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News : Irish Last Updated: Sep 17, 2009 - 2:25:54 PM

Lenihan says Irish "bad bank" NAMA will accept €77 billion in property loans for value of €54 billion - - a 30% discount
By Finfacts Team
Sep 16, 2009 - 5:26:32 PM

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The site of the former Irish Glass Bottle plant, Ringsend, Dublin (within red contours). It was purchased at the peak of the boom in 2006 for €412 million, by a consortium led by developer Bernard McNamara. In the same year, Ireland's biggest bank AIB, sold part of its Dublin headquarters, the Bank Centre, to developer Seán Dunne.

The Minister for Finance Brian Lenihan today announced in the Dáil the valuation for the property loans with a nominal value of €77 billion that will be transferred to the Irish  "bad bank" NAMA (National Assets Management Agency) will be €54 billion  - -  a 30% discount.

Lenihan has chosen a controversial system based on long-term economic value of the underlying property securing the loans, rather than market value. There is also uncertainty as to the true loan-to-value (LTV) ratio of the loans to property developers, as the official position that 25% of property project values was paid in cash, is not seen as credible.

The minister said that of the €77 billion worth of loans, €24 billion came from AIB, €28 billion from Anglo Irish, €16 billion from Bank of Ireland, €1 billion from EBS and €8 billion from Irish Nationwide. He said two-thirds of the loans related to assets in the State, with one-fifth in the UK.

He said that current market value of the loans was €47 billion, and the estimate for the long-term economic value added another €7 billion. He said banks cannot be forced to sell assets at below rational prices.

He said NAMA would need a rise in property prices of less than 10% from current levels over 10 years to break even and said 40% of the loans NAMA planned to take on were currently producing cash flow, and would cover interest payments on the bonds NAMA was issuing to the banks.

He said a cleaned-up banking system was the only way to restore credit to the economy, and that if we did not act now to free the banks from their bad loans, we would not be in a position to benefit from the global recovery which appeared to be emerging.

Lenihan said he was determined to re-fashion the banking and financial system, and that the banks should be "extremely grateful" for the support of the State.

He said some institutions would need fresh capital after the transfer, but the Government wanted them to explore ways of raising this from private sources, but the Government was committed to providing them with capital if necessary.

Earlier, Wednesday, Fine Gael leader Enda Kenny said he had "deep concerns" about the proposed overpayment of assets, saying it appeared to bea "massive bailout for banks, with no bailout for mortgage holders or taxpayers".

He claimed the Bill did not have the support of all members of the Government nor did it have the support of the Opposition.

"I am equally concerned by the lack of any independent review of the legislation by the Oireachtas,"he said.

Labour Party leader Eamon Gilmore said the NAMA Bill was the most important piece of economic legislation to come before the Dáil since independence.

"It's consequence is that, not just today's taxpayers but future generations of taxpayers, our children and maybe even our grandchildren may be paying for the measures that are being proposed by the Government here today for decades to come," Gilmore told the Dáil.

Lenihan's speech

 NAMA - Supplementary Documentation from Department of Finance

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