Dáil Éireann Debate, Wednesday - 13 May 2009
58 Deputy Joan Burton asked the Minister for Finance his views on whether the State, through the National Asset Management Agency, could potentially significantly overpay for assets transferred to NAMA and that any such overpayment would constitute an indirect transfer of wealth from taxpayers to shareholders; and if he will make a statement on the matter. [19130/09]
View answerThe objective of the National Asset Management Agency, NAMA, is to strengthen the banks' balance sheets which will considerably reduce uncertainty over bad debts and as a consequence ensure the flow of credit on a commercial basis to the real economy, to protect and grow employment, while protecting the interest of taxpayers. As I announced in early April, the potential book value of loans that will be transferred to NAMA is in the region of €80 billion to €90 billion, although the amount paid by the agency will be considerably less than this.
Pending the establishment of the agency on a statutory basis, an interim managing director has been appointed. I will announce an advisory committee in the coming days. The establishment of NAMA and interim preparations will also be overseen by the steering group recently established by me and including representatives of my Department, the NTMA and the Office of the Attorney General.
The valuation of the loans will be a very important variable. Preparatory work for the establishment of NAMA which has commenced will include an extensive due diligence on the loan books of the banks to ensure the appropriate categories or portfolios of loans are transferred to NAMA and that the banks are cleared of their identified riskiest loan portfolios. Loans will be transferred from the banks to NAMA at an appropriate written down value. The development of a valuation methodology by the interim agency will take account of the advice of the advisory committee and such other advisers as may be appointed and will be consistent with European Commission guidance and subject to EU state aid approval. This will take into account the risk being transferred to the State and an appropriate adjustment for the value of the State support being provided.
The Government has received expert financial, economic, legal and valuation advice at every step of its measured response to the turbulence in the banking sector. Likewise, specialist expertise, including valuation expertise, will be procured by the NTMA to ensure the work to be done by NAMA when established is accomplished in the most efficient manner so as to safeguard taxpayers' interests.
I should like the Minister to answer three points as regards the NAMA proposal, the most importance of which is how are the toxic assets to be priced in a transparent manner that commands public confidence? The Minister mentioned an advisory committee. Presumably, like all of the other parties in this process, it will be a secret committee because that is effectively what has been happening since the giving of the guarantee — secrecy with minimum information. The Minister has told us nothing about the funding of the asset purchases and the year by year cost of the associated public debts, the enormous increase in our interest costs and the cost of servicing our debt, as a consequence. There is the absence of a commitment to public accountability and oversight, similar to the procedures put in place in the USA and most successfully in Sweden where the banks had to be rescued, as well as in Finland. The Government has avoided all three points and the Minister will not tell us how he proposes to deal with them. No wonder people on the doorsteps are in a rage as regards what they are going to be charged in respect of NAMA.
I am glad the Deputy at least acknowledges that valuation is the crucial issue, that the valuation of the transferred assets lies at the heart of what has to be done. To ensure best value for money for the taxpayer, loans will be transferred from the banks to the agency at an appropriate written down value, depending on an assessment of the value of the loans and the risk being transferred to the State. Valuations will be assessed in line with European Commission guidance and will be subject to EU state aid approval. Clearly, the advisory committee will have a great deal of work to do——
Who are the members of the advisory committee?
Please allow the Minister to continue.
——in establishing a basis with the interim managing director and elaborating on a proposal which can be translated into legislative form and considered by the House. Loans will be transferred from the banks to the agency at an appropriate written down value as determined by it. The assessment will have to be in line with European Commission guidance. The identity of the members of the advisory committee will be announced by me in the coming days. The level of discount and the terms and conditions of the transfer of assets will ensure the banks will not get off lightly. They will have to take an appropriate written down value of loans, taking account of the objective of the agency which is to operate commercially and optimise the return on such loans over time.
On the suggestions of secrecy made by the Deputy, with the charge that minimum information has been made available, I have always made it clear that the Governor of the Central Bank and the National Treasury Management Agency are available to brief her on these matters. However, there are commercially sensitive matters in relation to all the loan books which would affect the stability of the banking system and which, therefore, cannot be published in the House as a matter of course.
Does the Minister understand that the banks, the covered institutions, are partially bankrupt? Some of them may be wholly bankrupt. He has mentioned the Governor of the Central Bank, his own Department and the regulator. Does he have confidence that these institutions have served well in this crisis? He said he had paid a minimum of €2 million to Merrill Lynch and up to €6 million for its advice. I still cannot figure out what it advised him to do. It would have been better if he had read the newspapers in Ireland; at least, he would have received more advice. He paid €3.8 million to PricewaterhouseCoopers for stress-testing exercises which, to be honest, were mathematical mumbo jumbo. Credit from the banks is frozen and many of their assets are impaired to the tune of more than 80% of their book values. The Minister's reference to book value sounds like a cleverly written lawyer's formula for going soft on the valuation issue. In other words, he values assets high and the taxpayer takes a hit of up to €50 billion. That is what Professor Patrick Honohan said at the joint committee, and there is a man who knows a lot. Can the Minister come clean with the House?
We must proceed with great care because the valuation of these assets must be done to protect and take account of the interests of the taxpayer.
So, are they being written down?
That is why I am not prepared to rush into giving a personal view on how the valuation should be conducted. I will take account of proper competent advice on that. That is my intention.
Where will the Minister get that advice?
Deputy Burton casually threw out the suggestion, as she does so often in banking matters, that this is a conspiracy to enrich bank shareholders. That is very wide of the mark. The purpose of this exercise is to clean the balance sheets of the banks so they can be restored as normal entities lending into the economy.
A few moments ago Deputy Burton stated that covered institutions, namely, the Bank of Ireland, Allied Irish Bank, Irish Life & Permanent, Anglo Irish Bank, the Irish Nationwide Building Society and the Educational Building Society are wholly bankrupt. That is a highly irresponsible statement.
No. I said some of them are partially bankrupt in parts of their business.
We should be very careful.
The Minister has been warning me off since last October. Every time an open discussion happens he tries to warn me off.
I am not trying to warn Deputy Burton off.
He does not want any discussion.
I am more than pleased to have discussions. We had an extensive discussion at a meeting of the Joint Committee on Finance and the Public Service.
The covered institutions are not wholly bankrupt. I am not warning Deputy Burton off. As the Minister charged with responsibility for banking, I am telling her that what she says is not in accordance with the facts.
