Minister for Finance Brian Lenihan has given a strong indication that the State is prepared to take a majority stake in one or both the main banks but he has again rejected the idea of "wholesale" nationalisation.
In an interview published today, Mr Lenihan said the State could become the majority shareholder in AIB and Bank of Ireland as part of the National Asset Management (Nama) process.
Mr Lenihan said he did not believe that “wholesale, pre-emptive nationalisation” of the whole banking system would serve the interests of Ireland.
He said such a move would be “very dangerous for the country because, in addition to torching the shareholders, you would also be raising doubts in debt markets about whether money should be lent to these banks. Quite a number of lenders do not lend to nationalised banks at all.
“There is also a huge funding argument. Were we to nationalise AIB and Bank of Ireland, it would mean that the whole banking sector was nationalised.”
Asked whether any possible stake taken by the Government in the banks could be in excess of 50 per cent, Mr Lenihan said: “Yes, it might well be, but I am not prejudging that issue. What we have to do first is to complete the valuations [of the loans], give the estimated valuations and then see what the implications of the valuations are for the institutions.
“It has been suggested that the Government is so opposed to public ownership that it will fix the valuation. That is not the case. The valuations must be done on a proper, professional basis. At that stage, you look at the valuations and implement them in the institutions.
“If we are increasing the public stake in any institution – and if it is a majority in any institution – that it is in the form of shares which are traded on the stock market, because that allows the taxpayer to obtain value and to be able to dispose of that valuation readily and quickly.”
Nama will acquire the banks’ development loans at a discount, but the controversial process of carrying out valuations is still underway.
The valuations will be done on the basis of estimating the long-term economic value of the loans, which will be higher than their estimated market value.
Mr Lenihan told the Sunday Business Posthe would make a statement to the Dáil on September 16th on the amount of bonds estimated to be required to buy the assets.
He said he had put the figure of €90 billion into the public debate [in terms of the total value of the loans], although the final figure may be “somewhat short” of that.
“The crucial point about the €90 billion, which has not been reported, is that when you take into account average loan-to-value ratios, the property secured had a peak book value of about €120 billion. When people talk about reductions, they are ignoring that issue completely.”
He said a lot of commentators were basing their judgments on Nama on their valuations of the properties involved and that these valuations “appear to be made on a back-of-the-envelope basis”.
Mr Lenihan said that during the 100 days beginning on September 1st, there were three “fundamental issues” that had to be addressed and which affected the future of the country.
“We have the Lisbon Treaty, we have to resolve the banking crisis and also we have to pass a budget, so it is a very important period. I don’t think in recent times any Irish government has had as critical a period.”