Thursday 25 May 2017

Cabinet moved just half of €158bn loans Bacon had advised

Emmet Oliver Deputy Business Editor

Peter Bacon, credited with setting up NAMA, advised the Government to transfer €158bn of loans out of the banking system, but the Government moved only half this amount to the agency.

Dr Bacon, best known for a series of reports on the property market, produced a key report in March 2009 on setting up an asset management agency. The precise amount of loans Bacon wanted to see going to such an agency was never revealed at the time.

But speaking to NewsTalk yesterday Dr Bacon, an economist, researcher and former stockbroker, said €158bn was the amount he thought would be necessary to restore confidence to the banks and remove any systemic threats.

The €158bn figure refers to the book value of the loans, not the amount any agency would be likely to pay. Eventually the Government decided to transfer €80bn of loans and is expected to purchase them for about €40bn.

It is understood that Dr Bacon acknowledged that different amounts of loans could be moved over and a judgement call would have to be made. It is understood the European authorities were surprised at the scale of the transfers needed to cleanse the Irish system.

Investment

The larger figure proposed by Dr Bacon is believed to have included all investment property loans, regardless of size. In contrast NAMA ultimately didn't take all investment property loans and also introduced a ceiling of €5m for ordinary commercial property loans, which also reduced the overall size of the transfers.

Since then the threshold for loans to NAMA has been changed yet again, with loans below €20m not transferring to the agency and staying under the local management of the banks themselves.

In his original report Dr Bacon made it clear that without significant fresh capital the Irish banks would remain zombie banks, suffering from deposit outflows and poor share prices. As a result he recommended far-reaching and additional measures to deal with the problem, beyond the guarantee agreed in September 2008.

There would have been dangers in even moving the €158bn of loans into NAMA. It would have caused a capital shortfall for the banks and also would have increased the national debt, which may have caused investors to dump Irish bonds.

It is understood the IMF/EU team want to see loans moved out of the system to either a new NAMA structure or to private investors who will buy the loans at a discount.

Irish Independent

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