or whatever, is that NAMA is successful in collecting as much money as it possibly can from defaulting developers.

The Deputy mentioned developers buying back their assets. Section 172 of the NAMA Act precludes NAMA from selling back assets to defaulting debtors. Recently there has been much discussion and debate on that issue. We wish to make it clear that we adhere strictly to the terms of the legislation and we have put policies and procedures in place to ensure that does not happen. I give a 100% guarantee that will never happen. We will do our level best to ensure it does not happen. While we are in a complex area of connected companies and parties we will do our utmost but I do not think anybody can give a 100% guarantee about anything. If the highest offer comes in from a defaulting debtor, we are caught by section 172. There have been defaulting debtors who totally refinanced their par debt - their full debt - with the banks. That is fine; there is no problem in that regard. They are paying off the full amount of the loan.

Mr. Brendan McDonagh:  The Deputy made a point about NAMA incurring a significant loss of €1.1 billion in 2010 and he was correct in saying much of that loss had been absorbed by the 5% subordinated debt of €1.5 billion. We had over €300 million of pre-impairment profit in 2010, which took account of the fact that we did not have the assets for the full year as most of them were acquired in the final quarter of 2010. The Deputy has mentioned that there has been, effectively, a downward movement in prices since the end of 2010, about which he is completely correct. The latest figures I have seen from the indices indicate that the price of commercial property is down by an additional 3% from the end of 2010 and residential property by more than 10%. When we set the valuation date as November 2009, we factored in the fact that residential house prices were already down by 50%. The CSO index states that, overall, prices are down by 47% from the peak to date. We think this is a good improvement compared with what was in place, but it is still lagging behind somewhat.

The Deputy suggested that if NAMA incurred another loss of €1 billion in 2011, we would need capital. I do not accept this. Even after taking a permanent loss in 2010, we still had net reserves of €450 million. We expect that NAMA will make a pre-impairment profit in 2011 of at least €500 million. Therefore, if there are any additional losses as a result of impairment in 2011, we have enough to absorb them.

Deputy Pearse Doherty: Information on Pearse Doherty  Zoom on Pearse Doherty  I asked the question in the light of the comments made about upward-only rent reviews which could reduce the cost of commercial property significantly. For losses in excess of this, would NAMA have to go back to the State to absorb them because the capital is gone?

Mr. Brendan McDonagh:  We do not believe so. Whether NAMA could continue as a going concern would depend on its cash position. In the NAMA operation the generation of cash is more important than profit and loss because it could sell a non-income producing asset for cash. We are conscious of our obligations under the Companies Acts, but we do not believe it will be necessary to consider this. We will have to deal with the issue of upward-only rent reviews when it arises, but we do not believe it will be necessary to go to the State.

The Deputy mentioned the introduction by NAMA of a mortgage product with an insurance-type clause. This is at an advanced stage. We went to the board yesterday with what we believe to be a highly developed product and are in latter stage discussions with three institutions: AIB, Bank of Ireland and permanent tsb. We have also asked the non-NAMA banks, through the IBF, if they wish to participate. They have not taken up the offer yet, but they are considering what we are doing. The mortgage does not really involve an insurance clause; instead, it will provide that NAMA will defer up to 20% of its consideration for five years and that at the end of the five years the mortgage provider will pay us over that 20% if the value is maintained. NAMA will not issue the mortgage - the bank will issue it, with its own underwriting criteria - but instead of the bank paying out 90% of the cash, it will pay out 70%, the buyer will provide 10% and we will reserve our right to take the other 20% depending on the valuation in five years time.

Deputy Doherty inquired as to whether the mechanism in question will stifle the market in the context of finding its floor. The reality is that when one considers the mortgage finance figures for Q1 and Q2 of 2011, it is apparent that only €1.2 billion in mortgages have been drawn down. Some €600 million was drawn down in Q1 and just about the same amount was drawn down in Q2. At the beginning of the year, Goodbody Stockbrokers predicted that mortgage drawdowns for 2011 would be something in the region of €4.5 billion. On the figures for the first half of the year, it is clear that this target will not be met. We believe that we have 10,000 residential units in our portfolio. Fewer than 2,000 of these would be regarded as houses, whether detached or semi-detached. We have approximately 8,000 apartments. What we are doing in the context of trying to move the houses along is very small-scale in nature. We are focusing our efforts on the houses because it is in respect of them that demand exists. In effect, demand does not exist in respect of the apartments and we will probably be obliged to consider other types of situations in respect of them. We are involved in discussions with a number of parties at present in respect of trying to develop a rental product. Essentially, what we would do would be rent out apartments and then sell the blocks where all units had been rented to specialist companies which are operating in other countries. We are of the view that this is the solution to be pursued.

From our point of view, finding the floor in respect of the property market is extremely important particularly in order that people will be aware of where the price stands. Ultimately, the market is the market and we are not in the business of trying to predict where it is going and nor are we trying to maintain it at any unrealistic level. We have experience of one development in north Dublin in respect of which we instructed the developer, on foot of an agreement we reached with him, to reduce the price of the houses, which were built three years ago, by €100,000 in each case. Over the course of two weekends some 20 of the houses in question were sold. This shows that the market is quite price sensitive.

