IRISH IMPLICATIONS:THE US government's offer of a raft of incentives to private investors to help rid US banks of up to $1 trillion in toxic assets will pique much interest at home as the Government considers a bad property company to remove billions of toxic loans from the Irish banks.
The creation of a toxic property company, described as an asset-management agency, is the preferred option of Minister for Finance Brian Lenihan to remove bad assets from the banks to stop mounting loan losses and further calls for Government capital.
The belief is that a toxic reserve will cleanse the institutions, creating “good” banks and freeing up lending. Mr Lenihan told an Oireachtas committee last month that a bad property firm could “attract investment in due course”.
The Government is expected to seek private investment to help it capitalise the toxic property firm.
Merrill Lynch, which is advising the Government on solutions for the banking sector, has received an approach from a group of overseas private equity firms about the possibility of investing in a bad loan company so there is some interest from the private sector.
Toxic US bank assets are primarily complex, hard-to-value credit market investments, while Irish banks’ impaired assets relate largely to property that has, at the very least, agricultural value.
The Obama administration has signalled it willing to provide up to 80 per cent of the initial capital to buy toxic assets, with private investors providing the remainder. US government borrowing on favourable terms would be offered to encourage investors to partake.
The US would contribute $75 billion to $100 billion initially – the fund could grow to $1 trillion with loans and private funding.
Such a scheme provides a blueprint for the Irish plan, although the process of setting a transfer value to move the bad loans from the banks to the toxic firm remains the key challenge.
