Marc MacSharry (Fianna Fail)

I join others in welcoming the Minister of State. I am glad to have an opportunity to make a few points on the National Asset Management Agency. In recent weeks, many calls have been made for a debate on the issue and we are all happy with this opportunity to make a number of interim points. As I cautioned in response to a number of contributions on the Order of Business, NAMA is a work in progress and we will need further debates as more of the details become clear.

Due to other commitments, Senator Twomey was not in a position to attend this morning's meeting with NAMA's interim director, Mr. Brendan McDonagh, the Minister for Finance, Deputy Brian Lenihan, and Dr. Bacon. It was extremely informative, lasted for four hours and, lest I was in any doubt, left me confident we are moving in the right direction, that we have engaged the correct personnel and that our approach is correct, notwithstanding that the international community has already adjudicated that we are moving in the right direction in terms of our policies, including not least this one, but also last week's issue of oversubscription of bonds, the NTMA issue and so on. Internationally, our approach so far has received a resounding thumbs up.

The purpose of NAMA's establishment, a major initiative, is to transfer key exposures from the financial institutions to NAMA to clean up banks' balance sheets and provide them with Government bonds, thus enabling the resumption of the flow of credit to the real economy. Key exposures identified by the market and the credit rating agencies include all the land and development loans of the eligible institutions, amounting to some €60 billion, and the commercial loans linked to land and development loans, estimated to be worth €20 billion or €40 billion. Therefore, NAMA will acquire performing and non-performing loans. In return, the institutions will receive Government bonds issued by the NTMA. These may be used as collateral to avail of European Central Bank, ECB, funding. It is envisaged that the interest payable on the bonds will be offset by interest flows from performing loans acquired by NAMA.

While NAMA will initially deal with the management of transferred loans, there is little doubt that a large part of its work may become the management of a portfolio of underlying property assets. In managing these loans and assets, NAMA will have a commercial mandate, the aim of which will be to ensure over its projected lifespan of ten to 15 years the optimal outcome of the realised value of the assets transferred to it. The Government and the Minister of State have stated that NAMA will have a categoric and clear mandate to ensure taxpayers do not pay for the over exuberant lending practices of the past decade. In the event of there being a shortfall, the Government has signalled the money will be recouped from the financial institutions via levies, which were mentioned in the last budget.

Senator Twomey suggested we buy up loans and assets, give Government bonds and have a fire sale of the assets. I am sure the Senator saw last weekend's coverage of the situation in the United States of America in the 1980s, namely, the savings and loans debacle. As Senator Quinn alluded, the Resolution Trust Corporation was established with some 8,000 or 9,000 employees, took in assets valued at approximately $450 billion and closed after six years with a loss of approximately $90 billion. This morning, the Minister for Finance alluded to a part of the reason for this, namely, that there was a fire sale. However, a fire sale is not the intention behind NAMA. Rather, its purpose is to take on board and manage the assets and to pursue workouts to the fullest extent possible and to the taxpayers' benefit. There will be no fire sale.

As will inevitably be the case when a number of developers default on their obligations, assets must be secured. However, NAMA has no automatic intention to dispose of those assets at the earliest possible convenience. It has an obligation to ensure it gets the maximum return, but this does not mean it must have a fire sale or auction the following week of whatever landbank or property may be at stake. As was confirmed to us this morning, it will have the ability to bank land to be brought to market at the optimum time. This is to be welcomed.

Those developers who find themselves marginally outside in terms of their ability to react to the changing times in which we find ourselves will be happy to hear that every loan will be treated individually after the valuation methodology has been worked out, an ongoing process. No blanket approach will be taken whereby all development loans will be cut by X percentage. This is also to be welcomed because situations can differ greatly. While Dr. Bacon mentioned a broad blanket approach in his initial recommendations, it considered six types of asset. The methodology will be even more detailed and will examine each loan to assess its value. Any objective observer could be pleased about this.

Senator Twomey asked whether NAMA will take on many employees and what the consequential cost implications would be. The Resolution Trust Corporation in the US had many employees, but it is envisaged NAMA will have few, perhaps 30 or 40. Over the coming months, some experts might be contracted in on a short-term basis to ensure NAMA has the optimum and correct form of legislation before being tabled before the Houses. We will be prepared to sit in July or whenever. The Minister, Deputy Brian Lenihan, and Minister of State, Deputy Mansergh, have stated the Houses will be recalled if necessary. We could use the existing banks to administer the loan books on their behalf and under strict criteria.

