A FINAL decision on the value of billions of euro worth of property loans will be taken by Minister for Finance Brian Lenihan if banks challenge the valuation put on them by the National Asset Management Agency (Nama).
The Government will today publish legislation setting up the new body, which will use Government bonds to buy property loans at a discount from banks, which will then be able to cash the bonds with the European Central Bank.
Under the plan, banks will have one chance to appeal the price put on their loans by Nama to “a valuations panel”, which will advise the Minister, but the final decision will be his, the Department of Finance said.
Meanwhile, the department again made it clear that the State would buy controlling stakes in Irish banks if property asset losses wipe out their capital after the bad, or distressed loans have been taken off their books.
The long-awaited draft legislation will be published at 5pm today, but the Government intends significantly to amend it next month when it is debated by the Oireachtas.
Illustrating the importance of the new body, the Minister will be on hand to brief on the legislation’s contents, and reject charges that Nama will be “a bailout” for the banks. The legislation will lay down rules to govern the purchase of distressed property asset loans, based upon their “long-term economic value”, the quality of the collateral that exists and respect European Union guidelines.
Once in place, up to €90 billion worth of property loans – both good and bad – will be bought up by Nama over time, though property developers will remain liable for the full amount of the original debt.
Last night, sources said Nama, which will operate as a satellite of the National Treasury Management Agency, will gauge a property’s potential value “in five, or 10 years’ time” before fixing a price to be paid to the banks.
“There will be a significant discount for the banks. But we can only say what the value of an asset is when we value that asset,” the Department of Finance said.
Many of the 200 sections in the 150-page Bill will offer enabling powers to the agency to carry out its functions.
Speaking in Galway yesterday, Taoiseach Brian Cowen said the legislation was “very important” to deal with the immediate situation and “to arrange for the restructuring of the banking industry in due course”.
The legislation was finally cleared by the Cabinet after a second meeting this week, reflecting Ministers’ concerns that the public will see it as offering “bankers to get off scot-free”.
Fine Gael’s deputy leader, Richard Bruton said he believed the lack of detail in today’s legislation “could make the whole thing look like a damp squib, since most of what it will do will be to offer enabling powers”.
However, the key will be the rules it lays down on “governance, transparency and oversight”, including inspection by a properly-resourced Oireachtas committee, he said.
“In addition, what will happen to the examinerships in place? What will happen to developers who find themselves dealing with one lender, rather than five? Will they have a case in law?
“Lawyers disagree on this one, but it is suggested by some that the position of a developer is weakened if that happens and that they would have ground for challenging it,” said Mr Bruton.
Fianna Fáil TD Michael McGrath said the loans’ valuation “must be subject to the most rigorous assessment. There can be no suggestion that the banks are being let off the hook at the taxpayer’s expense.”
Banks, he said, “should not be paid amounts which grossly exceed the current market value of impaired loans on the basis of an expectation that the underlying asset will have a much greater longer term economic value. Such an approach would expose the taxpayer to a shot in the dark.”
