Monday, 9 November 2009
National Asset Management Agency Bill 2009: Second Stage
Brian Lenihan Jnr (Minister, Department of Finance; Dublin West, Fianna Fail)
That is what will happen if we let the banks collapse, yet all the time we hear this rancorous argument that we are not looking after the ordinary people when the primary concern is to get credit flowing in the economy and ensure the banking system survives. All the time we have this rancorous debate even though the governments in the United States, Great Britain, Germany and France, and in every other country, are taking precisely the same steps as us.
We hear the criticism although we are acting in accordance with Commission guidelines which have stated that long-term economic value is not just desirable but essential and is an inescapable aspect of any asset relief scheme. That is what the Commission has told us. That is not something we invented. There is an argument that we have somehow conjured up this mad, harebrained scheme to rescue bankers and that it has been designed not just by me but by those who advise me in the NTMA, the Central Bank, the European Commission, and the ECB. We are back to the country of the protocol of the Elders of Zion where the whole world is seen as a conspiracy against the ordinary man. It is not. This scheme has been drawn up on best advice, not just at home but abroad. The purpose of the scheme is to restore credit supply.
Quite a few Senators sought clarification on how the risk-sharing mechanisms in the Bill will work. The first involves the part payment for assets in subordinated debt of up to 5% of the total purchase price. The interest on those bonds will be payable only if NAMA makes a profit, and on winding up if NAMA makes a loss those bonds will not be redeemed. That will account for a third of the allowance for long-term economic value and is a material protection for taxpayers. The second risk-sharing measure is the inclusion in the Bill of a power to apply a surcharge to participating institutions should NAMA make a loss on winding up. If one considers that 55% of the banks are already in public ownership or control it is difficult to see how 55% of the €7 billion is in any way affected by the operation of the long-term economic value. If one accepts that the bonds cover approximately another €2 billion one is left with a figure of €1.6 billion at risk in the long-term economic value. That is far short of the €22 billion we must borrow this year, yet we decided to have a major national debate on this for the past three months.
Senators Burke and Reilly asked whether we can rely on the market value and why do we have such confidence that the market value is as stated in the estimate. The estimate is a top-down evaluation based on information supplied by the banks but that is not the valuation that takes place under the Bill. That is a bottom-up valuation in which each loan is separately and individually valued. Naturally, in going before the Oireachtas in this matter I had to give an estimate of what I believed this would cost but it is only an estimate and is subject to due diligence and that due diligence will happen. We took a particular view of the property market in the estimate because first we have to consider where the assets are located. It is difficult to believe when reading the Official Report that it is still accepted that one third of these assets are not in the State but in Great Britain, north America and other countries, in some of which the property market is already in recovery. Happily, many of the assets in north America and Britain are very close to capital cities, as one would expect with foreign-owned assets which do not tend to be in the outback.
As far as the two thirds of the assets that are in Ireland are concerned, the conventional way to measure when a property market is at the bottom is to look at the yield on rents. They have never been higher in this country. They stand at 8%, way above the long-term average. That is a clear economic signal that we are at or near the bottom of the property market. Many commentators have said that as well.