The Deputy inquired as to why we bought Irish Government bonds. Like any business, NAMA has a treasury operation. We are obliged to manage our cash prudently and to obtain the best return on that cash pending whether we decide to provide it as additional development or working capital or whether we use it to pay back our debt. We took the opportunity to invest in short-dated Irish Government bonds. We disposed of those bonds at a profit. We bought them at a very good yield and the market contracted in the meantime. As a result, we made a profit on them. It is part of our normal mandate to invest our surplus fund to obtain the best return. The alternative is to leave the cash sitting in the Central Bank from which we would obtain in the region of 0.3% or 0.4% overnight in respect of it. That would not make sense in the context of our cost of funding being of the order of almost 2%. We are obliged to obtain a return on our money.

Deputy Doherty also inquired with regard to one of our board members, Mr. Stephen Seelig. Mr. Seelig is a former IMF official and was involved in running a major bad bank in the US before joining that organisation. He is an American who lives in Washington. Mr. Seelig’s expenses were not paid to him, rather they represent the costs we incurred in the context of booking flights in order that he might fly to Dublin from Washington. We have a competitive process with regard to obtaining the best prices for such flights. I hope this answers the Deputy’s question in respect of expenses. In the context of the number of meetings Mr. Seelig attended, I do not have that information to hand. The Deputy will be aware that many meetings took place. Mr. Seelig officially joined the board in May 2010 and he was probably physically present for approximately ten meetings and contributed to the remainder by telephone.

The Deputy asked about the Paddy McKillen case and the costs relating thereto. I remind members that the case in question involved five key issues. We won the case in the High Court but when it was appealed to the Supreme Court we did not. The first of these five key issues is the implied right to fair procedures. The Supreme Court clarified that there is such an implied right. The right in question is not expressly written into the Act but the Supreme Court clarified the position. The second key issue we raised was the timing of the decision, to which I will return. The third issue related to State aid and it was found that NAMA was not in breach of State aid. The fourth issue concerned the area of constitutionality and it was found the NAMA Act was constitutional. The fifth issue concerned whether there were relevant or appropriate considerations and the Supreme Court did not rule on that because it said it was a moot point. On the four points it ruled on, it ruled with NAMA and the Attorney General on some of them, as a number of issues involved constitutional points. NAMA’s side won on two of the four issues and Mr. McKillen’s side won on two of the issues.

The Deputy raised the issue of costs involved in that case. We are still waiting for the costs on McKillen’s side to be submitted to us and the matter will go to the Taxing Master in terms of seeking to reduce them. The costs on the NAMA side were not significant because we did a good deal of the work through the Attorney General’s office and the Chief State Solicitor’s office and, with the agreement of the Attorney General, we only used external counsel and legal firms where necessary.

Deputy Pearse Doherty asked why did we not change the valuation date from November 2009 to June 2010. The late Minister, Deputy Brian Lenihan, answered that question at that time and it was answered in good faith. Clearly, the Irish property market got worse in the second half of 2010. There was a huge change in the value of UK and foreign assets between November 2009 and the end of 2010. The Irish market has got worse and much of the Irish market in late 2010 would have been compounded by the fact that we were going into bailout territory.

Deputy Pearse Doherty: Information on Pearse Doherty  Zoom on Pearse Doherty  Was it the practice for the Minister for Finance to seek a response from NAMA or would it have been his officials who wrote up that response?

Mr. Brendan McDonagh:  Effectively, they would have sought views from us in NAMA but they would have prepared the answers themselves. The officials of the Department of Finance would have prepared the answers.

Deputy Pearse Doherty: Information on Pearse Doherty  Zoom on Pearse Doherty  Was it NAMA’s view at that time in July that it would cost it to change the valuation date to June 2010?

Mr. Brendan McDonagh:  Yes, I believe so.

The final question Deputy Doherty raised was whether the non-real estate assets will be listed. We do not have any assets of the type the Deputy mentioned in terms of our enforcement actions to date. We have assets in terms of assets returned and we did dealings with debtors whereby we got them to sell assets. The only assets we have to date have been a number of paintings from one developer. We have given one of those paintings to the National Gallery. We offered the other 13 or 14 paintings to the National Gallery and the OPW at an appraised value because it has to be applied against the debtor’s debt. The National Gallery agreed to buy one of those paintings and we had a competitive tender process to appoint a sales agent for those pieces of art, which will be coming up probably in November and December.

Deputy Pearse Doherty: Information on Pearse Doherty  Zoom on Pearse Doherty  There was one question Mr. McDonagh missed.

Chairman: Information on Alex White  Zoom on Alex White  The Deputy has had possession for close on an hour. I understand his frustration but I have to move on. I call Deputy Mathews to ask questions to be put to the witnesses. We were due to finish at 1 p.m. but I will extend that time a little.

Deputy Peter Mathews: Information on Peter Mathews  Zoom on Peter Mathews  I thank our three visitors and their colleagues for coming along today. They will appreciate that if I am being restricted to two or four minutes, it is a bit tough considering that I have put two and half years work into research and into finding out the facts and figures that underlie why NAMA was even set up. It was a policy response, as the chairman, Mr. Frank Daly, has pointed out, to the banking crisis and collapse. Many would argue and have argued and pointed out why it was a failed policy response. The delegates showed us in their presentation how the write downs on the loans being bought from the banks went from 40% to 50% to 60%. NAMA was set up under the architecture of the last Attorney General, Mr. Paul Gallagher, with a 30% write down of loans. A total of €77 billion of assets was to be acquired for €54 billion. Moreover, in the last hour before the Dáil passed the legislation, NAMA produced its business plan, which showed a profit of €5.4 billion on the basis of asset management over a ten-year period. It is loans collection and not asset management. Loans were created and are the assets on the banks’ balance sheets. Those loans were created to be repaid by the borrowers from the generated funds from their businesses, that is, cash flows, investments and take-outs for developments.

