Finance Minister Michael Noonan's decision to liquidate the former Anglo Irish Bank in January will lead to a tougher Budget if a feared €2bn to €3bn shortfall in the value of assets is realised.
The Department of Finance has confirmed that once the valuation process is concluded by the special liquidator and a shortfall in the value of the loan book is found, then the taxpayer will have to meet that shortfall out of day-to-day spending.
"The money will have to be found, yes," a spokesman for the department said. Under the emergency act, the State's bad bank, Nama, issued bonds up front for the estimated value of the loan book of about €16bn.
The special liquidator, Kieran Wallace of KPMG, is now undertaking to value each asset with a view to selling them. All unsold assets will be transferred to Nama.
But under European rules, Nama cannot allow a 'hole' to appear in its books, so Mr Noonan will have to refund the difference.
"If the value of the assets sold is not sufficient to compensate Nama for the bonds it has issued, the minister will be required to reimburse Nama for the shortfall. It will hit the national accounts (surplus/shortfall). It is not accounted for off balance," the department's spokesman added.
But fresh fears about the shortfall have been sparked, given an admission by senior department officials that the decision was taken to liquidate and an estimate was made that the State would "break even" without any independent risk assessment being carried out. The decision to liquidate was based on "unaudited, internal IBRC figures".
Asked by Kieran O'Donnell, of the Dail's Public Accounts Committee, about making sufficient provision so that the valuations will reflect the current loan book valuations, Ann Nolan, the head of the department's banking division, said the department was only working on a "best estimate".
She said: "Our best estimate from the information available to us before we put it into liquidation is that it would just about break even, that the value would be about equal to the value of the loans."
When asked to clarify exactly what she meant, she said: "That was based on information the IBRC gave us. It was not a valuation of its accounts. It did its own valuation for the end of the year, so it would be off its end-year, pre-audited figures."
Independent TD Stephen Donnelly said yesterday that this was what we get for passing €40bn legislation at 2am.
He added: "It is becoming clear that the required due diligence was not done ahead of the IBRC liquidation. Pensions have been wiped out and now the taxpayer may be on the hook for a unknown number of billions.
"The last time we believed what the assets were worth, we were hit for €35bn. Have we learnt nothing?"