Buyer beware – political risk is not just an EM concern

Cerberus has found itself bogged down in claims of a corrupt payment to ‘fixers’ working on its $1.2bn loan portfolio purchase in Northern Ireland. The political storm should be a warning to investors who see Europe as a risk-light jurisdiction.

On Wednesday, Northern Irish blogger Jamie Bryson named five individuals he claimed were to improperly benefit from fees relating to Cerberus’s purchase of the £4.5 billion par value Project Eagle from Ireland’s National Asset Management Agency (NAMA). 

Among those was Peter Robinson, the Northern Irish First Minister, who has denied any wrongdoing, as has Cerberus and the rest of the varied cast in this saga. 

Bryson named the alleged beneficiaries at a hearing of the finance and personnel committee of the Northern Irish Assembly, which is conducting an investigation into the sale. But it’s not the parliamentary investigation that NPL investors – or even Cerberus – should be worried about. 

The NI Assembly is close to collapse and not for the first time. The ingrained tribalism of its politics are playing out again in the forum provided by the investigation. 

Much more important to investors are the investigations the furore has prompted from the UK’s National Crime Agency, and, reportedly, the US Department of Justice. (When the Americans decide to investigate corruption, they tackle the issue like a pit bull – just ask FIFA.) 

That’s not to suggest that misdemeanours should ignored. Quite the opposite. The Northern Irish case stinks. 

Nobody has demonstrated that Cerberus knew that a portion of the fees would be syphoned off in a suspicious manner. Nor has anyone proved that Robinson or NAMA’s former NI advisor, Frank Cushnahan, were some of the intended beneficiaries. 

But the fact that money was misdirected has been established and NAMA has confirmed that Cushnahan resigned in 2013. It later emerged he was to receive a payment from PIMCO, the manager that initially won the auction, which NAMA says led to PIMCO’s withdrawal from the sale. 

The Project Eagle case is a timely reminder that, as one distressed real estate manager puts it: “You have to know what you’re getting into.”

Being part of the UK, you would be forgiven for thinking that dodgy practices are few and far between in Northern Ireland. But though they are separately governed, in terms of doing business, the north resembles its southern neighbour more than UK-HQ. 

And the Republic of Ireland, lauded as one of Europe’s most open economies, has produced corruption scandal after corruption scandal since the 1980s. Further south, the Spanish government has been embroiled in similar problems, while in Italy it’s easier to just direct you to a list of the graft

There are another roughly €233 billion of non-core real estate loan books being held for eventual sale by various European ‘bad banks’, according to specialist Cushman & Wakefield

Investors looking at these opportunities must not ignore political risk. Because in its wake may follow much more serious, even criminal, problems.