I know this because this is the area in which I worked for 20 years. It is the reason I was able to explain, in a once-off meeting with Mr. Brian Lenihan on 6 November before the NAMA legislation was passed, that the loan losses would be at least €50 billion. I told him that for the sake of the argument and for the purposes of the day’s presentation, I would show him the losses would be €40 billion at a minimum. He replied that this was a huge amount, which is true. However, had those losses been recognised at €40 billion at that stage, there would have been no NAMA. There would have been nationalisation of all the banks to get full, transparent and robust control over them and to get those divisions of the banks that still carry out the operational work for NAMA to do so directly on the basis of monthly and quarterly reporting and to clear the backlog. This must be said because for too long Ireland has been in a fog. We have been in this fog for three years. There is nothing personal in this and I have made this point previously. This simply is dealing with facts that could have been dealt with by a different policy response. For instance, I refer to the price at which the loans have been bought, namely, €30.6 billion. From the discussions that have taken place today, it appears as though every last penny of the original loans must be collected from the developers on foot of their personal guarantees or howsoever. One should think this through. What if €30.6 billion could be taken out by six investors at just over €5 billion each? Why should they not pay €33.5 billion, call it a day and then close everything down? However, from the sentiments and arguments put forward, it appears as though every last cent must be followed up.

In the 1980s, I was involved in debt collection in respect of precisely these types of loans, namely, property development and investment loans, for ICC Bank. It was a State-owned bank that experienced no interference from the State in my 20 years there and we managed to carry out recoveries on property loans, investment and development loans and loans to building contractors. We actually underwrote performance bonds for the main contractors in Ireland. Of NAMA’s top two dozen clients, I knew half of them 30 years ago. I know the quality and ability of these people and there must be a commercial realism. One should consider an entirely different industry, namely, beef processing and Mr. Larry Goodman’s involvement therein. He was the guy who best understood beef processing in Europe bar no one. While I do not suggest that everything was right, it was intelligent to recognise that he had the ability to perform the damage limitation on the losses that otherwise would have occurred. The same applies in this property market in Ireland, as well as abroad in England, America and parts of eastern Europe. Those who know the business must be harnessed in a commercial, fair and truthful way for damage limitation because it is our money and that of our families that has gone into the banks.

This is a wonderful forum and it should not be time-constrained when members are dealing with matters that are so important for the State. They are discussing cumulative loan losses of approximately €70 billion announced in the most recent prudential capital assessment review, PCAR, of 31 March. Some argue, and I hold, they will be more than that. That is just a professional opinion and I do not wish to undermine colleagues in my own party, the other coalition party in government or anyone else. However one must come forward with what one’s best professional judgment indicates must be discussed. Members have seen the purpose of this entire project was to enable the banks to be stabilised. The former Attorney General, Mr. Paul Gallagher, stated that this was the overarching objective at the Paddy McKillen case. I know this because I attended the hearings. Moreover, as Mr. Paul Gallagher was an architect of NAMA, there was professional skin in the game in that High Court hearing, which subsequently was heard by the Supreme Court. I understand the investment by people, professionally and otherwise, in the current policy position. However, we can question it. Even at this stage we can ask whether it would be more efficient and effective for the collection of loans to be carried out by the banks for their own account. The waters have been muddied because a quintet invested in Bank of Ireland and own 35% of it for a meagre sum of €1 billion approximately. However, Bank of Ireland is not out of the woods. The State is still the safety net for the liabilities of the bank, but our operational control and influence are restricted to a figure of 15%. Some would ask whether this is a bit mad because the banking sector still needs stabilisation and creditor capitalisation. A total of €150 billion is being provided by way of emergency liquidity assistance, of which approximately €70 billion or €80 billion derives from what was the funding of the redemption in full of the senior bondholders up to some time earlier this year or the end of last year. All of this debt is on the country.

A figure presented by Mr. Corrigan suggests the national debt will peak at approximately €200 billion. Even on the back of an envelope, how is this the case? If a hard core of €150 billion is outstanding by the banks to the ECB and the Central Bank and there is an historic national debt of €90 billion, with €50 billion coming down the tracks from the €85 billion, this adds up to €290 billion. Stripping out €50 billion would reduce the figure to €240 billion, which I believe is too much for the State to carry. That is why it is important to present the updated picture, get smart about this and insist our creditors in the European Union listen to the story and absorb the losses.

Europe is in a mess. Let us not mistake this. Bank of America and Deutsche Bank have huge exposure on credit default swaps to the banks. When the troika came at the end of November, the bill directly to the Central Bank was €135 million; this was the trigger point and why it got on the aeroplane to come to Dublin. It is probably why the Governor of the Central Bank, Mr. Honohan, announced the troika’s arrival and the deal. He is on the board of the Central Bank and may have heard very intense and concerned discussions taking place. He may have felt we had to bite the bullet.

Is this fair and right? The arithmetic shows the provenance of the indebtedness of the banks to the ECB. Would it be better if the losses had been admitted at the time?

Chairman: Information on Alex White  Zoom on Alex White  I will allow Deputy Matthews to continue. However, I put it to him that he is asking big questions which are on everybody’s minds and I want to know whether he is putting them to the delegates or maintaining them in a rhetorical sense? Deputies Boyd Barrett, Daly and Higgins and Senator Barrett also wish to contribute.

