The first loan transfers into the National Asset Management Agency (Nama) may be delayed into next year, Minister for Finance Brian Lenihan said today.
This appeared to confirm fears that had been weighing on the shares of Irish banks relying on the plan for their efforts to raise capital. Shares in Bank of Ireland and AIB both closed sharply lower.
Under Nama the State plans to pay €54 billion for loans it accepts are worth just €47 billion, in a bid to remove some under-performing loans from the balance sheets of the banks.
Mr Lenihan said plans to start transferring the biggest loan accounts into Nama by year-end could be too optimistic.
"The business plan ambitions to start a sizeable amount of the work by Christmas, which is now less than two months away," Minister Lenihan told a parliamentary committee today.
"That time limit could easily slip into January at the rate we are proceeding." As the committee discussed dozens of what Mr Lenihan often termed "minor technical amendments" in the proposed Nama legislation, bankers and traders said the slow approval of the scheme had complicated efforts by Bank of Ireland and Allied Irish Banks to raise private capital this year.
"(It) would leave the window for a rights issue probably too tight," one Dublin-based trader said.
The Department of Finance now hopes the draft legislation can move on to the Seanad by the end of next week and be passed in the second week of November.
That compares with a projection in Nama's draft business plan that the law would be enacted in early November, allowing valuation of the banks' risky commercial property loans to start next month or December.
A failure to raise its own funds would make it more difficult for Bank of Ireland to reduce the State's indirect 25 per cent shareholding to 15 per cent by a December 31st deadline as specified in the terms of the bailout it got earlier this year.
"Some of the early market excitement about one or both of the banks being able to raise funds before the end of the year is fading," said a banker.
It could also herald further state capital injections at a time when an EU-imposed break-up of Dutch group ING has increased investor fears over EU sanctions over state aid for banks.
The State will also need approval for the Nama plan itself, though EU Economic and Monetary Affairs Commissioner Joaquin Almunia has already urged the Government to approve it as soon as possible.
"We believe that the ... EU has been instrumental in orchestrating the Nama proposal in the last few months, so although there is a worry we believe that it will get through successfully," said NCB analyst Ciaran Callaghan.
Additional reporting PA/Reuters