Crisis almost resolved, says Lenihan's adviser

Wed, May 12, 2010, 01:00

IRELAND IS in the ultimate phase in the resolution of its financial crisis, the chief adviser to the Minister for Finance has contended.

In two presentations last night, economist Dr Alan Ahearne said he expected growth to return to the economy even sooner than the forecasts of the second half of the year. He predicted that job creation will also return, beginning in 2011.

He said there would be a net job creation of 20,000 next year and 45,000 per annum in succeeding years. Dr Ahearne gave his assessment of the economic situation to the Fianna Fáil parliamentary party and also to the Dublin branch of the NUI Galway alumni association. He is on secondment from NUIG to the department.

A specialist in banking crises, Dr Ahearne said the National Asset Management Agency (Nama) had got its valuation of the loans of the five covered financial institutions right.

“Nama has determined the price for the first tranche of loans, after rigorous loan-by-loan analysis,” he wrote in his presentation.

“There is a 50 per cent average discount [which shows] aggressive valuations. Nama has forced the banks to acknowledge reality and recognise their losses.”

He also said the capital requirements set by the new Financial Regulator and by the Central Bank were prudent. His prediction of an improving economy was based on several indicators, including better competitiveness, the fall in labour costs, a marked improvement in business conditions and evidence of consumer confidence returning.

Consumer spending has risen since reaching a low in November 2009. He said the overall budget targets were being met, that the unemployment rate had steadied, and the new homebuilding market was “near to bottoming out”.

However, he also pointed out that Irish household debt remained among the highest in the EU as a percentage of disposable income.

He said the State would benefit significantly from the bank recapitalisation schemes. The Bank of Ireland deal would give the State a 36 per cent share of the bank. It would own about €1.8 billion worth of preference shares with a coupon of over 10 per cent.

In addition, the State would make almost €500 million in profits for the warrants it has given to the bank, he said, along with €51 million in fees for conducting the deal. He also denied the Government was bailing out builders. In relation to the charge that it is bailing out bondholders, he asserted the bulk of bonds were classified as senior debt.

These senior bonds, he argued, were part of banks’ funding and not risk capital. He said the bonds were owned by pension funds, insurance companies, credit unions, multinational companies and other long-term providers of funds. He added they were covered by the bank guarantee scheme and were “legally entitled to the same treatment as deposits”.

Separately, the Department of Finance confirmed last night that it will be obliged to amend a section of the Nama Act that allowed the agency to get information on the tax affairs of a named relevant person from the Revenue Commissioners.

Following consultation, the Government gave the EU a commitment that Nama would not be given powers to request tax information from the Revenue.