Lenihan claims cost of banking crisis has been exaggerated

FINANCE Minister Brian Lenihan has suggested the cost of the banking crisis and its impact on the economy overall have been exaggerated.

Mr Lenihan made the comments when answering questions relating to the advice from consultancy group Merrill Lynch that the banks should not be guaranteed.

Mr Lenihan said the Government received a range of advice on the issue, part of which was that no bank should be allowed to fail and that the subordinated debt in Anglo should be “guaranteed” because it was one of the most vulnerable of the banks. In the end the Government guaranteed the subordinated debt of Bank of Ireland and AIB as well.

It was a “fine judgment” and extensive debate has surrounded the issue ever since, Mr Lenihan said. To date no principal has been paid back on any of those bonds and there has been “no cost to the taxpayer” in that regard.

The minister went on to suggest the signals being sent to international markets were very important at the time.

On the high cost of the advice received from the various outside consultants, estimated at around €8 million, Mr Lenihan strongly defended his decision to seek outside advice.

Given that allegations were being “freely bandied about” that the Government was protecting its own pals in the banks and the building sector, he said he had to act to protect the integrity of the Department of Finance, NTMA and the Government.

He said: “Were I to make all those decisions on my own I would have been accused of corruption immediately.

“That unfortunately has been my experience throughout the banking crisis. Such allegations have been freely bandied about. So, for the protection of the department, the minister, the NTMA, it’s essential that independent professional advice be obtained.

“I don’t invoke the defence I acted on advice, but I do refer to the advice to rebut the suggestion of corruption and do it all the time, since the allegation has been so freely made.”

On the question of the banks overstating the number of performing loans on their books, a fact highlighted by NAMA in its update of the bank bailout last week, Mr Lenihan rejected suggestions the banks had taken the country for a ride again.

“The taxpayer is not at risk here. The initial figures agreed when the process started with the banks were just estimates.”

Since then, NAMA, with its advisers, have gone through the books of each of the institutions and marked down the value of their assets, imposing very aggressive discounts.

“The prices paid for these loans took into account whatever deficiencies existed in these loans: I must have said it in Dáil Eireann a hundred times and I never saw it reported.”

The NAMA legislation envisaged a bottom up valuation for €80 billion loans being transferred out of the banks.

The taxpayer will not be out of pocket on that basis, he said.

Mr Lenihan, who was speaking at the launch of the NTMA’s annual report in Dublin, said the focus on the banks has been overdone.

“The reality is that the state has to borrow over €18bn to fund the running of the country this year. In dealing with our banking crisis, the Government’s overriding objective has been to minimise the exposure of the taxpayer and to recoup as much as possible for the state from this sorry saga.”

“At the same time, the Government will continue to reduce our deficit and contain the cost of our debt,” he said.


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