THE GOVERNMENT plans to restrict the losses that banks participating in the National Asset Management Agency (Nama) can offset against their taxes, according to the Bill setting up the toxic loans agency.
The Bill says that banks will only be able to write off up to 50 per cent of their losses against taxes in any one year, preventing them from carrying forward Nama-related losses. The banks are expected to incur signficant losses when the Government buys toxic property developments loans with a face value of €90 billion on the books of the financial institutions at a significant discount.
The losses may force the Government to take majority stakes in some institutions if the price paid for the loans forces them to seek further State investment. Government sources said they did not believe the measure would put the institutions at a competitive disadvantage.
Minister for Finance Brian Lenihan said the Bill establishing Nama includes “a number of substantial changes” that will stabilise the banking sector and restore the flow of credit into the economy while minimising the risk for the taxpayer.
The measures include plans to pay the banks for the loans by issuing two types of bond, one of which allows the Government to suspend interest payments to the banks if Nama fails to recoup loans or if there is no recovery in the property market.
The dual payment is part of the improvements to the Government’s proposals to spread the risk associated with the Nama loans to the banks. The earlier draft Nama legislation contained no such risk-sharing between the taxpayer and the banks.Government sources indicated that they expect Nama to break even or make a small loss in its first year of operation.
Green Party members will discuss the Nama Bill at a meeting in Athlone tomorrow but they will not vote on the issue until a party convention in October. The Green Party’s Ministers will explain the changes to the Bill and members will have an opportunity to give their views.
The meeting will enable the party leadership to assess the mood of the members in advance of the critical October convention which will make decisions on Nama and the review of the programme for government.
Taoiseach Brian Cowen denied that the changes to the Nama Bill were a sop to the Greens, saying they were part of a continuing improvement in the legislation.
Fine Gael deputy leader and finance spokesman Richard Bruton dismissed the changes in the Bill as “a cobbled-together patchwork political solution to get the Green Party through a difficult weekend”.
The establishment of Nama is seen as playing an important part in the survival of Zoe group, the property empire controlled by Liam Carroll, one of the country’s largest property developers.
However, the High Court yesterday refused for the second time to appoint an examiner to the group, which would have given it protection from its creditors for 100 days, by which time Nama should be established.
Mr Justice Frank Clarke said that he would be refusing the group’s application to be placed in examinership, and that he would make a formal order and give his ruling today. ACCBank, which is seeking the repayment of €136 million, is expected to proceed with its application to the High Court to have a liquidator appointed to two key companies in the Zoe group.
The Dutch-owned lender appointed a receiver to four Zoe companies last month, but the receivership was put on hold pending the High Court ruling. Mr Justice Clarke is the fifth senior judge to voice strong criticism of the financial evidence presented by the group to support its claim that it had a reasonable prospect of survival.
The Government will outline next Wednesday the amount in bonds it expects to raise to pay the banks for Nama-bound loans. It will reveal the total amount to be paid to the banks in Government bonds and subordinated debt – a type of IOU that the State will use to defer payment.
The Government plans to issue subordinated bonds that either mature in 10 years or are perpetual, meaning they carry no date on which they have to be repaid.
The Bill will make it a criminal offence to lobby the agency. The Government will also seek non-executive bank directors appointed before 2008 to stand down over the coming two years. Bank chief executives will also not be allowed to become chairmen of their institutions.
