Sunday 24 September 2017

Spanish need 'bad bank', says creator of NAMA

Donal O'Donovan

Donal O'Donovan

THE economist who came up with the idea behind NAMA said the decision to create the bad bank was "painful, but right".

Peter Bacon has become a critic of the National Asset Management Agency in recent times but in an interview with 'The Wall Street Journal', he said he still thinks Spain should set up its own version of the toxic loan agency to tackle bust banks.

According to the report, Mr Bacon believes that the failure of Spanish banks to face up to the likely losses on property loans is preventing them from escaping their troubles.

The crisis in Spanish banking, and the perception outside Spain that the banking crisis is out of control, is one of the main reasons why the country is lurching dangerously close to its own EU/IMF bailout.

In 2009 Mr Bacon was hired by finance minister Brian Lenihan to identify the scale of the Irish banking crisis. The resulting 'Bacon Report' eventually led to the creation of NAMA as a 'bad bank' to 'cleanse' the others banks of their toxic commercial-property loans.

Mr Bacon said the rest of Europe, especially the likes of Spain, should draw on Ireland's experience of setting up the agency, because just like here banks there have refused to face up to the losses on their property loan losses.

Stabilise

"If you look at the drift in Spain, there is currently another attempt to stabilise the base of Spanish banks, and there is no confidence that the solution is at hand," he said.

An asset-management agency along the lines of NAMA would remove doubts surrounding the Spanish banks, he said.

"Painful as the NAMA outcome is, it is probably better in the longer run than the kind of approach that has been followed by Spain," he said.

Irish banks had to be bailed out following the setting up of NAMA, not least because early estimates of future losses proved hopelessly unrealistic.

NAMA paid an average discount of 58pc when it bought property loans from the banks, twice Mr Bacon's original estimate. It left gaping holes in the banks that ultimately had to be plugged by the State through recapitalisations.

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