ASSET AGENCY:THE GOVERNMENT will buy between €80 billion and €90 billion in property and development loans from the State's biggest lenders in a bid to free up lending and repair the banking system.
A new State-controlled company, the National Asset Management Agency (Nama), will be set up to buy the banks’ most troubled assets – land and development loans, associated borrowings and the property asset securing them.
The assets, which include the largest property-backed loans, will be compulsorily purchased at discount in exchange for Government bonds issued to the banks.
Borrowers will not be allowed to opt out and overseas properties will also be transferred to the new State agency, which will fall under the control of the Government’s debt manager, the National Treasury Management Agency.
The Government has also agreed to guarantee individual bank bonds of up to five years to allow the lenders to raise longer-term funding beyond the end of the guarantee scheme in 2010.
Minister for Finance Brian Lenihan said the State would pay “significantly less” than the face value for the transferred bank assets to reflect the loss of value of the properties securing them.
He said the cost would be recovered from the sale of the assets “over time” and that the Government would apply a bank levy to recoup any future shortfall.
“These assets pose the main systemic risk to the banking sector in Ireland and the most significant obstacle to the recovery and restoration of lending by the banking system,” said Mr Lenihan.
He said the asset transfers would lead to losses at the guaranteed financial institutions but that the Government would insist on taking equity stakes in the banks if they needed additional capital.
This could lead to greater nationalisation of the banking sector, if the losses significantly erode the banks’ capital reserves.
The Government did not outline the scale of the discount it would seek on the purchase of the assets under the plan, which is a variation on the bad bank model.
Labour leader Eamon Gilmore said the new agency was being set up “effectively to buy up the properties that were speculated on over the years of the boom”.
The Department of Finance said on its website that the level of the discount would ensure “the banks do not get off lightly” and that the agency would not “go easy” on developers repaying loans. The department said the assets would include “a mix of ‘good or performing loans’ and ‘bad or non-performing loans”.
In response to a question on whether the nationalised Anglo Irish Bank would be included, the department said the bank’s position would be “considered having regard to its individual particular circumstances” and Anglo’s business plan currently being drafted.
The department said property loans sold to the Nama could be transferred to the agency’s special purpose vehicles “which will be capable of being worked out and disposed of in an orderly manner with private equity partners”.
Participation in the Nama plan will be optional, the department said, but the bank would have to agree that all loans in particular portfolios would be sold to Nama.
Legislation should provide for “mandatory power to acquire assets,” the department said.
Danny McCoy, director of policy at employers’ group Ibec, said that the cost of buying the assets would be added to the national debt.
The Government intends to have new legislation establishing the agency “before the summer” and the plan is subject to state aid approval by the EU Commission.
Shares in AIB rose 9.4 per cent, while Bank of Ireland climbed 9 per cent. Both banks said they would “actively engage” with Government on the Nama proposals.
