Government's Nama plan gets green light from EC

Minister for Finance Brian Lenihan has said the process of transferring loans from banks to the National Assets Management Agency…

Minister for Finance Brian Lenihan has said the process of transferring loans from banks to the National Assets Management Agency will start within weeks after the European Commission approved the scheme.

The commission decision that the plan to set up Nama was in line with guidelines governing state aid in the union paves the way for the agency to take charge of €54 billion in property assets from the Irish banking sector.

"Ireland's financial sector has been one of the most affected by the global financial crisis in Europe and the burst of the Irish real estate bubble has only compounded the problems," said Competition Commissioner Joaquin Almunia in a statement today.

"This impaired-asset measure, which is specifically targeted at real estate assets, is therefore key to cleaning up Irish banks' balance sheets."

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The Government notified the scheme to the authorities in Brussels on December 28th.

In a speech tonight, Mr Lenihan defended the decision to establish Nama and announced his intention to secure a €3 billion cut in the national deficit in 2011, with €1 billion to come from the capital budget and the remainder to come from public spending and reform of the taxation system.

Speaking at the annual dinner of the Irish Taxation Institute on the theme “Returning to Economic Growth: The Next Steps”, Mr Lenihan said that the Government’s plan for economic recovery involved restoring order to the public finances, repairing the banking system and regaining competitiveness and jobs.

He defended the State guarantee to stabilise funding for the banks and the establishment of Nama to clean up the banks’ balance sheets. Mr Lenihan added that recapitalisation of the banks and the reform of the regulatory system were also vital components of the plan.

“The extent of State ownership of the banks will depend on Nama discounts, regulatory capital requirements and the amount of new private capital. The Government has never ruled out increased State ownership,” he said.

Mr Lenihan added that those who argued for 100 per cent nationalisation were wrong as statutory state takeover of the banks would have undermined confidence and dried up funding for the banks and the State.

The Minister said consumer spending would rise next year as confidence returned and employment increased. “The plan for economic recovery is working. Positive growth later this year will lead to employment growth next year. Confidence is returning, externally and domestically and the full implementation of the Government’s plan will restore sustainable growth, create new jobs, and deliver economic prosperity.”

A net 20,000 jobs will be created in 2011 and 45,000 each year afterwards, he said

Earlier, Mr Lenihan welcomed the commission's decision approving Nama, describing it as "an important milestone". He said the transfer of the eligible loans from the banks to Nama was scheduled to begin next month and would be completed by the final quarter of the year.

"The consultation with the EU Commission was very constructive and involved a detailed assessment of the complex Nama process across policy, legislation and conformity with state aid rules," he said. "The EU approval confirms that the Nama valuation methodology is robust, and this will assist Nama to achieve its objective of obtaining the best achievable financial return for the State.”

Mr Lenihan said the valuation methodology set out in the regulations would be amended to take account of the commission’s decision, with a higher remuneration risk margin and higher enforcement costs applied.

"There will, however, be a reduction in the interest rates used for loan discounting purposes. In overall terms the proposed valuation methodology which the commission has endorsed is broadly as originally proposed by Government," he said.

In a parallel but separate State-aid process, restructuring plans from Allied Irish Banks, Bank of Ireland and the nationalised Anglo Irish Bank are also under scrutiny in Brussels.

At close, AIB shares were trading at 98.6 cent, which is no change on yesterday. Bank of Ireland stock was off 1.4 per cent at €1, with over six million shares changing hands.

Nama is now likely to move very quickly to begin the process of acquiring loans from the banks. Although the commission approved a German asset recovery scheme last year, Nama is broader in its scope.

An issue in the ruling was said to be the structure of the overall scheme, something that was the subject of prolonged dialogue between Irish and EU officials when the legislation was being prepared.

Even with the approval, a large number of Nama’s transactions will be subject on a case-by-case basis to EU approval and audit. The aim here is to ensure that the individual deals made by Nama comply with strict EU rules on the treatment of impaired assets in asset relief schemes.

The price at which loans are required will ultimately determine the loss incurred by each bank on the loans that move to Nama. In turn, this will determine each institutions’ requirement for new capital to bolster their reserves.

Five days ago, the State took a 16 per cent stake in Bank of Ireland through the National Pension Reserve Fund after the commission banned the bank from making certain interest payments to the State.