Opposition criticises cap on agency's risky debt

DÁIL COMMITTEE: NAMA HEARINGS:OPPOSITION TDS have condemned the Government decision to cap at 5 per cent the subordinated or risky debt to be issued by the National Asset Management Agency (Nama).

Fine Gael said it was "unfair to the taxpayer", while Labour described the risk sharing business model as a "fig leaf" to cover the Green Party's blushes. Sinn Féin congratulated Minister for Finance Brian Lenihanfor doing a "total walkover" of the Green Party on the issue.

But Mr Lenihan insisted that the subordinated debt, a method of sharing the risk associated with the new agency, could not be increased beyond 5 per cent because it would “cripple Nama”.

The Minister also said that due to the slow passage of the legislation through the Oireachtas, the Government could miss the end of year deadline to transfer the biggest loans to Nama.

On day three of the committee stage debate of the legislation, which contains some 250 amendments, Mr Lenihan said Nama would pay banks 5 – 7 per cent interest on risky bonds for the impaired property loans.

He said it was important to clarify the amount of that subordinated debt "as a matter of certainty in the markets. According to the accountancy advice available to the Government, there is an issue about going beyond 5 per cent." Fine Gael finance spokesman Richard Brutonsaid the 50:50 sharing of risk that the Green Party had announced "would have gained more political support for the Nama process", and people were dismayed to discover that it was 5 per cent on the basis of "mysterious advice".

Labour finance spokeswoman Joan Burtoncalled the subordinated debt "a fig leaf to hide the blushes of the Green Party on the renegotiation of a package and a programme for government over which it had precious little input. Instead of using a carrot and stick, the Minister's approach to the banks is all carrot and no stick".

Sinn Féin finance spokesman Arthur Morgansaid: "I congratulate the Minister on his total walkover of the Green Party members" who announced that there would be a 50:50 sharing of risk. "Yet within hours of that we know they settled for 5 per cent".

But Mr Lenihan said that if half the bond issue was through subordinated debt, “the consequence would follow that Nama would be crippled with huge interest bills”.

George Lee(FG, Dublin South) said the "economics of it are clearly, very, very suspect because the vast majority of interest rates will go up".

Mr Lenihan said euro-zone interest rates had been historically very low and he rejected the argument “that somehow future fluctuations and interest rates endanger Nama”. If rates rose it would mean the European economy had staged a substantial recovery.