Paschal Donohoe (Fine Gael)

I welcome the Minister of State, Deputy Mansergh. I want to focus on an aspect of the business plan that was not referred to in his contribution and which has not been part of the public debate on the NAMA legislation to date.

The objectives of NAMA, as laid out in the draft business plan, are very clear: "The eligible assets to be acquired from participating institutions are land and development loans and associated loans." This forms the basis of the discussion to this point. I want to probe why the State will be taking on from the banks derivatives that are worth €14.6 billion in total.

Appropriately, the entire discussion on the business plan focused on the property loans that form the bulk of the transactions that the State seeks to engage in. However, as part of the transactions, NAMA will be taking on responsibility for 1,000 derivative positions, as mentioned in the plan, at a cumulative value of nearly €15 billion. This is a huge undertaking on the part of the State. The legislation defines what derivative instruments are and gives the Minister the ability to take them on board on behalf of the State if he believes it to be necessary.

We understand that one of the principal causes of the near collapse of the global economy last year was the effect of these derivatives on multiplying risk that people did not understand across institutions all over the world. My broad question concerns why these derivatives are included in the NAMA business plan. What is the rationale for the State taking them on board?

I have four questions to which I would appreciate an answer in the Minister of State's response. First, what are the derivatives the State is taking on board? The document states they concern interest rate swaps or interest rate hedging tools that the State will take on board on behalf of the banks. However, this is a very small amount of information on the very big position the State will be taking on board. What is the duration of the derivatives to be taken on board? Are we really sure all the instruments for which the State will be responsible concern the property loans the State is taking on?

Given that a large proportion of the loans the State will be managing includes properties outside the euro zone, it strikes me as very odd that the documentation on the derivatives makes no reference to currency hedging, which I believed would form part of the transactions that are taking place. What are the derivatives? We need more detail than what is included in the business plan.

My second question is fundamental. How is the figure of €14.6 billion arrived at? I ask this in the context of the fact the only item of public information I could find on this derived from a statement in the The Irish Times in August 2009: "The National Asset Management Agency (Nama) may acquire derivative instruments nominally valued at up to €40 billion as part of the deal to buy property and development loans from banks." The spectrum laid out this summer involved a position worth between €20 billion and €40 billion. The business plan lays this out at just under €15 billion. How are these positions being valued? Given that the State has just put out to tender the contract for an agency to value these positions, how can the business plan value what the hedges are worth when the State has not yet employed the agency to do this work?

Third, who are the counterparties to the derivatives? Did Irish banks sell these instruments to each other? Was it the case that Bank of Ireland was selling derivatives to Anglo Irish Bank, or vice versa? I am more worried about the question of whether the counterparties to these positions are located outside Ireland. Who are they? This is pertinent because a great number of the hedge funds that have been acquiring these positions abroad are going broke because of what is happening in the global economy.

Our party put forward a proposal in the Dáil on a register of property liabilities so people could understand exactly who will be receiving the support of NAMA. It appears obvious to me that, at the very least, the same clarity should be brought to the €15 billion in derivatives for which the State will be responsible if and when NAMA is in operation.

My fourth question concerns the write-downs, on which there has been much discussion thus far. We spoke at length about the haircuts that are proposed and which will take place and about the fact the markets assume a greater discount will be arrived at in the valuation of properties. If the total value of the property loans in question has decreased from €77 billion to €44 billion or €45 billion, has a similar adjustment been made to the value of the derivatives NAMA will be taking on? Have we adjusted the position in the business plan to take into account what happens if the value of the loan upon which the derivative is based is either wiped out or impaired?

What are the derivatives and to what are they attached? How are they being valued given that the only information we have had to date suggests they are worth between €20 billion and €40 billion? The current figure is €15 billion and the State has not yet employed the agency to carry out the valuation. Who are the counterparties? Has any adjustment been made to account for the reduction in the value of the loans upon which many of these derivatives will be based?

Let me make a simple but very important point. One reason the whole banking system nearly fell apart is because these kinds of questions were not asked. A shadow banking system developed alongside the banks we knew and understood. Much of that took place off balance sheet and the regulators we were employing and the governments that were in place did not understand what was happening. I hope there are straightforward answers to the questions I have posed, but I am disturbed to see that volume of money in the business plan with so little information and detail about it, against instruments we have seen wreak such havoc on the banking industry and then on the real economy.