Kieran O'Donnell (Limerick East, Fine Gael)
Link to this: Individually | In context

Question 5: To ask the Minister for Finance the status of the recapitalisation plans for covered institutions; and if he has assessed the options to isolate impaired loans within banks in order that good banks can be put in a position to resume lending with a clean balance sheet at minimum cost to the taxpayer. [12768/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

As the Deputy will be aware, the Government has agreed the recapitalisation terms to be offered to Allied Irish Banks and Bank of Ireland, and these terms will be put before shareholders of the two banks in the coming weeks; indeed, in the case of Bank of Ireland, I understand they will be put before a general meeting of the bank tomorrow. The recapitalisation package will provide €3.5 billion in core tier 1 capital for each bank. The State will receive preference shares with an annual coupon of 8%, as well as warrants for the purchase of shares in five years' time at predetermined prices. The terms of the recapitalisation include a bank customer package which includes additional capacity for mortgage and small and medium-sized enterprise lending. The Government is in discussions with the other covered institutions concerning their respective capital positions.

With regard to impaired loans, the Government is conscious that in current market circumstances there is a need to bring greater certainty and transparency to the operations of systemically important financial institutions, in particular in regard to specific asset classes currently perceived as carrying a higher than average risk. Irish financial institutions have very little exposure to the sort of complex financial instruments which are weighing on the balance sheets of many banks internationally. However, Irish institutions have engaged in lending for land and property development, and construction, which has exposed them to a specific risk at a time of falling property prices and difficult economic conditions. The Government, therefore, announced on 11 February, along with its recapitalisation programme, that it would examine options for risk mitigation in this area. This work is currently under way.

In this context, I have asked Dr. Peter Bacon and the National Treasury Management Agency to report to me on the management and reduction of risks of bank balance sheets. I have seen the initial report prepared by Dr. Bacon for the NTMA. The proposals, with ongoing work at EU and European Central Bank level, will inform the considerations and any decisions the Government may take in this area. I will bring forward proposals in this area as a matter of priority.

As with all of the actions taken by the Government to address the issues faced by the banking sector, a key objective in the consideration on impaired assets will be to ensure that any State involvement will protect the interests of the taxpayer.

Kieran O'Donnell (Limerick East, Fine Gael)
Link to this: Individually | In context

Have discussions taken place with the banks to deal with the issue of setting up a toxic debt bank and what has been the outcome of those discussions? Has the report from Dr. Peter Bacon been considered by Cabinet? Will the Minister explain, if he is considering setting up a toxic bank, what will be the cost to the taxpayer in terms of write-downs on developers' loans?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

There is no proposal to establish what Deputy O'Donnell described as a toxic bank. No such proposal is among the options being considered by the Government. The position of the Government is that the Cabinet has been briefed in an informal way about the nature of the options involved. The Government's consideration of this matter has not gone beyond that and, as I indicated in my reply, I will be bringing proposals to the Government in due course following a detailed consideration of the report from the NTMA and Dr. Bacon.

The Deputy asked about the position of the banks. Discussions have not been entered into with any of the guaranteed institutions or other institutions on any formalised basis in regard to this. I cannot and am not briefed to answer in regard to what contacts have been made between Dr. Bacon and-or the NTMA in the context of the preparation of his report. It may be that he has made informal contacts with different financial institutions for the purpose of assembling the information and making the assessments he makes in his report.

Kieran O'Donnell (Limerick East, Fine Gael)
Link to this: Individually | In context

How does the Minister intend isolating what is now familiarly termed toxic debt? If I might make a proposal, when the Minister is examining considerations, Fine Gael has put forward a position which is, effectively, that instead of setting up a toxic bank, one would allow the toxic debt to remain in the existing banks and set up fresh banks, which would cost the State less. The Minister still has not quantified what will be the cost to the taxpayer of dealing with the situation in regard to toxic debt and of ensuring funds flow to small businesses. Will the Minister give consideration to the Fine Gael proposal?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

Deputy O'Donnell insists on using the expression "toxic debt". Toxic debt in banking discussion generally relates to the kind of paper instruments which were generated in the United States and were common in the United Kingdom banking sector — derivative instruments and the like. They do not exist to any substantial extent and, in fact, exist to a minimal extent in the Irish banking sector. As I pointed out in my reply, the exposures of the Irish banks relate to property, which is not a toxic asset and has a residual value. It is important the Deputies understand this. It is accepted by most international analysts and by those who examine these questions.

The continued use of the phrase "toxic", while popular from a political point of view, does not characterise the nature of what we are dealing with here. We are dealing with substantial exposures to property loans where moneys were advanced in the context of falling asset prices. The various options being canvassed at the NTMA and analysed by Dr. Bacon are being analysed in that context. No final decision has been made by the Government on this matter and, as I indicated in my reply, any final decision will take into account and be based on the best interests of the taxpayer and the economy.

Kieran O'Donnell (Limerick East, Fine Gael)
Link to this: Individually | In context

When does the Minister expect to make the decision on this? The Minister refers to not using the term "toxic debt". We can call them under-performing or non-performing loans. When one is talking about write-offs of 60%, they are highly toxic. The Minister continuously tells us that the world is looking in on us. The world is looking at the Minister also. These are regarded as toxic debts. When will the Minister deal with the issue?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

It is interesting that the credit default swaps with regard to Ireland narrowed dramatically in the past week or two. The market judgment in that particularly speculative market — a market for which I do not have great regard, although it is worth noting since it was recited at length in the House in recent times — is that these particular instruments have now narrowed where Ireland is concerned, and, therefore, the level of speculative, crazed gambling on the future of this country has disappeared somewhat. One of the reasons it has disappeared is because of the recent visit to Ireland of the President of the European Central Bank and the clear and unequivocal position he took that Ireland is a member of the eurozone, like any other member.

Kieran O'Donnell (Limerick East, Fine Gael)
Link to this: Individually | In context

When will the Minister deal with the issue of non-performing loans?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

I indicated I will bring proposals to the Government in due course but, as Deputy O'Donnell would expect, the interests of the taxpayer have to be safeguarded in any analysis we are conducting of this question.