Dáil Éireann Debate, Thursday - 3 December 2009
6 Deputy Enda Kenny asked the Minister for Finance if he will indicate the start-up date for the transfer of assets to the National Asset Management Agency; and if he will make a statement on the matter. [44821/09]
Amharc ar fhreagraThe National Asset Management Agency Act 2009 provides for the acquisition of eligible assets from participating institutions by NAMA. In accordance with the terms of Part 6 of the Act, it is expected that the first acquisition schedules will be served by NAMA on participating institutions in January 2010. This will prioritise the loans of the larger borrowers across the participating institutions. Section 87 of the NAMA Act provides the date of acquisition of a designated bank asset shall be at least 28 days after the relevant acquisition schedule is served on the participating institution concerned unless NAMA specifies a shorter period in the acquisition schedule. The precise timing of the acquisition process and of the transfer of the first tranche of assets to NAMA will be dependent on the extent to which credit institutions have conducted the necessary preparatory work and on EU state aid approval. My officials continue to work closely with the European Commission in an effort to secure early approval for the scheme.
I understand the preference shares in AIB will not have a coupon paid to the Government. It may then be put into a position that it will have to acquire ordinary shares as a result of the effect of default. Will the Minister comment on this?
Is restructuring of the banks a core issue to getting EU state aid approval? Will the Minister inform the House where the debate now stands as to the necessary restructuring? Will we see the banks required to divest some of their existing activities, perhaps to a third banking force or elsewhere?
An issue arose with AIB about the payment of a coupon related to an instrument other than an instrument issued by the State. In view of the submission of the restructuring plan, the European Commission felt the payment of coupons should be suspended pending the determination of the restructuring plan. A decision, therefore, has not been taken as to whether the coupon on the preference shares taken by the State in AIB will be paid. That decision will be made in the context of the restructuring plan and having regard to state aid issues which arise from it.
Will this trigger the takeover of ordinary shares by the State?
It is a contingency; it is not something that will necessarily happen. The European Commission has advised us that this issue will be considered in the context of the request for its approval of the structural plan. The Commission expressed the view that were AIB able to raise private capital, then it would expect the State to continue to receive its coupon. That is only, however, a preliminary view.
The term sheet governing the preference shares made clear that if there were a default on the payment of the coupon, the State would then acquire an increasing share in the ordinary equity of the relevant institution.
The restructuring plan has been submitted to the Commission. In assessing it from a competition and state aid perspective, the Commission is anxious banks focus on their core business and divest themselves of assets not central to that. That is a matter which will engage the attention of the Commission in the coming weeks.
Would the Minister agree the State's acquisition of these ordinary shares compared to the preference shares represents appalling value for the taxpayer? Does he envisage that part of the restructuring of the banking sector will require them to divest some of their activities in the Irish market so the too-big-to fail problem will not afflict us in the future?
That issue will be examined. The current preference shareholding arrangement assures the taxpayer of a fixed repayment from the institution concerned. Were the State to take ordinary equity, it would have the expectation of a dividend and the hope of an eventual value in an item which is pure risk capital. That is the contrast between a pure equity investment and the preferential arrangements negotiated with Bank of Ireland andAIB.
However, the State would be vastly overpaying for this.
That issue can only be determined in a particular context at a particular time when the matter comes for determination which it does not at this stage.
The recent revelations in this matter are very disturbing for taxpayers. The State gave AIB €3.5 billion, €500 million short of the Minister's gap next Wednesday. For this, the Minister will inflict incredible pain on families and workers across the country. That €3.5 billion was for the purposes of acquiring a preference share interest in the bank. If it were to be converted into ordinary equity, the State stands to get, on the basis of the deal the Minister insisted was fantastic, 25% of AIB.
The State will get a greater share.
Today, the bank could be bought in its entirety for €5 billion. We stand to lose over €2 billion on this deal the Minister entered into with the National Pensions Reserve Fund.
The Minister is always at pains to suggest there is no link between the budget woes that people will hear from him on Wednesday and the bail out for the bankers and developers. The figures in question are deeply worrying, especially for the Minister, as they suggest the arithmetic has gone badly askew.
The indications during the debate on the NAMA legislation——
Does the Deputy have a question?
——were that the top ten and then top 30 developers' loans would be transferred before Christmas. How many does the Minister expect to be actually transferred? Has the Minister revised the transfer date to the end of January or even February? What is the value of those assets? What is the revised date for the transfer of all toxic debts to NAMA?
I do not know where to begin with the various assertions and statements made by the Deputy about bail outs for developers and bankers. Deputy Burton is well aware that with the budget there is a profound gap between the State's receipts and expenses in Vote capital and Central Fund payments.
There is €7.5 billion this year for the banks.
Deputy Burton, allow the Minister to reply.
It is the narrowing of that gap that has to be addressed in the budget next Wednesday.
Apart from that gap, the State has had to make a substantial investment to ensure that we continue to have a viable banking system. It was made on the basis of a defined return from Bank of Ireland and AIB. If that investment is converted into ordinary equity by way of a capitalisation, then the State's interest, while more long-term and greater in character and eventual value, will lose the short-term advantage of an income flow. It is not correct, as Deputy Burton suggested, that if the State obtains shares in lieu of coupon payments then these shares are part of the 25% stake which the State already has in the institution.
The NAMA draft business plan was published in early October, based on the best available information then. Minor delays took place with the completion of the legislative process. This was due to final proofing of the Bill before presentation to the President. Operational issues have also arisen concerning shareholder approval in the different applicant institutions. These factors have extended the timetable but it is not a significant delay. I except the first set of acquisition schedules will be served on participating institutions in January. The agency will begin with the largest aggregate exposures and the first tranche will take place in January. The business plan indicated that the transfer process will be completed by July 2010. As I have stated previously, the commencement of the transfer assets will begin in January and a final business plan will be prepared in the coming weeks for approval by the NAMA board. I do not expect the timetable as set out in the draft business plan to change to any significant extent.
I will allow a brief question from Deputy O'Donnell. We have already spent a great deal of time on this question.
I have two brief questions. Am I correct that the extraordinary shares will be based on coupon foregone in terms of preference shares?
No. The term sheet provides that additional ordinary shares are allocated in the event of non-payment of the coupon.
What extra percentage of ordinary shares would the Minister expect?
I do not have those particulars before me and will arrange for the information regarding the term sheet to be forwarded to the Deputy. It is calculated by proportion to the value of the institution and the——
The Minister referred to the restructuring of AIB or any of the banks. What level of additional private capital will the two main banks, Allied Irish Bank and Bank of Ireland, require?
Again, the determination of what additional capital will be required will turn, first, on the impact of the acceleration of losses imposed by the NAMA exercise and, second, by a determination on the part of the Governor of the Central Bank and Financial Regulator in terms of what will be the appropriate percentage required by these institutions.
The market is determining that, as the Minister is well aware.