Deputy Peter Mathews: Information on Peter Mathews  Zoom on Peter Mathews  I thank the Chairman for bringing me to a pause.

Chairman: Information on Alex White  Zoom on Alex White  To a question.

Deputy Peter Mathews: Information on Peter Mathews  Zoom on Peter Mathews  It is not a pause for eternity. This is the type of strategic policy thinking in which I invite the delegates to participate. They are advisers. The NTMA advises the Government on Exchequer funding, debt management and other matters. If we are walking into big debt, let us receive advice and think about it. I congratulate the NTMA on the returns achieved on the National Pension Reserve Fund. However, I ask the delegates not to be afraid to bite the bullet and question the policy. It is our inheritance for the next 40 years. If we have the intellectual capacity to analyse it correctly, suggest solutions and be assertive, it behoves us to do so. On 21 July Angela Merkel and Nicholas Sarkozy dished out what suited them and what kept the bandages on the wounds for the time being, but it is not the answer. There are losses of €1 trillion to be recognised and spread among those who can bear the funding for many years and the stronger economies. That is where we are at. It is the reason Helmut Kohl at the age of 82 has stepped back into the ring. When he was five or six years old, he probably crawled out from under the bricks, rubble and bloodied and mutilated bodies in his home town in Germany and does not want to see that happen again. Those events resulted from earlier events. Such events usually start from economics and finance, with people serving their own self-interests rather than those of the Community, which is what it was at the beginning. Let it go back to being the European Economic Community. That is a flavour of how my unusual mind works.

Chairman: Information on Alex White  Zoom on Alex White  It is helpful. With the Deputy’s permission, I will invite Mr. Corrigan and Mr. Daly to make such comments as they wish on his contribution at the end of the meeting.

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett  Zoom on Richard Boyd Barrett  As a matter of procedure, it is not fair that the members who ask questions at the beginning of a meeting are given a huge amount of time and that others’ questions are squeezed into a few minutes at the end.

Chairman: Information on Alex White  Zoom on Alex White  When putting together our work programme, I will be open to suggestions on how meetings should be managed. For every suggestion made by the Deputy there is an opposite view. However, that is not a matter to be considered at this meeting. We will deal with it in private. However, I understand the Deputy’s point.

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett  Zoom on Richard Boyd Barrett  I thank the delegation for attending. I wonder if at this stage their heads are as fried as mine, given the detail and questions we are trying to get through.

My first question to Mr. Corrigan is on an issue already referred to by Deputy Mathews. This is an appropriate question to ask of Mr. Corrigan as someone who is managing the debt. The question of what exactly is the national debt and when will it peak has been asked. I would like Mr. Corrigan to give us an estimate of the proportion of the national debt, current and projected, which has resulted from the banking crisis and as a result of the hole in the banks? I would also like to know about the accompanying costs of recapitalisation of the banks, the paying-off of the bonds of insolvent banks, and the cost of setting up NAMA. Also, what is the amount to be paid in interest on loans? Perhaps Mr. Corrigan might give us a ballpark figure which the ordinary person on the street and people like me who are not financial experts could understand. I am not in any way embarrassed in admitting I am not a financial expert, given the mess some financial experts have made. It is long past time we received simple answers which ordinary people could understand and on which they could make informed decisions. In giving us the figures Mr. Corrigan might separate the interest payable on loans in order that we would know the total cost in doing what the European Union and the IMF have asked us to do.

If I understood him correctly, Mr. Corrigan stated that he advised the Minister on the issue of debt management, the State’s finances and so on. However, he said his opinion was just part of the soup, to use his own expression, of the various influences on the Minister. I put it to him that his advice is probably one of the most significant influences on the Minister - it certainly appears to me to be the case - in so far as the policy appears to be driven primarily by what he has expressed as a central concern - getting back into the private bond markets. Some of us would question the wisdom of that priority over other possible priorities, but Mr. Corrigan has said it must be our priority and that - he can correct me if I am wrong - in order to do this it is his opinion and advice that we must meet the EU-IMF fiscal targets which, translated into layman’s language, mean brutal austerity being imposed on vulnerable and working people in this country, most of whom bear no responsibility for the current mess. He believes we must meet and, possibly, exceed these targets to convince the bond markets to start lending money to us again. Will he clarify that this is his opinion and role?

Mr. Corrigan gives priority to developing our relations with investors in order that if we have good relations with them and do what they think is good for them, they will start to lend us money again. However, is it not also the case that there is a certain schizophrenia in the markets? Of course, the investors with whom we might discuss lending us money want to be sure they would get their money back and they believe the way they would get it back is through us imposing austerity and so forth. However, the markets as a whole look at this and say the effect of imposing austerity is crippling the economy, massively contracting demand and seriously undermining the possibility of achieving the economic growth necessary if we are to pay off debts in the future. Is that not the glaring contradiction in all of this?

In that regard, can Mr. Corrigan confirm that if all of this does not result in economic growth, the entire project will be derailed? I believe he used the expression “derailed” and spoke about indigenous and exogenous factors, to use the jargon, that could derail everything. Certainly, one of these is depression in the economy. If there is stagnation and further contraction in demand and so forth and if there is no growth, we will simply be unable to pay off these debts. It will become unsustainable. Can Mr. Corrigan offer his opinion on the exogenous factors? He said much of this could be derailed if the rate of growth in Europe and the global economy begins to slow down, as appears to be happening. Is it not obvious that it will slow down because it is not just this country that is imposing austerity which is contracting demand in the economy; other countries are doing the same? It cannot have any other effect on them than the effect it is having on us.

