FG: Case reveals fatal flaw in NAMA structure

THE Carroll case judgment exposes a “fatal flaw” in the structure of NAMA which could end up seeing the taxpayer forking out billions of euro over the odds for bad land debts, Fine Gael warned last night.

The party’s finance spokesman Richard Bruton rubbished Government “complacency” as he insisted the ruling brought starkly into focus the concern that property prices may never recover their losses.

Mr Bruton fears the taxpayer will pay far too much for the €90bn bad debts to be absorbed into the National Assets Management Agency (NAMA) as valuation will be calculated on the assumption the land will rise steeply in value again.

“The huge threat from this ill-conceived NAMA project is that taxpayers will be forced to overpay the banks for toxic developer loans. The minister for finance gives himself the powers to set the adjustment factors that NAMA must consider in deciding the premium to be paid over current market prices to the banks for their toxic loans, and there is no procedure for independent challenge where NAMA overpays for loans. Rosy and baseless optimism about a recovery in property prices can hobble the public finances for a generation,” he said.

“The action by ACC Bank also raises huge questions about how the Government and NAMA will deal with smaller banks that are part of lending consortia to troubled developers. Following this judgment, smaller banks may feel that they gain even greater advantage from a court bankruptcy process than from NAMA.

“The nightmare scenario for the Irish taxpayer would be if small banks like ACC were bought off by the bigger banks and the whole lot passed onto NAMA and the taxpayer in a few months’ time.”

The Finance Department continued to insist the case had no bearing on NAMA.

However, Mr Bruton said ministers were burying their heads in the sand. “In giving judgment, the Supreme Court judges said that it was ‘perfectly obvious that some evidence of likely improvement in the property market is absolutely essential’ before a court could give the Zoe Group temporary protection from its creditors.

“It is equally obvious to me that, in the absence of any credible evidence from Government that property prices are only temporarily depressed, the Government cannot justify the use of this elastic concept of ‘long term economic value’ in paying above market prices for the assets to be bought by the taxpayer,” Mr Bruton said.

Finance Minister Brian Lenihan will reveal the size of the mark-down to be paid on the bad loans when the Dáil returns on September 16.