Agency will have power to get ‘pound of flesh’

NAMA will have the power to get its “pound of flesh” from developers who fail to pay their debts, Finance Minister Brian Lenihan has said.

Under the Government’s plan, NAMA will buy €90 billion of property loans at a discount from the banks in a bid to cleanse their balance sheets of risky debt. NAMA will then pursue the borrowers in the normal way, seeking full repayment of the loans.

For this reason, the Government’s proposals did not represent a “bailout” for developers, Mr Lenihan told the Oireachtas Committee on Finance yesterday.

“NAMA has absolutely every incentive to squeeze whoever owes money and to squeeze the pound of flesh,” he said.

The meeting saw some testy exchanges as Mr Lenihan rejected alternative proposals from Fine Gael and Labour to deal with the banking crisis.

Nonetheless, he insisted he was open to considering amendments to the NAMA legislation, which will go before the Dáil when it resumes after summer recess on September 16.

In particular, Mr Lenihan said he was prepared to consider proposals that would ensure the risk to the taxpayer is minimised.

“I have from the outset said that, down the line should NAMA be faced with losses, consideration would be given to the imposition of a levy [on the banks] or some equivalent measure,” he said.

“I expect NAMA to make gains over its life but I am open to examining other risk-sharing mechanisms.”

NAMA will buy the loans based on the long-term economic value of the properties underpinning them rather than current values.

This has led to fears the taxpayer will be saddled with massive losses if the developers default on their loans and the properties don’t reach that “long-term economic value” when sold.

But Mr Lenihan said paying the long-term economic value would “strike a balance” between providing support to the banking system while minimising the risk that NAMA will make a loss.

He also made clear that long-term economic value did not correspond to the kind of prices seen during the property bubble.

“A myth has gained some currency during the summer that there is some intention that the amount NAMA will pay will compensate the banks for a recovery in values back to the unsustainable peak property prices of 2007,” he said.

“This is not correct, is nowhere near correct, and has never been proposed by Government – perhaps it is a reflection of wishful thinking among interested parties.”

But Fine Gael claimed the decision to pay long-term economic value could be disastrous for the taxpayer. Labour said the NAMA legislation afforded “extraordinary powers” to the minister and effectively made him a “property tsar”. Much greater independent oversight of NAMA would be required, it said. Sinn Féin said NAMA would remove the risk from the banks and “heap it” on the taxpayer.

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