The single bright spark to which we point is the export sector which we believe will get us out of this situation. In fact, it is seriously questionable whether even the best performing export sector - it is still a relatively small proportion of the economy - in the best case scenario could pull us out of this situation when the domestic economy is in such a mess. Given even that little faint hope that is being expressed, and which is stalling, is it not obvious that we must give the obvious advice, as experts or as lay people looking at the facts, that if they are all imposing this austerity it will have the same effect on their economies as it is having on our economy and that the market for exports is going to contract if this continues? That is obvious. Is not that the type of advice we should give? That raises questions about the whole strategy. Should not our focus be to try to stimulate demand and growth to ensure a real possibility of us being able to work our way out of this crisis?

In regard to the issue of pay, bonuses and so on, this is not focused on the individuals. People find it hard to stomach, as I do, that anybody in the current climate, where the NTMA has said it is advising the Government to meet or possibly exceed the IMF targets, which means imposing austerity - cuts in income, social welfare and so on - on people who bear no responsibility for the current crisis; where the NTMA has rightly said it is not responsible for the current crisis but the banking system, the developers, and definitely the politicians are responsible-----

Chairman: Information on Alex White  Zoom on Alex White  Particular politicians.

Deputy Peter Mathews: Information on Peter Mathews  Zoom on Peter Mathews  Not the chairman.

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett  Zoom on Richard Boyd Barrett  The political system.

Chairman: Information on Alex White  Zoom on Alex White  The Deputy might say it.

Deputy Peter Mathews: Information on Peter Mathews  Zoom on Peter Mathews  Not future politicians.

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett  Zoom on Richard Boyd Barrett  That is a fair point. However, the policy the Government was advised to implement is to impose austerity on people who were as equally innocent as the Deputy but had a much lower level of income. If the NTMA can advise that level of austerity people will lose their homes and those on the lowest income levels will be cut to meet those targets. In that context it is utterly unacceptable that hundreds of people are earning seven and eight times the average industrial wage. In the case of some of the best paid individuals in NTMA and NAMA, who are earning ten, 12 and 14 times the average industrial wage, how can that be justified? How can that set an example for people in the current climate?

Chairman: Information on Alex White  Zoom on Alex White  I ask-----

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett  Zoom on Richard Boyd Barrett  I wish to ask a few questions about NAMA. Mr. Frank Daly said the expectations of NAMA were unrealistic. I was surprised at the expectations he articulated of people about NAMA but, perhaps, they were in the commentariat, the banking system and among politicians. I put to him what I think was the expectation of most people and ask him to tell us why these expectations are not being borne out. Most people believed that NAMA would be a bailout for the banks and the speculators of the €70 billion speculative toxic loans on their books. NAMA took the most speculative, the biggest and in many cases the most toxic loans off the banks’ books in order to put the banks back on their feet - that was the theory - so that they would begin to lend and invest back into the economy and recover as much as possible of the speculative loans. In the first case, although it is not the fault of NAMA - that is a result of the policy - clearly it has failed.

Chairman: Information on Alex White  Zoom on Alex White  I ask the Deputy to wind up.

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett  Zoom on Richard Boyd Barrett  I want to make that point because it is not €30 billion that it cost us: the NAMA exercise puts the public at risk for €70 billion. Given that in its previous business plans NAMA put forward projections about how much it might get back and how much profit could be made, how much of that €70 billion does it expect to get back? He had previous suggestions about certain levels of profitability and so on, but that was with regard to the €30 billion. He said it was not NAMA’s intention to sell things at fire sale prices and so on. He could have that intention, but it is difficult to understand how selling in the current climate could be construed as not selling at fire sale prices, given the massive collapse of the market. He mentioned that NAMA had disposed of €4.6 billion in property assets. How much were the loans for those? If it has recovered €4.6 billion, what proportion of the loans on those assets is that?

Chairman: Information on Alex White  Zoom on Alex White  There are three other people waiting to speak and we are 15 minutes over time.

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett  Zoom on Richard Boyd Barrett  I understand.

Chairman: Information on Alex White  Zoom on Alex White  We absolutely have to finish by 1.30 p.m., so the Deputy will be excluding his colleagues from making a contribution if he does not finish.

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett  Zoom on Richard Boyd Barrett  Are we selling the properties that are actually more valuable, such as those in the south east of England, when one might argue those are the ones we should hang on to? We should retain the properties that are more valuable and think of imaginative ways to deal with the ones that are more difficult to sell or get value from.

On the issue of residential property in the hands of NAMA, he talked about engaging with the various Departments about social housing, primary care units and so on. What I want to know is the terms of that engagement and the terms of possible arrangements. He mentioned a figure of 10,000 residential properties, and I was surprised at how low that figure was. Does he expect more to be in the hands of NAMA, or is that it? I do not understand why we are not putting the 50,000 families who are on the social housing list into those properties and getting rental revenue back for the State, which would solve a problem of social housing and save a significant amount of money that is currently going into the pockets of private landlords in the form of rent allowance.


Chairman: Information on Alex White  Zoom on Alex White  The Deputy has already said “finally.”

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett  Zoom on Richard Boyd Barrett  Everybody else got a lot longer.

