Seán Fleming (Laois-Offaly, Fianna Fail)

I welcome the opportunity to speak on the National Asset Management Agency Bill 2009. Introducing the legislation, the Minister for Finance indicated that the National Asset Management Agency will purchase a loan book valued at approximately €77 billion for approximately €54 billion. The figure of €77 billion is broken down as follows: Allied Irish Banks, €24 billion; Anglo Irish Bank, €28 billion; Bank of Ireland, €16 billion; the Educational Building Society, €1 billion; and Irish Nationwide Building Society, €8 billion. The Minister noted that it is projected that 36% of the assets will be land, 28% development property and 36% associated commercial loans. Many of the commercial loans were for normal lending purposes and not confined to property.

The Minister also noted that it is estimated that 40% of the loans NAMA will acquire are cash flow producing. As such, repayments are being made on these loans and the cash flow produced will be sufficient to cover interest payments on NAMA bonds and operating costs. I raise this because many people believe NAMA will only acquire bad loans. The agency will acquire all property loans, both good and bad, above a certain level. It will do so for the good reason that many developers have a mixture of good and bad loans and the highly complicated nature of many loan structures would make it impossible to separate paying and non-paying loans. Acquiring all loans has the advantage of keeping the property portfolio together, while producing a positive cash flow for the National Asset Management Agency from the outset. It is important to note that all activities in the banks' property portfolios are covered by NAMA.

The geographical breakdown of the loans to be acquired by the National Asset Management Agency is as follows - approximately two thirds are in the Republic of Ireland; one fifth is in Great Britain; 6% are in Northern Ireland; and most of the remainder are in the United States and other parts of Europe. As each of the loans must be valued individually in accordance with the valuation methodology, the estimate of the price to be paid for the assets is provisional. It is anticipated that NAMA will pay approximately €54 billion for the loans.

Those who argue the banks are getting off scot free may have been confused by the sums involved in the debate about the National Asset Management Agency. A child in second class could work out that if NAMA is expected to pay €54 billion for loans with a book value of €77 billion, the banks must write down €23 billion from their loan book. Before the process even commences, the banks are required to remove €23 billion from their balance sheets.

The suggestion that NAMA will acquire loans at their original book value is daft. I will be generous and assume that people have not understood that the banks will be forced to accept losses of €23 billion in their balance sheets. This write-down requirement could cause significant difficulties for the banks and may result in further problems. The banks are taking the biggest loss up-front, as will be clear from their audited accounts when they are published next year which will show that loans initially valued at €77 billion with a valuation of at most €54 billion. The first hit will be in the balance sheets of the banks involved in the NAMA process.

A further misapprehension is that the State will borrow €54 billion with no return. We will get assets and property with an underlying value of €47 billion. The maximum exposure, therefore, is €7 billion. In addition, a bank levy may be introduced later in the process if a shortfall arises. It is important that people realise that the maximum value of the hit the Government, through NAMA, will take is €7 billion. If it does not recover this amount, a levy will be imposed on the banks which are already taking a €23 billion write-down before the process even commences. This basic point has been missed by most people. This oversight is fair enough given the complexity of the legislation.

I welcome the Bill, in particular, the decision by the Minister in July to seek public comment on an early draft. A number of amendments were made before publication and the legislation remains essentially a work in progress. While many amendments and improvements must be made to the Bill, its basic premise is a good one.

Anyone who argues the NAMA process does not carry a risk is fooling himself. At the same time, one takes a risk when one gets out of bed or crosses the road. Life is not risk-free and it would be foolish to pretend there is not a risk attached to the NAMA proposal. We should measure the risk by being aware that doing nothing would be much more harmful to the economy. The Labour Party proposal for blanket nationalisation is daft. The Irish people do not want to nationalisation, which must be a last resort. We have taken shares and options in the banks and have been forced to nationalise Anglo Irish Bank. Immediate nationalisation of AIB and Bank of Ireland when such a measure may not be necessary would be irresponsible. However, depending on economic circumstances, the Government may have to increase its share in these banks.

I will not even discuss the Fine Gael Party proposal for magic bank.

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