Government vows taxpayers will not be left to foot the bill

TAXPAYERS will pay for the upfront cost of establishing the National Asset Management Agency but ultimately the Government hopes that all monies will be recouped from the banks and property developers.

However, the discounted valuations placed on assets acquired by NAMA will prove critical in whether taxpayers will carry the greater risk in funding the controversial agency.

Finance Minister Brian Lenihan sought to allay concerns that taxpayers would be left to foot the running costs of NAMA by repeatedly stressing yesterday that the agency would be “self-financing”. However, he declined to provide any specific figure for the cost of establishing the so-called “bad bank”.

Under the draft legislation, NAMA will take on high value loans originally given out by the banks to large property developers. The financial institutions will be paid in the form of Government and/or guaranteed securities.

NAMA will pay the banks a discounted value of loans transferred to the agency. In general, such valuations will largely be based on the market value of any property with some allowance made for the longer-term potential of any site.

In turn, NAMA will decide whether to purchase, hold and dispose of assets with a view to maximising any return for the state. If necessary, it will also be empowered to complete developments.

The replacement of property-related loans with Government bonds will strengthen the balance sheets of banks and improve their liquidity which will enable them to increase lending.

Announcing details of the legislation underpinning NAMA, Mr Lenihan defended its establishment as the Government’s preferred measure to tackle the problem of excessive lending by Irish banks.

He said it was vital that the Government addressed the health and stability of the country’s banking sector to ensure that Irish businesses and other borrowers could continue to access credit as well as ensuring that people’s savings were protected.

He insisted there was nothing in the proposed bill that would provide a “bail-out” for builders, developers or other borrowers. “Anyone who owes money before NAMA continues to owe it and is expected to repay the full amount of the debt,” said Mr Lenihan.

NAMA will collect interest due on any outstanding loans and also pursue debts in order to recover any Government expenditure on its operations.

It will receive central funding from the Exchequer, but will also be able to borrow money, subject to ministerial approval, to carry out its statutory functions. A limit of €10 billion has been placed on the amount that can be borrowed with the guarantee of the minister.

The National Treasury Management Agency will also provide NAMA with treasury services and advice on debt securities.

Mr Lenihan said NAMA would operate a streamlined organisational structure and would outsource some of its work where appropriate.

It is expected that NAMA will have a core staff of about 40 employees, most of which will come from the NTMA.

The draft legislation also provides for expenses incurred by the Minister for Finance and the NTMA in relation to the establishment of NAMA to be funded by the Exchequer.

NAMA will also be legally obliged to publish annual financial statements with the first report due by November 2010.