Chairman: Information on Alex White  Zoom on Alex White  I know, but there are more people waiting behind the Deputy. They are sitting beside him.

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett  Zoom on Richard Boyd Barrett  This is the last sentence.

As I understand it, some of the empty properties that have been taken on by local authorities are being leased from the developers - probably including some bankrupt developers - so that they will own the properties at the end.

Chairman: Information on Alex White  Zoom on Alex White  Deputy, please.

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett  Zoom on Richard Boyd Barrett  Should we not own the properties at the end of this?

Senator Sean D. Barrett: Information on Sean D Barrett  Zoom on Sean D Barrett  I welcome the guests and thank Deputy Boyd Barrett.

NAMA, as I understand it, was formed with two functions, one of which was that of the bad bank that was required to rescue the banks. That did not work, and Mr. Seelig, whom Deputy Doherty mentioned, pointed that out to the former Minister, Mr. Lenihan, at an early stage. What was, I believe, the Labour Party policy of nationalising the banks had to be implemented instead. Then NAMA became a dynamic force in property markets. What is it doing? It is stopping property prices from falling, which is the way we solve a recession. On both fronts, I join my 49 colleagues who wrote to the papers when NAMA was established saying it seemed a pretty silly idea. Professor Stiglitz stated in the case mentioned by Deputy Mathews that any gains to taxpayers and shareholders that would result if NAMA paid banks less than the bank assets were worth would be offset by losses to the Government, which would simply have gone to pay more in bank recapitalisation. He said we should be sceptical of the more sweeping claims about the ability of NAMA to generate profits, and that they were not only unproven but, given its structure, unlikely. This year, as we saw, the profit is minus €1.1 billion, which is about €600 for every taxpayer watching this programme. The concept was really shaky at the beginning, and it is not working. It certainly did not work for bank recapitalisation, and I do not know the purpose of its involvement in the property market.

The three speakers had a common theme about those who caused the problems. I support these sentiments. Mr. Frank Daly stated - I support the sentiments in this regard - that “the Legislature took the view that those responsible for the profligate property lending of the recent past were not best placed to deal with the aftermath”. That is why many people have a difficulty with NAMA. The same banks are still in operation, the same large law firms and auctioneers are still involved and the same property developers remain in place and are each being paid €200,000 or more per year.

Last week the committee discussed with the Governor of the Central Bank, Professor Honohan, the issue of bonuses. In the past, rather elderly gentlemen in the Department of Finance used to be responsible for the national debt and rather elderly and quaint individuals taught economics in universities. The rate of unemployment in the country used to stand at 4% and the debt ratio stood above 20%. At that time, Ireland was solvent. Now, however, we have a debt ratio of 118% and an unemployment rate of 14%. People in the financial sector who state that they are real geniuses and ask for bonuses should have their requests refused. The Irish financial sector has been a disaster and neither it nor the property developers should have been rescued. As with others present, I have been involved in canvassing recently and I am aware that people are galled by the fact that no developers or bankers have been sent to prison. It emerged during the week that one of those who was present on the night of the big rescue has been given over €700,000 in “going away” money.

As Deputy Boyd Barrett indicated, the most recent Central Bank report estimates the cost relating to this matter as standing at €280 billion. What occurred in this country in recent years is nothing short of a disaster. It would be no harm if the banks here were run by individuals from Singapore, Canada, the Gulf and elsewhere and if property prices were allowed to fall. The country would be far better off if this were to happen and we would not have the problems with which we are being obliged to contend.

I appreciate what our guests are trying to do but in my opinion the entire exercise has been a massive waste of resources and has actually done harm. I do not believe that we bade farewell to the situation relating to the banks on 31 December last. The NTMA’s annual report states that the return on the investment in Bank of Ireland and Allied Irish Banks in 2010 was minus 25.7% and that “The negative performance of the directed investments was due to movements in ordinary share prices of both banks and revaluation of the Fund’s preference shares at year end.” Rates of return of minus 25.7% indicate that this is a financial disaster. I hope NAMA will be wound up as quickly as possible and that property prices will be allowed to fall in order that the economy can recover.

Deputy Jim Daly: Information on Jim Daly  Zoom on Jim Daly  I wish to pose three brief questions to Mr. Corrigan. It has been stated that early in 2014 Ireland is due to pay €12 billion on a particular bond. It is not good, in the context of sentiment, to allow this matter to just hang there. How much of a challenge does the NTMA face in the context of repaying this money in 2014? Will Mr. Corrigan provide clarification in respect of this matter? Will he also explain the position with regard to borrowing short-term moneys? He stated that such moneys are borrowed for a period of months. What is the benefit of borrowing hundreds of millions which have to be paid back three months hence? What are the historical headline figures in respect of the National Pensions Reserve Fund? I appreciate that Mr. Corrigan might not have these in his possession today but perhaps he might forward them to the committee at a later date in order that we might obtain a fuller picture of the position.

I also have three quick questions for the representatives from NAMA. On many occasions during my constituency work, people have raised with me the effect the agency is having on competition, particularly in the hotel and other sectors. I accept that NAMA keeps this matter under constant review but what is the up-to-date position in respect of it and what steps are being taken in order that there will be no interference with other market forces? I appreciate from where this matter originates.

Since NAMA indicated that various lands are to be put up for sale, many community groups have inquired as to whether there is a possibility that they might apply for sites. To what extent can NAMA exercise social policy in respect of this matter? I appreciate that its raison d’être is to make money for the taxpayer and, in such circumstances, I understand the quandary it faces in this regard.

