Finance Minister Brian Lenihan has told the Dáil that the National Asset Management Agency will pay an estimated €54 billion for loans with a book value of €77 billion from the banks. He said this represented a discount of almost 30%.
Mr Lenihan said there was a risk of paralysis if the Government did not act to get credit flowing in the country's banks. The Minister said that the banks should be grateful to the citizens of Ireland for the protections the measures would bring.
Minister Lenihan told deputies that of the €77 billion worth of loans, €24 billion came from AIB, €28 billion from Anglo Irish, €16 billion from Bank of Ireland, €1 billion from EBS and €8 billion from Irish Nationwide. He said two-thirds of the loans related to assets in Ireland, with one-fifth in Britain.
The Minister said that current market value of the loans was €47 billion, and the estimate for the long-term economic value added another €7 billion. He said banks cannot be forced to sell assets at below rational prices.
Mr Lenihan said NAMA would need a rise in property prices of less than 10% from current levels over 10 years to break even, and there was no assumption that property prices would return to earlier peaks.
He said 40% of the loans NAMA planned to take on were currently producing cash flow, and would cover interest payments on the bonds NAMA was issuing to the banks.
Around 5% of the total to be paid to the banks - around €2.7 billion - will be in the form of subordinated bonds, meaning that they will be at risk to the bank and dependent on the performance of NAMA. The Minister said there would be a levy on the banks if NAMA ended up with a deficit.
The Minister told the Dáil a cleaned-up banking system was the only was to restore credit to the economy, and that if we did not act now to free the banks from their bad loans, we would not be in a position to benefit from the global recovery which appeared to be emerging.
He said some institutions would need fresh capital after the transfer, but the Government wanted them to explore ways of raising this from private sources, but the Government was committed to providing them with capital if necessary.
He said any institution taking part in NAMA would have to restructure its operations, but it was too early to outline a definitive shape for the new system. 'There has to be scope for subsidiaries of external banks to play their full part,' he added.
Minister Lenihan told the Dáíl he planned to adjust the bank guarantee scheme to enable covered banks to issue bonds and take deposits beyond September 2010. But he said the blanket guarantee for deposits would remain.
The Minister later told RTE News that if the property market had further to fall, it could do enormous damage to the Irish economy and banking system. But Brian Lenihan said that was not going to happen, because the Government's study of the returns from property have shown that they are at an all-time high and characteristic of a market at the bottom.
He said the risk-sharing element of the NAMA scheme would amount to a substantial sum of money, and would not be paid to the banks if they did not perform.
Opposition critical of NAMA plans
The Fine Gael finance spokesman Richard Bruton said the €54 billion figure represented €34,000 for every family in the country. He said the taxpayer was being asked to pay for the assets at a time when cuts are happening across the public service.
Deputy Bruton said the people saying that there was no alternative to NAMA were the same people who said there would be a soft landing in the property market.
Labour's finance spokesperson Joan Burton also criticised the NAMA plans and suggested the people of the country did not trust the Government and Fianna Fáil when it came to managing the economy.
She also referred to the details of loans to be transferred to the agency from the banks as the 'page of shame'.
