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Seizing Irish banks won’t end debt crisis says Bacon

Nationalizing Ireland’s biggest lenders wouldn’t solve the bad-debt crisis crippling the country’s banks, according to Peter Bacon, the architect of the government’s so-called bad-bank plan.

Seizing the banks “would change the name over the door,” Bacon told RTE Radio. “The fundamental problem is that the balance sheets of Ireland’s banks are sorely compromised.”

Bacon was appointed by the government earlier this year to devise a solution for the country’s banking crisis. The government, following Bacon’s recommendation, this week said it will set up a National Asset Management Agency that will take control of as much as €90 billion of property loans from banks in a bid to cleanse the financial system of its toxic debt.

Following the UK in insuring risky loans would be a “bailout” for banks’ shareholders, Bacon said.

The government said it will pay “significantly less” than the €90 billion book value of the loans transferred to the asset-management agency.

Allied Irish Banks, the country’s biggest bank by market value, fell 13 percent to 1.05 euros at 12:30 p.m. in Dublin trading. Bank of Ireland declined 12 percent to 79 cents.

Laws allowing the government to set up the National Asset Management Agency will be drafted within weeks and will be put before the parliament in Dublin before the summer, Deputy Prime Minister Mary Coughlan said today. (Bloomberg)

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