Previous speakers referred to the bonus culture. As one of our guests indicated, the term “bonus” has become a dirty word. I commend Mr. McDonagh for gifting a €50,000 bonus payment back to the State. Unfortunately, that will not make the headlines tomorrow and he will not receive any gratitude from the commentariat in respect of what he has done. The question that arises, however, relates to the culture relating to the award of such bonuses. Notwithstanding Mr. McDonagh’s generosity of gifting it back, that NAMA has made a loss of €1.1 billion - I appreciate there is a working profit afterwards - is the headline people will read and then they hear of the culture of bonuses having been awarded. That is the issue that needs to be addressed.

Chairman: Information on Alex White  Zoom on Alex White  I thank Deputy Daly for his co-operation. I appreciate that. I call Deputy Spring.

Deputy Arthur Spring: Information on Arthur Spring  Zoom on Arthur Spring  I will be as brief as possible.

I do not doubt that the NTMA is doing everything it can to untangle this mess. In regard to the declaration yesterday that all debts of senior bondholders of Anglo Irish Bank would be repaid, according to Jefferies yesterday, they are being traded at 75.5 % of face value. Are we in a position to buy them and are we taking a prerogative on that as to whether they are going to be repaid? There is a saving of 24.5% being made on them if we purchase them below the price at which they were issued.

I would like to hear Mr. Corrigan’s view on the inter-bank market in Europe, which seems to be ceasing. The French banks seem to be getting into further trouble and there is also a great deal of talk about some of the German banks being leveraged at higher ratios than Lehman’s at the time of the collapse. The pan-European dimension to this is becoming more significant as time passes. I would like to hear Mr. Corrigan’s thoughts on that.

In regard to quantitative easing, I am a big fan of the idea of relative debt being less of a proportion of what one is earning and of the cost of living. Quantitative easing is something that has been done in the United States not to any great effect for the little guy. If that is going to be done, how would Mr. Corrigan see it affecting the NTMA? Does he envisage a blend of solutions whereby there is some level of debt forgiveness and a write down of bonds? If quantitative easing is used, how would it affect Ireland and how would he deal with the inflationary problem in Germany as opposed to the problems there are throughout the rest of Europe?

I do not mean to be harsh on anybody working in NAMA and I am simply giving anecdotal information. I worked in the banking industry for a number of years and I have some acquaintances who provide me with information. They are frustrated to a large extent at where they are at in their lives now. These are people in their 20s and early 30s who have gone into a career that has stagnated. They are working in a very depressed environment. They are, for the most part, honest people who do an honest day’s work for an honest day’s pay. The information I have is that many of the smaller developers whose loans have been acquired by NAMA have been left out in the cold for a long period because the large developers were being dealt with initially. This has a social consequence in that small businesses have ended up closing, receivers have been appointed and in some cases housing estates have been left unmanaged by both the developer and NAMA. Security guards have not been put in place.

Chairman: Information on Alex White  Zoom on Alex White  Deputy Spring-----

Deputy Arthur Spring: Information on Arthur Spring  Zoom on Arthur Spring  I left Kerry at 5 o’clock this morning, so I ask the Chairman to give me a break here.

Chairman: Information on Alex White  Zoom on Alex White  We will not be able to get the answers to the questions because we have to finish at 1.30 p.m.

Deputy Arthur Spring: Information on Arthur Spring  Zoom on Arthur Spring  I get that but I am not coming up here to do nothing - I could watch it on the Internet.

Chairman: Information on Alex White  Zoom on Alex White  I ask the Deputy to co-operate as others have.

Deputy Arthur Spring: Information on Arthur Spring  Zoom on Arthur Spring  Yes, I will. I will be as quick as I can. We got the same news last week.

On the issue of there being full pursuit of debts, a huge write down has already taken place, but in terms of the €40 billion or so that is being looked at, the taxpayer and the people want to hear it said that the delegates will pursue people every bit of the way that they can, not to the ends of the earth where they cannot have a standard of living, but the amount of €200,000 a year is excessive. There is nobody in this room, on this side of the room at any rate, who is living on anything like that income. Is there a view that the bringing in of new bankruptcy laws are awaited before NAMA will put the boot in on people who are ultimately insolvent?

Chairman: Information on Alex White  Zoom on Alex White  I apologise to Deputy Spring and others who would have liked to have had more time. I genuinely apologise but we have been here for three and a half hours. Scores of questions have been put and answered. I will not be able to give the speakers sufficient time to answer even the remaining questions that have been asked. I will ask Mr. Corrigan and one of the gentlemen from NAMA to take three minutes each to wrap up. In respect of questions that are not answered in that period, I ask our colleagues to notify us if they want us to get back to the organisation concerned or, if the delegates have banked those questions, they could let us have that information. I refer, for example, to the issue of the size of the debt and how much is to be attributed to the bank loss, which Mr. Corrigan previously undertook to provide to the joint committee. I must limit the responses to three minutes each and invite Mr. Corrigan to respond first.

Mr. John Corrigan:  I will go through some of the questions and to the extent I do not answer them, as the Chairman suggested I am happy to revert to the joint committee in writing. On the cost of the bank recapitalisation, the cost to date to the State has been of the order of €63 billion part of which came from the pension fund and part of which came directly from the Exchequer. I will provide more details in my written reply.

