No 'bailout' for loans by builders or developers

PRESS CONFERENCE:THE DISCOUNTED valuation on the property loans to be taken over by the National Asset Management Agency (Nama) will not be announced until September 16th, when the Dáil begins debating the Bill to establish the agency.

The book value is estimated at €90 billion but Minister for Finance Brian Lenihan said it was not possible to give full details now of the valuation to be put on the land and property to be taken over by Nama.

Launching the 150-page draft legislation at a press conference in the Department of Finance yesterday, Mr Lenihan said he would give the estimated valuation when he introduced the Bill in the Dáil in September.

Moreover, he said that no one should draw “any conclusions about the size of the haircut” from the legislation. Further changes will be made to the legislation before it goes before the Oireachtas but the Minister said he wanted to allow everyone examine and discuss the “legal abstract” of the legislation in advance.

He insisted there was “nothing in the proposed Bill that will provide a ‘bailout’ for borrowers, whether builders, developers or otherwise”.

In a trenchant comment he said this was a persistent issue that borrowers’ obligations would be limited, he said.

“Anyone who owes money before Nama, continues to owe it and is expected to repay the full amount of the debt,” he added.

Government bonds will be used to acquire property loans from the banks at a discounted rate and the banks can then cash the bonds with the European Central Bank.

This was the “final stage in the reform of our banking system”.

“It is essential that the banks are in a position to be that motor of credit for the Irish economy,” Mr Lenihan said.

Nama will pay the banks for the loans “on the basis of valuations carried out by experts and in accordance with pre-defined valuation methodology”.

Some but not all will be based on their “long-term” valuation which the legislation defines as when the current economic crisis eases.

It would not be “negotiated valuation” and the banks would have one opportunity to appeal valuations.

He stressed that “where litigation arises in respect of Nama’s operations, provisions have been made to ensure this does not unduly obstruct the agency’s efficient operations and such litigation proceeds without delay”.

The first review of the operation of Nama will be in five years’ time but the Minister insisted the agency would be self-funding.

The Comptroller and Auditor General will audit Nama.

Interim managing director of Nama Brendan McDonagh said the minimum number of staff possible would be employed by the agency. This is estimated at 50. He added that there had already been a number of expressions of interest internationally in joint ventures.

Taking over the assets that were not performing meant the balance sheets of the banks would become smaller. However, it would be easier for the banks to access funds.

Questioned about the discounted valuation, Mr Lenihan said the market value would be determined and an adjustment made for the long-term economic valuation of the asset, but not in all cases. “In some cases the market value” would be the final value.

He said the values would not be based on the property bubble. The department had statistics going back to 1974 showing the relative changes in the property market over time.

Questioned as to why the legislation refers to the long-term valuation when the Minister had previously talked of the medium term, Mr Lenihan said legislative draftsmen translated medium term as long-term which was defined as when the “current crisis conditions are ameliorated”.

Each asset would have to be evaluated separately and valuation expertise would be bought in through a tendering process.

Mr Lenihan insisted that “if a developer appeals a valuation I don’t have any role in determining the valuation”.