The purchase of the banks’ bad assets by the State's new management agency could lead to legal battles in the courts, it was claimed today.
The National Treasury Management Agency (NTMA) said the valuation of multi-billion euro property loans by the new National Asset Management Agency (Nama) will be a very difficult process.
Minister for Finance Brian Lenihan announced in his supplementary budget last month that Nama would be set up under the aegis of the NTMA to clean up the balance sheets of the main banks by taking over their property loans.
NTMA chief executive Michael Somers today told the Public Accounts Committee that putting valuations of the bad loans will present “an enormous dilemma”.
"There will be arguments down the courts if we don’t get it right. The implications of this thing are enormous and the legislation will be very complex.”
Mr Somers said the operation of Nama will be guided by legislation Mr Lenihan brings before the Oireachtas soon.
He said he believed up to 5,000 officials in the main banks were currently examining bad loans.
“At the moment, we really have no feel for how Nama will operate. But my preference would be a core group of between 30-40 people.”
But Mr Somers insisted the NTMA would be on a steep learning curve as it has had no past experience of bank reconstruction.
Meanwhile Mr Somers said the NTMA paid its 170 staff a total of €19.4 million in 2008 - an average of almost 90,000 euro per official.
A further €8.9 million was also paid out in expenses.
Mr Somers said: “When we were set up, the [then] finance minister Albert Reynolds told us to get the best people we could get.
“We have kept a heavy hand on our pay over the years. We have paid what we need to pay, no more or no less.”
Mr Somers declined to discuss his salary or the pay of senior staff when questioned by PAC chairman Bernard Allen.
“It will get headlines and it will damage the manner of how we try to operate,” said Mr Somers.
Referring to recent public outrage over bankers’ salaries and pensions, Mr Allen said: “There are rumours that people are being paid one million euro in the NTMA and these rumours should be scotched.”
PAC member Jim O’Keeffe added: “I don’t think it should be a state secret.”
The NTMA also revealed that independent consultant Peter Bacon, who was hired to advise Minister for Finance Brian Lenihan on the set-up of Nama, will be paid less than €100,000 for his work.
Nama is expected to pay for the bad loans through the issue of Government bonds to the lenders.
Profits from the eventual sale of the loans will be given to the state which may be used to service the €54.2 billion national debt.
However if Nama makes a loss, the Government said it will apply a levy on banks to recoup the shortfall.
Established in 1990, NTMA’s primary role was to manage the national debt.
Interest payments were 27 per cent of tax revenue in 1990 but this had fallen to 4 per cent in 2008.
Mr Somers said this ratio is forecast to increase significantly over the next few years. It will reach about 18 per cent in 2013 but this will be similar to levels experienced in the mid-1990s.
PA