Nama banking revelations shocking, says Lenihan

MINISTER FOR Finance Brian Lenihan 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, he said, there were also shoddy banking practices. “The banks played fast and loose with the economic interests of this country,” he added.

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

Mr Lenihan said the difference between what Nama was paying for the loans and the original value attributed to them by the institutions – 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 never was, 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 action because 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 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 for the bank this week. “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. “The current estimate is that this could be of the order of a further €10 billion.”

Mr Lenihan said he had been advised that Bank of Ireland expected to be able to raise capital, adding that he fully supported its objective to acquire a substantial amount of this from private sources. Based on the current envisaged structure, the State expected to remain a minority shareholder, he added.

Mr Lenihan said the private sector would have an opportunity to participate in Allied Irish Banks’ capital-raising.

“If sufficient private capital is not available, it is probable that the State will have a majority shareholding in AIB as a listed entity, but this is much more preferable than an under-capitalised or only adequately capitalised entity,’’ he added.

Traditionally, said Mr Lenihan, building societies had played a vital role in providing residential mortgages in Ireland.

But in recent years, EBS and, in particular, INBS had become involved in non-residential lending. “Indeed, in the case of INBS, such lending became its primary focus, comprising approximately 80 per cent of its lending business,’’ he added.

Mr Lenihan said Irish Life & Permanent was not taking part in the Nama process.

“The regulator is satisfied that Irish Life Permanent has sufficient capital to meet its needs,’’ he added.

“The regulator will continue to monitor the capital needs of Irish Life & Permanent and is in discussion with them.’’

The vote: 83 to 68

The Dáil approved the Government’s banking plan by 83 votes to 68. Independent TDs Finian McGrath and Joe Behan voted with the Government, while Independent Maureen O’Sullivan voted with the Opposition.