BANKING CRISIS:THE HEAD of the National Treasury Management Agency (NTMA), under whose aegis the Government is creating the State's "bad bank" in the coming months, has said that his agency is not adequately staffed to cope with the operation of Nama or bank restructuring, writes SIMON CARSWELL, Finance Correspondent

Speaking at the Dáil Committee of Public Accounts, NTMA chief executive Dr Michael Somers warned that the creation of the National Asset Management Agency (Nama), which will acquire toxic loans with a book value of up to €90 billion from the banks, could lead to a series of legal challenges.

“I see great potential for arguments down in the courts if we don’t get this right,” he said.

He had heard “people down in the courts were delighted” about the setting up of the agency as they were in line for “a bonanza” given the disputes that would emerge.

He said there would be “eating and drinking” at the committee for decades over the set-up of Nama as it was “an extremely controversial issue”.

“The implications of this are enormous and the legislation will be very complex,” he said.

Dr Somers said he was “aghast” at the scale of development loans advanced to a small number of borrowers which emerged after the NTMA reviewed the banks’ books. He called the review “a huge eye opener for us”.

Dr Somers said that while the Government outlined in last month’s budget that Nama would be set up under the auspices of the NTMA, he was still unaware of how it would be set up and operated.

“I am still not sure how Nama will interact with the NTMA,” he said. The Government was facing “an appalling dilemma”, he said, giventhe size of the development loans advanced by the banks was “enormous”.

He said his preference for the operation of Nama was that the loans would continue to be managed by the banks, but overseen by the new State agency.

“If it falls to me, certainly the preference would be to have a small core staff and leave this function with the banking sector who have been dealing with these loans,” he said.

“They would either set up a subsidiary or we would enter into some sort of deal with them under which they would continue to manage the loans.”

He said there were 3,000 to 5,000 bank staff handling the impaired loans, but that it would be “a disaster” if the NTMA replicate this within Nama.

He said his agency was entering new territory, and it had not been adequately staffed to deal with the challenge of running Nama or even working on the resolution of the banking crisis.

Minister for Finance Brian Lenihan said yesterday he would appoint a committee to advise on setting up Nama within a week.

Dr Somers said Ireland would be “lucky” to hold on to its sole remaining top AAA credit rating, as its low debt levels could surge to more than 100 per cent of gross domestic product next year, from about 41 per cent in 2008, after the State completed the transfer of the banks’ bad loans.

Standard Poor’s and Fitch have already downgraded Dublin’s sovereign debt, and Moody’s has said a cut is possible.

He said he was “never comfortable” with Anglo Irish Bank because of its “monoline” focus on property lending. He said it put pressure on the NTMA to lodge more than the €40 million limit set by the State’s cash management agency on deposits placed with the bank. He said the NTMA normally placed €200-€300 million on deposit with “good banks” spreading deposits around.