MINISTER FOR Finance Brian Lenihan summoned bank chiefs to his office before a final Cabinet decision this morning to decide the price at which the National Asset Management Agency (Nama) buys property loans from the main lending institutions.
The scale of the State’s financial exposure to Nama will be revealed today when the Minister sets out the quantity of bonds – or IOUs – that will issued to fund its purchase of loans. The controversial plan, which will greatly increase the State’s role in the banking system, aims to support economic recovery by stimulating lending.
The bond issue is expected to be in the region of €60 billion, implying a discount of about one-third from the original €90 billion value of the loans. However, writedowns already made mean that the value of the loans from which the discount will be taken is less than €90 billion.
Political and banking sources said the process is likely to lead the Government into a majority shareholding position in AIB while significantly increasing its minority stake in Bank of Ireland.
AIB chief Eugene Sheehy and chairman Dan O’Connor spent just under two hours in Mr Lenihan’s Department. Arriving at 6.20pm, Mr Sheehy said he was there to receive an update. Asked about the likely outcome of the Nama process, he said he “could not pre-judge” and described the meeting as a normal appointment.
Bank of Ireland chief executive Richie Boucher met earlier in the evening with the Minister and officials. The chief executives of other institutions also met with officials in the Department.
Exactly how the banks will share risk with Nama remains unclear. Sources said the division between normal Nama bonds and second-class bonds, to be repaid only if Nama makes a profit, was undecided.
Mr Lenihan is unlikely to set out the requirements for new capital in each participating institution when he addresses the Dáil this afternoon at the opening of the second-stage debate on the Nama legislation. However, Government sources said the requirement would be clear to analysts from the information he provides. Mr Lenihan is likely to set out the book value of the loans transferring from each institution and the split between the current market value of the assets and the projected “long-term” value.
He will set out in broad terms the location of the properties – in the Republic, Britain, Northern Ireland, Europe and the US – against which loans were issued. He will also distinguish between land, development and associated loans.
Smaller lenders such as Irish Nationwide Building Society and the EBS are likely to be encouraged to take part in a new “third force” bank with part of Irish Life Permanent, but there is no agreement on that front.
While banks will administer the loans taken on by Nama on its behalf, one source said the affairs of the largest 100 or 150 borrowers will be managed directly by Nama. They must present business plans to Nama, whose board will rule if the plans make sense.
The source said the disclosure of all loans and the associated collateral by the various institutions means Nama will have a more comprehensive overview of developers’ total debt than banks do. Banks in many cases know only their own exposure to each developer, the source said.
The Dáil returns early from its summer break to deal with the legislation. The debate continues next week, culminating in a vote, but the committee stage will not take place until after the second Lisbon Treaty referendum on October 2nd.
Fianna Fáil TD Seán Fleming, will try to amend the Bill to remove the role of the Minister for Finance from the valuation process, arguing that the High Court should resolve disputes between Nama and the banks.
Sources say it is likely his proposal will be adopted. Asked about the suggestion, Taoiseach Brian Cowen said the committee stage would provide an opportunity to consider further improvements to the legislation.
