Peter Mathews (Dublin South, Fine Gael) | Oireachtas source

I thank the delegation for its presentation. We have heard much about pockets of the forest, but I want to look at the overview of it. The balance sheet of any business tells us an awful lot if we ask the right questions. In December 2007 Bank Zachodni-WBK, BZ-WBK, was consolidated into the balance sheet but not EBS. After the then Minister for Finance, the late Brian Lenihan, announced the NAMA model, I examined the balance sheets of the six banks. I noted that staff levels at AIB were 25,000, but 10,000 of them were in BZ-WBK. The average salary in the AIB Group was €10,000 less than that in the Bank of Ireland Group. This can be explained by the fact that average salaries in the Polish bank are low compared to those of home and English-based employees. The capital injection was €20.7 billion and the aim is to get the bank to sustainable profitability and develop a model to attract investors to rehabilitate the bank. AIB offers one of the lowest standard variable rates, SVR, at 4%, in the market. The sensible level would be 5% to 6% when one factors in the costs of operating a long-term mortgage book and risks.

There are bits missing from the balance sheet provided by AIB. Shareholders’ funds are listed at €13 billion, while customer deposits come to €64 billion. That gives a subtotal of €77 billion. The balance sheet states the bank’s total assets come to €130 billion. What do the European Central Bank, ECB, and other interbank advances come to? The balance sheet lists other assets at €50 billion. What are these assets? It must be remembered that loans for buy-to-let properties or land speculation may be worse than we think. Perhaps mortgages will suffer another tsunami. This means the €80 billion net needs further provision. Perhaps we should start doing surgery rather than with provision. It is time to recalibrate loans through debt restructuring rather than debt forgiveness. Independent News and Media, for example, has had to restructure its debt and it did not leave creditors hanging. We need creditor buy-in in the banking system, which must be done by the Central Bank and the ECB. We do not necessarily have to wait for the European Stability Mechanism, ESM, to be set up, with its banking supervision function. We need a creditor to step into the shoes of the bond investors in AIB in the same way that was done with Anglo Irish Bank.

There is still much confusion about the €25 billion estimate for the loans embedded in Anglo Irish Bank. Irish Bank Resolution Corporation’s loan losses are reduced by the drip feed of income from the promissory note which comes to €18 billion in interest. That is a liquid asset being injected into the bank’s balance sheet at intervals to pay off the emergency liquidity assistance, ELA, provided. The ELA was the originating cause because it was needed to redeem the bond investors in full to save the euro. If one adds the income of €18 billion plus the embedded losses of €25 billion, it comes to a loss of €43 billion. Depending on how much interest comes into the IBRC by way of the promissory note, it adds to the estimated losses of €25 billion.

I am concerned about investors in the buy-to-let market not those who came in on the last wave but those who genuinely built up investment property portfolios and managed them in a professional way, letting them to answer a demand for accommodation in city markets. The interest on their carrying loans in their portfolios is now being restricted by the Department of Finance in terms of its allowability as an expense to be deducted from rental income for income tax assessment purposes. That is another timebomb because that interest restriction is actually growing. It should be reversed if we want to save that category of investor. It is not a question of a free lunch but one of survival. I urge the bank to raise the matter in its pre-budget submission to the Government. I asked representatives from the IBRC to do the same this morning.

When it comes to restructuring loans, whether they are mortgages-----