NAMA will report a net profit of more than €1bn for 2015, on the back of non-performing debts it acquired on behalf of Irish taxpayers. By the end of 2011, NAMA had bought loan portfolios with a nominal value of €74bn for a cost of €31.8bn – a discount of 57% – and it is now selling these onto investors, widely described as ‘vulture funds’ because of their desire to generate substantial returns. But the involvement of NAMA is just one part of the broader story of the winding-down and liquidation of loans issued by banks in Ireland, based on unsustainable property valuations.
Ulster Bank, like NAMA, has already sold portfolios of its non-performing commercial loans. It is currently looking to sell another portfolio. Where, in the earlier tranches, borrowers comprised large property development businesses, this time the borrowers include many SMEs and medium sized farm businesses. According to borrowers, they were given just 30 days, expiring at the end of March, to confirm they could repay or refinance their loans, or else accept that the debt would be sold on to a third party.
The Irish Farmers Association described the situation as “totally unacceptable”. Its national chairman Jer Bergin, commented: “IFA met with Ulster Bank’s senior management to demand clarity for affected farmer customers and to voice farmer concerns. Ulster Bank outlined that 75% of the potential loan book sale would comprise loans seriously impaired and in debt recovery proceedings. The remaining 25% of loans are in a debt management unit which contains a wide range of circumstances.
“A single phone call with no written communication and very little background information has created real unease among Ulster Bank customers. IFA rejects the bank’s strategy of packaging up farm loans with good farm asset security to make a more saleable loan portfolio for vulture funds.”
A spokesman for Ulster Bank spokesman declined to comment in detail on the latest complaints, instead relying on an earlier statement from the bank. This said: “Ulster Bank is in contact with a number of business customers, who are outside current arrangements or in arrears and under special management in our problem debt management unit, to discuss the potential inclusion of their debt in a future Ulster Bank loan disposal process together with their options for repaying or refinancing their debt in advance of any such process. They are not mainstream customers, they are in our problem debt management unit and this action is part of the Bank’s strategy to manage non-performing loans.”
Ireland – in the Republic and the North – is on the cusp of a significant shift. Until now, the focus of the non-performing loan crisis has been on big property development companies and their owners. Now, though, not only are farmers and SMEs with debts to Ulster Bank facing pressure, but so too are many residents with mortgage or rental arrears. According to the Sunday Business Post, at least 60 tenants in Dublin have received noticed to quit from a Goldman Sachs fund, following its acquisition of loans from Ulster Bank awarded to the Vieira property company.
A similar situation could apply to mortgage borrowers: back in 2014 the then finance minister Michael Noonan revealed that between 5,000 and 10,000 mortgages had been acquired by funds from original lenders. Those funds are not subject to the same regulatory controls regarding the code of contact for the handling of arrears as the lenders were.
While it is unclear who will buy this latest Ulster Bank loan portfolio to be sold-off, it is likely that Cerberus will be interested in bidding. It has previously acquired Ulster Bank loans, as well as the Project Eagle portfolio of NAMA debts connected to Northern Ireland.
Mick Wallace TD has been prominent both as a critic of the Project Eagle sale arrangements and as an Ulster Bank debtor, whose loans passed to Cerberus as part of Project Aran. He became the first person to lose a business through a court action for debt non-payment initiated by Cerberus. Promontoria Aran, a Cerberus subsidiary, appointed Mícheál Leydon of Outlook Accountants as liquidator to M&J Wallace, after successfully petitioning the High Court to have the company wound-up. Wallace had entered into a €2m personal guarantee with Ulster Bank, supporting a loan for his Italian Quarter development on Dublin’s Ormond Quay.
Other debtors have reported that once Irish banks have sold on debts, acquiring funds have typically been less patient and more aggressive in debt recovery. Bell & Company, a Belfast accountancy firm specialising in insolvency advice, represents several clients with debt included in the NAMA Project Eagle portfolio sold to Cerberus. The firm provided written and verbal evidence to the Northern Ireland Assembly’s finance committee, which has been investigating NAMA’s sale. It accused Cerberus, and its debt collection advisors Capita Asset Services, of “a very apparent unwillingness to negotiate, move forward/to meet to discuss things amicably and commercially”.
Bell & Company’s written submission claimed: “We are often presented with over inflated valuations and an unrealistic concept of what can be achieved by individuals in terms of the provision of funds for settlement… There have been many instances in which we have been told that the valuations, supposedly obtained by Cerberus, show that the value of the security of will cover the level of indebtedness in full. This directly contradicts what our clients have been told by the experts they have instructed, i.e. RICS valuers, whose conclusion very often is that the security assigned equates to only a small percentage of what is owed, in many instances less than 50%. These however are being entirely disregarded by Cerberus and their instructed advisors.”