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett  Zoom on Richard Boyd Barrett  Very briefly-----

Chairman: Information on Alex White  Zoom on Alex White  We do not have time.

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett  Zoom on Richard Boyd Barrett  But so the question is clear, after which Mr. Corrigan may come back-----

Chairman: Information on Alex White  Zoom on Alex White  The question is clear and is on the record. Mr. Corrigan should continue.

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett  Zoom on Richard Boyd Barrett  I also asked about the cost of NAMA and all the other attendant costs.

Chairman: Information on Alex White  Zoom on Alex White  Deputy, the question is on the record. Mr. Corrigan should proceed.

Mr. John Corrigan:  Deputy Boyd Barrett stated the policy at present appears to be driven by the motive of getting back into the bond markets. As matters stand at present, we are borrowing €18 billion a year to pay for the day-to-day costs of the State. This clearly is a big problem in terms of us not putting our house in order as even in the United States, a debt ceiling was necessary. I make that shorthand reply to the Deputy. While global growth certainly is a problem, one way to address that is the obligation to become more competitive in keeping our share of export markets. On the issue of pay, I note and understand the concerns that have been expressed at this meeting. We have tried to approach this matter in a responsible way. The debate is ongoing and we must talk further to the Minister for Finance but I understand the sentiments expressed by the Deputy. I certainly do not seek to contradict them except to state, as a matter of record, there are not hundreds of people working in the NTMA who earn multiples of the average industrial wage.

Deputy Jim Daly asked about the challenge of raising funds. One of our bonds will mature early in 2014 and clearly, we must have funds available to meet that. This will be very challenging and again I am happy to elaborate on this point in the written reply. The short-term programme is quite small. It is approximately €500 million or €600 million and involves rolling over paper which has maturity of between one and three months. There is quite a considerable number of investors in this regard and the sort of rates at which we are borrowing under that programme are between 2.5% and 3%. We will include the historical figures for the National Pensions Reserve Fund, NPRF, in the written reply.

Deputy Spring raised the question of purchase by the NTMA of the bonds outstanding in Anglo. Without wishing to enter a technical discussion, were we to put a bid under those bonds, one might see them heading for a much higher price. This is a tricky subject as the price quoted on the screen is not necessarily the price at which one would get them. I share the Deputy’s concerns about the interbank market in Europe as major problems exist within the European banking sector. Notwithstanding Deputy Mathews’s reservations about the recapitalisation of the Irish banking system, it is our belief that one strong selling point for Ireland is that we have rooted out the rot in the Irish banking system, whereas in other jurisdictions there are big problems.

Finally, quantitative easing really is a matter for the European Central Bank. Ideologically, the European Central Bank to date has been opposed to it. Quantitative easing for me equals printing money and to the extent that the European Central Bank has provided credit, it has sterilised it, whereas the Federal Reserve in the United States has taken a different approach. Again, I will include a brief commentary on that issue. I note the Chairman is looking at me crossly.

Chairman: Information on Alex White  Zoom on Alex White  Thank you, Mr. Corrigan.

Mr. Frank Daly:  I will address one or two themes that ran through some of the questions. While Deputy Mathews spoke extensively, much of his contribution was in the policy area. He made the point there could have been a different policy response had certain factors been taken into account or had people different views and while that is fair enough, obviously I do not intend to go there. On the question of whether it would be more effective for banks to take on this role to unwind NAMA, I note this also is a policy decision. I would point out the significant logistical, legal and other difficulties there would be with this. A stronger point is what it would do to the emerging confidence in the remaining pillar banks. Bear in mind the OECD, the ESRI and the troika are quite positive and satisfied with how NAMA operates.

I agree with Deputy Mathews on the sentiment that every last cent of the €72 billion must be recovered. I spoke earlier about it being a grand intention, and certainly it is our intention to recover as much as we can of it. However, beyond the €30.5 billion we paid for the loans, which is the actual value of the assets, every €100 million will be a struggle. We will go as far as we possibly can but there will come a stage where it will not be economic to pursue it as it will cost NAMA and the State money.

Deputy Peter Mathews: Information on Peter Mathews  Zoom on Peter Mathews  The same applies to household debt.

Mr. Frank Daly:  Be assured that we will pursue it as much as we can. Deputy Boyd Barrett asked how much of the €70 billion we expect to get back. I cannot give him an answer because it is related to what I have said on how far we can pursue it and at what stage we say it is unrealistic to go any further.

Our engagement with Departments regarding houses is very positive. The Department has a representative in NAMA identifying properties in which it might be interested and we are very positively disposed to doing business.

All I can say to Senator Barrett is that we continuously examine our business plan and our projection of a profit. Even though there are real problems in the Irish market we still believe there is growth in other markets and we are confident of coming out of this breaking even at a minimum and more than likely with a profit.

Deputy Daly asked about engagement with community groups with regard to land. This has happened and will happen. I will not state that we will give away land but if a community group has an interest in a particular piece of land or property or wishes to extend a GAA pitch it should speak with us.

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett  Zoom on Richard Boyd Barrett  Will we telephone Mr. Daly about this?

Chairman: Information on Alex White  Zoom on Alex White  I thank all of the witnesses for their contributions and their careful attention to the questions. It has been a useful session notwithstanding the inevitable frustration at the end of a meeting when people have not had an opportunity to question the speakers earlier.

The joint committee adjourned at 1.40 p.m. until 4 p.m. on Tuesday, 13 September 2011.

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