Paying too little for bad property loans may erode market trust
Minister for Finance Brian Lenihan arriving earlier this year at the National Treasury Management Agency for the publication of its 2008 accounts. Photo: STEVE HUMPHREYS
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The Government should resist political pressure to underpay for the €90bn of property loans it's seeking to purge from the country's banks, according to the head of the country's fund management industry group.
Finance Minister Brian Lenihan will signal next month how much the National Asset Management Agency (Nama) will pay when it buys the loans at a discount from lenders, including Bank of Ireland and Allied Irish Banks.
"I strongly believe that the Department of Finance and agency understand that while they have to be fair to the taxpayer, the key audience is international financial markets," said Frank O'Dwyer, who heads the Irish Association of Investment Managers (IAIM).
Confidence
"An excessive haircut, with any taint of political motivation, any sense of 'let's stick it to these guys', would erode confidence."
Mr O'Dwyer said he hopes that "mature debate" on Nama, its role and the loans it will take on will be evident next month when the opposition gets its chance to air its views following disclosure of how much Nama will pay for toxic property loans.
"We need mature and informed debate," said Mr O'Dwyer. "To suggest that this is bailing out developers is wrong."
The discount that the banks will take on the loans passed to Nama will relate to the size of each loan and the "significant" provisions banks have already taken on those loans, Mr O'Dwyer said. Where loans aren't repaid, the agency can seize the asset put up as security.
HSBC has been helping the Government to determine asset valuations and the Department of Finance has said it will price them at their "long-term economic value", based on factors including demographics, demand and economic growth.
Mr O'Dwyer said he sees these long-term values being at a "chunky discount to peak levels".
The Nama legislation also provides for a charge to the banks should the agency make a loss over the lifetime of the loans.
Mr O'Dwyer said the IAIM will seek "clarity" on how that levy might work because uncertainty over the so-called clawback could make investors reticent to buy banking shares.
"Where we all want to end up is with Irish banks that are attractive to international financial investors, who provide capital, bonds and wholesale deposits," Mr O'Dwyer said, adding that "any levy is a long way out".
He added that Nama could provide a catalyst for the revival of Irish bank shares.
"With Nama, it allows you make a judgment that says they are good franchises, have decent core business, and there's a lot there that could be attractive." (Bloomberg)