The firm was equally unhappy with how Cerberus and Capita approached debt collection. It claimed that while Cerberus initially told its clients there would be room for debt forgiveness, requested plans for debt repayment were always rejected with the same formulation of words, saying the proposals did not “sufficiently address the outstanding debt in its entirety”. The firm claims that clients are then given an “unreasonable deadline” to put forward alternative repayment proposals, which ignore the reality that clients are unable to repay the debt in full. The firm provided eight examples to the committee of clients’ difficult experience, with some suffering what the firm described as “unbelievable stress” as a result.
Gareth Graham also told the Northern Ireland Assembly’s finance committee of his experience of dealing with Cerberus, which bought his debt from NAMA. Graham was a director and shareholder of several property and other businesses in the North, including Lehill Properties Ltd and its subsidiaries AD Enterprises Ltd, Fernhill Properties Ltd and STH 500 Ltd., whose loans were taken over by Cerberus.
“We have always been regarded as good borrowers, and, before the crash, during the crash and, indeed, to this very day, none of our companies have ever missed a single interest payment, whether that be to Bank of Ireland, NAMA or Cerberus,” Graham told the committee. He complained that “we have been aggressively treated by Cerberus”. He explained: “On 8 October 2014, we submitted our proposals, which, in general terms, were to sell off the properties and pay Cerberus the sales proceeds and to do this either very quickly or over a longer period. The longer sales process would have realised more money as there would have been no fire sale disposals. We based our proposals on professional valuations. During a follow-up meeting on 21 October 2014 with Cerberus and Capita, they stated that our proposals were not acceptable.”
In March 2015, EY were appointed administrators to Lehill Properties and STH 500, which Graham challenged in a legal action. That action was settled earlier this year, with the result that Graham was allowed to retain control of the companies, he paid the legal costs of Cerberus and took out advertising in several newspapers in which he made clear that “I am content that Cerberus is not, and was not, involved in any illegal conduct”.
It should be stressed that not all affected debtors are critical of the behaviour of Cerberus. In his evidence to the Northern Ireland Assembly committee, Paddy Kearney said that he regarded Cerberus as having adopted a more reasonable approach than had NAMA, before it sold his property company’s loan to Cerberus. “It [NAMA] did its best to intimidate and frighten me into destroying my business, without any regard for the 100-plus jobs or families who depended on that business for their livelihood,” he alleged. He added: “NAMA declined two fully-funded offers from me that were well in excess of the actual value of the assets at the time and well in excess of the figure that it eventually accepted from Cerberus. The arrival of Cerberus, as far as I am concerned, was a big positive for Northern Ireland. Cerberus offered a commercial solution, a mechanism to save my company and hundreds of jobs, and an opportunity for me to rescue and rebuild the business that I had spent a lifetime constructing. Cerberus was commercial, but NAMA was not.”
It would be wrong to see the impact of the so-called vulture funds as necessarily negative: there are signs of some positive outcomes. A strategically important 11 acre central Belfast site that has lain derelict for several years now looks likely to be developed. Cerberus had acquired the Royal Exchange site between Royal Avenue and the Cathedral Quarter which Leaside Investments – a partnership between two development companies, William Ewart and Snoddons – had intended to use for a massive retail and office scheme, that had been hoped would generate 3,000 jobs. Ulster Bank’s loan on the development had been bought by Cerberus, which has now sold the site to Castlebrooke Investments. It is expected that this long abandoned site will now be developed, providing a boost to the city’s economy.
[responses requested from NAMA, Goldman Sachs, Cerberus and Capita]
In Greek mythology, Cerberus was a three headed dog that guarded the entrance to the Underworld, allowing the dead to enter – but refusing exit to anyone. Why the Cerberus investment fund – established in 1992 – chose the allegorical reference is unclear. But it has certainly adopted an aggressive approach to maximising returns, not least under its current leadership which includes former United States Secretary of the Treasury John W. Snow, who is the parent firm’s chairman, and former Vice President of the United States Dan Quayle, who is chairman of Cerberus Global Investments, the fund investing in Irish distressed property debt. The firm has about $30bn under management, spread across four strategies: operational private equity; real estate, commercial lending; and distressed assets. As well as buying debt portfolios from NAMA and Ulster Bank, it has also acquired a portfolio of Northern Rock debt from the UK government and commercial property debt from the UK’s Nationwide Building Society. While much of the publicity around the sale of distressed property debt has centred on Cerberus, it is just one of several funds engaged in these transactions.