EXTENSIVE POWERS to acquire development loans from banks at a significant discount have been given to National Asset Management Agency (Nama) under the terms of a draft Bill published yesterday.
Minister for Finance Brian Lenihan said the agency would not be paying “bubble property prices” to the banks for the loans and expressed confidence that in the long term the agency would be able to operate on a break-even basis.
However, the Opposition parties insisted that the Bill represented an enormous gamble for the Irish taxpayer that could have devastating consequences for years to come.
Speaking after the publication of the Bill, Mr Lenihan said it was necessary to address the health and stability of the Irish banking system, to get credit flowing and ensure that people’s savings were protected.
“There is nothing in the proposed Bill that will provide a ‘bail-out’ for borrowers, whether builders, developers or otherwise.
“Anyone who owes money before Nama continues to owe it, and is expected to repay the full amount of the debt,” he said.
Mr Lenihan emphasised that the agency would acquire development loans from the banks at a significant discount. The banks will be paid Government securities in return for the loans.
The Minister said he would be in a position to announce on September 16th, when the Bill comes before the Dáil, what the overall figure to be paid will be.
The price would depend on valuations carried out by experts in accordance with pre-defined valuation methodology, but he insisted it would not be based on the “bubble property prices” of recent times.
The Minister said the replacement of property-related loans with Government bonds would strengthen the balance sheets of the banks and that would increase their capacity to access liquidity in the financial markets.
The price Nama will pay will take account of the current market value of the collateral “adjusted to reflect a longer-term economic value which the underlying asset could reasonably be expected to attain”.
Detailed regulations on how the long-term economic value is to be calculated will be published in September.
Banks will be entitled to appeal the prices paid for loans by the agency to a valuation panel which will report to the Minister.
Mr Lenihan said that he was prepared to look at any constructive amendments to the draft Bill put forward by the Opposition during the Dáil debate in September.
Fine Gael deputy leader and finance spokesman Richard Bruton said the Bill involved asking the taxpayers for an enormous blank cheque.
“The central concern with Nama has been the worry that taxpayers will be asked to pay too much for these toxic loans,” said Mr Bruton who added that it provided a very elastic concept of “long-term value” for valuing the impaired bank loans and gave the Minister very substantial powers as to how this will be estimated.
“Perhaps the biggest gap of all is the remarkable silence of the Bill on how Nama will deal with the developers who created these enormous debts in the first place.”
Mr Bruton said there was a very real prospect that in a few years’ time, these same individuals would pop up again to buy the assets at an enormous discount, funded by the same banks whose liquidity problems were now being eased.
“This legislation represents an enormous gamble by the Fianna Fáil Government on bankers, developers and the future of the Irish property market,” he said.
Labour Party front bencher and former minister for finance Ruairí Quinn said that Fianna Fáil was proposing to establish the biggest property company in the world and asking taxpayers to foot the bill and bear all the risk.
Mr Quinn said his party would give the hugely complex Bill careful study and respond in a responsible way, but he added that Labour had never accepted that Nama on its own was the best way in which to deal with the crisis.
“We believe that temporary nationalisation of the institutions covered by the bank guarantee would be the quickest, most effective and least costly means of dealing with the appalling situation in which the country now finds itself.”
Sinn Féin finance spokesman Arthur Morgan accused the Government and the banks of perpetrating “the crime of the century”, saying they had burdened generations with unprecedented debt and crippled the public finances “for who knows how long”.