This morning, I raised my preference for an Indonesian approach. When Indonesia faced a similar situation, its banks were incentivised to get the maximum possible return for the assets. Our banks will not just focus on the lower valuation paid by NAMA. Instead, they will be incentivised to recover the maximum amount and may receive a return for doing so. Since examining the Indonesian example would be of benefit, I am glad to report that NAMA's interim director, Mr. McDonagh, stated it is being considered as an option. There would be nothing worse than using personnel within the banking system to administer the recovery of debts, only to have the banks collect the €85 million out of every €100 million paid by NAMA before moving on to more profitable business. As that would be regrettable, we must consider some level of incentivisation.

The heads of a Bill are being worked on. As it is appropriate that we get this right, I am pleased that some time is being taken. I have often heard it said on many sides of the House that rushed legislation normally tends to be bad legislation. I am pleased that the appropriate time is being taken and that the appropriate expertise is being brought into play. I hope towards the end of July, we can see the heads of a Bill and, if necessary, throughout August or September we will be brought back here to pass it through the Houses.

I am informed that following the enactment of the Bill, NAMA could be up and running, in terms of taking loans under its control, within eight weeks, and I welcome that. I asked a question at a committee this morning and it is a shame more members of the Seanad could not make it to the debate, because I am sure some very important questions could have been put to the witnesses attending and Dr. Bacon.

I am pleased we are moving in the right direction. As the Minister of State, Deputy Mansergh, mentioned, the questionnaire to be returned by all the financial institutions to the interim director last evening indicated some 1,200 borrowers have borrowings in excess of €10 million and quite a few have borrowings in excess of €500 million. Taking into account all six institutions, some have borrowed in excess of €1 billion. As we look to the future, notwithstanding the challenges we currently face, there are lessons we can learn.

As the Minister of State mentioned, the project is being managed by the steering group, made up of senior officials from the Department of Finance, the Attorney General and the NTMA. One point Senator Twomey mentioned, which was a major issue from the Fine Gael perspective, was how one can charge a levy at a late date on the basis that I bought X from someone today at €100, have only been paid €80, am down €20, and, therefore, another person must now pay me €20. It was a valid point, but by using the Finance Act as a vehicle, the Government can levy the banks for, effectively, whatever it wants.

The point was made by myself and others this morning that the legislation introduced to set up NAMA would signal the agreement of the financial institutions covered by it that that would be the case and would happen so we could avoid potential legal challenges when the time would come. It is well down the road, so one is in a position to say what would be recovered for what assets, if appropriately managed over the eight or ten-year period.

The witnesses before the committee this morning also informed us lands were bought at speculative rates, on the assumption they might be rezoned or valuable from a development point of view at some stage in the future. Such lands are worth no more than agricultural values today. It is envisaged by those involved in NAMA that no more than agricultural prices should be paid for such land to date. There will be losses. There are other lands which they feel, if appropriately managed, can produce a reasonable dividend over five to 15 years. That is positive and it is not all bad news.

The comments of Dr. Somers, which left us all a little confused last week, identified many of the practical difficulties associated with a project as large as NAMA. All of us agree with that. The Government and its advisors, including the NTMA, are aware of these difficulties. Those who were at the committee this morning heard some of those issues being teased out. They had an indication aspects of it cannot be discussed at this stage, because it is still very much a work in progress, and as soon as they can be, they will be. Senator Quinn, who was at the committee for four hours, along with myself, agree we were given a clear indication and some confidence that these issues are in hand. Mr. Brendan McDonagh, in particular, was impressive.

Establishing NAMA and drafting the legislative framework within which it will operate is very complex. There are, as Dr. Somers pointed out, considerable potential legal and practical difficulties. The Minister of State met Dr. Somers and he has confirmed to him he is supportive of the NAMA proposal and sees no other solution to the issues that arise in the banking system.

The NTMA has, at all stages of the development of the NAMA proposal, been a key policy advisor to the Minister and Government on the banking crisis. We have seen some coverage over the last number of weeks, as Senator Quinn will bear out, that what the Government was pursuing was not remotely in line with what was proposed by Dr. Bacon and others. At today's meeting, one was left in no doubt that Dr. Bacon felt everybody was in agreement that what he had suggested was completely at one with what the Government was pursuing.

There are difficulties and major complexities to be teased out. I am much more confident today than I was last week, having heard the contribution of Dr. Somers. For those who could not attend the meeting, perhaps they could check the records of it. It was very positive indeed. This is the first of a number of debates on NAMA and I look forward to participating in future ones.