THE European Central Bank has starkly warned the Government not to pay over the odds for the €90 billion of property loans it will buy from the banks.
The ECB said that while the proposed National Asset Management Agency should restore confidence to the banking system, its success would rest on getting the valuations right.
It came as Finance Minister Brian Lenihan staunchly defended the NAMA plan at an occasionally heated meeting of the cross-party Oireachtas Committee on Finance.
He said NAMA would take over some 18,000 loans owed by 1,500 borrowers in a bid to cleanse the banks of high-risk debt on their balance sheets. But even with NAMA taking away these loans, Mr Lenihan admitted the banks may still need further injections of cash to return them to health.
This would increase the State’s ownership in these banks and Mr Lenihan said he was prepared to take a majority shareholding in the institutions if necessary.
But he ruled out Labour’s proposal to take full ownership of the banks, citing in support of his case the opposition of US President Barack Obama to blanket nationalisation.
He also dismissed Fine Gael’s alternative “good bank-bad bank” proposals as unworkable, and insisted NAMA would not be a bailout for developers, as claimed by the opposition.
Once loans were transferred to NAMA, the agency would vigorously pursue “every last cent” owed, and insolvent developers would be liquidated, he pledged.
Mr Lenihan said the NAMA proposals had received international approval and quoted the ECB formal opinion as evidence of that.
In the opinion, the ECB said NAMA was “broadly consistent” with European principles on such schemes. It also praised the construction of the draft NAMA legislation and welcomed the fact that the Government was not resorting to blanket nationalisation.
But it struck a cautionary note on the plan to purchase the loans at prices reflecting the “long-term economic value” of the propertiesunderpinning them.
“The preference expressed in the draft law for the long-term economic value of assets, rather than current market values, requires careful consideration,” it said.
“In particular, it should be ensured that the assumptions to determine the long-term economic value of bank assets will not involve undue premium payments to the participating financial institutions to avoid creating inappropriate incentives from their side as regards the use of the scheme.”
Fine Gael claimed the ECB was clearly questioning the Government’s decision to pay long-term economic value, saying NAMA was set to “overpay by billions for toxic assets”.
“This approach has now been undermined by the ECB, an organisation that Fianna Fáil claimed supported its NAMA approach,” said Fine Gael deputy leader Richard Bruton.
But the Department of Finance said Fine Gael was “completely misinterpreting” the ECB. Rather than advising to pay current market value, the ECB was simply warning not to overestimate the long-term economic value, said a department spokesman.
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