Losses in banks 'truly shocking'

Minister for Finance Brian Lenihan has described as “truly shocking” the detailed information the Nama process had revealed about the banks.

“At every hand’s turn our worst fears have been surpassed,’’ he said. “Some institutions were worse than others. But the fact is that our banking system, to a greater or lesser extent, engaged in reckless property development lending,” In too many cases, said Mr Lenihan, there were also shoddy banking practices.

“The banks played fast and loose with the economic interests of this country,’’ he added. Mr Lenihan said that the State’s previous regulatory system had failed abysmally, and it was right that the role of the regulator, the Central Bank and the Government was now the subject of an independent inquiry.

“But the fact remains that senior figures in Irish banking made appalling lending decisions that will cost the taxpayer dearly for years to come,” he added.

Mr Lenihan said that economic activity remained weak and the State faced further difficult decisions.

But the crucial difference is that we now have a credible fiscal position,” he added. “That is because over the last two years, we have introduced budgetary adjustments of more than €15 billion.

As a result, we are now in a position to stabilise the deficit and we are on a firm path to economic recovery.” Others believed in Ireland, said Mr Lenihan, adding that we must now believe in ourselves.

He said that the original value of the loans transferred to Nama in the first tranche was: AIB, €3.29 billion from a total of €23 billion euro in eligible loans; Bank of Ireland, €1.93 billion from a total of €12 billion; Anglo Irish Bank, €10 billion from a total of €38 billion; INBS, €670 million from a total of €9 billion; EBS, approximately €140 million from a total of €1 billion.

Mr Lenihan said that the difference between what Nama had paid for those loans and the original value attributed to them by the institutions, or the so-called haircut, was: AIB, 43 per cent; Bank of Ireland, 35 per cent; Anglo Irish Bank, about 50 per cent; INBS, 58 per cent; EBS, 37 per cent.

The weighted average haircut across those institutions was 47 per cent, he said.

“These discounts have been calculated following loan-by-loan assessments, including legal due diligence, detailed valuation processes, and internal and external checking processes, including external audit,” he added.

“The doubters have been proved wrong. Nama has carried out its valuations in a hard-headed commercial manner. As I have said all along, the interests of the taxpayer are paramount in this exercise.”

Mr Lenihan said that finding a long-term solution for Anglo Irish Bank was by far the biggest challenge in resolving the banking crisis. Winding it up was not, and was never, a viable option. He added that he understood why many wanted the bank closed and the “impulse to obliterate it from the system”.

However, he could not countenance such a course of action because of the realisation of the costs involved and the wider disruption to the financial system would generate enormous instability for the State with unforeseeable but potentially long-lasting damage to the overall economy.

Unpalatable as it was, only the taxpayer could provide the capital.

This was the least worst option, and he was providing €8.3 billion this week, and he said the bank may require an additional €10 billion over time.

“I must point out that the bank will need further capital to cover future losses and accomplish the restructuring of the bank and its balance sheet,” he added.