Banks will be 'forced' on loans

The Government has to force Irish banks to surrender their bad debts because if they try and trade through the recession with them “it will inflict further damage on the economy”, the Minister for Finance said in London today.

Mr Lenihan was in London as part of an European investor road show to explain the Government’s financial strategy.

The central component of the Government’s response to the banking crisis is the establishment of a National Assets Management Agency (Nama) to take and manage up €90 billion worth of toxic loans.

Yesterday the head of the National Treasury Management Agency (NTMA) Dr Michael Somers, under whose aegis Nama will be formed, said his agency had neither the staff nor any experience of dealing with a banking crisis.

Asked about these observations today Mr Lenihan said Mr Somers had outlined the “many practical difficulties that will arise in implementing Nama”, including possible legal challenges.

"Legal challenges will have to be met and defeated and valuations [of assets to be transferred to Nama] will have to be realistic," Mr Lenihan told RTÉ's News at Onethis afternoon.

Where banks had “very high exposures from a very small number of individuals” it was preferable they be managed by Nama. In the case of a large number of smaller loans “it would be impractical for Nama to supervise each one,” the Minister said.

“The key issue for the economy and for Ireland is that we have to force the banks to take the losses now. Because if they intend to trade their way through this recession it will inflict further damage on the economy,” Mr Lenihan said.

“That is why the Government is establishing an agency to remove the bad loans from the books of the banks.”

He said the “taxpayer will have to be protected throughout this operation”.

The Government’s priority was to reform the banking system and remove the existing management. “That is our priority. Whatever the difficulties we are determined to achieve that.”

“The Government has to set a positive agenda out there for Irish banking because without a viable banking sector we will not have a viable economy.”

He agreed it was “not equitable” that bank shareholders were taking huge losses while directors were resigning with significant pensions and other entitlements.

“Again it is a matter for the banks themselves . . . the key point here is that shareholders have lost money because the banks have lost their way”.

Mr Lenihan will also visit other EU financial capitals such as Frankfurt, Milan and Amsterdam in the coming days as part of his roadshow. The Minister said he had received a "very good reception".

He was in Paris yesterday and is in London today and tomorrow for talks with investors and business leaders.

The Minister is being accompanied on the trips by officials from the NTMA who will be promoting the sale of Irish Government bonds. The NTMA said today it hoped to raise an additional €1 billion on May 21st.

This afternoon Mr Lenihan is chairing a meeting of the European Bank for Reconstruction and Development (EBRD) in London’s financial district.

A spokesman for the Minister said the “meetings are aimed at restoring the confidence of prospective investors and foreign lenders in the Irish economy.”

Mr Lenihan is following through on a commitment made in the Budget to try and country the increasingly negative perception of the Irish economy internationally.

He told the Dáil he believed recent banking scandals had sullied Ireland’s good name and that investors may think twice about doing business here.

“These visits will give me the opportunity to communicate more effectively with foreign investors about our plan for renewal,” he said in his Budget speech.

Additional reporting agencies