ALL EYES were on the State’s money manager, the National Treasury Management Agency (NTMA), yesterday in the hope that it would shed light on how the Government will operate the “bad bank” and manage up to €90 billion of toxic loans from the banks.

However, Dr Michael Somers, the head of NTMA, provided more concerns than answered questions on how the new agency will be run when he appeared before the Committee of Public Accounts.

Five weeks after the plan to create the National Assets Management Agency (Nama) was revealed by Minister for Finance Brian Lenihan, it is still not clearer how the State agency will be operated.

Mr Lenihan has said that Nama will be created under the aegis of the NTMA, although the NTMA appears to be still in the dark about what form Nama will take.

Dr Somers has said that his preference was for Nama to have a small core staff of between 30 and 40 employees to oversee the toxic development loans weighing down the banks, and to leave the management “function” with the lenders.

He said there were 3,000 to 5,000 staff within the banks managing the loans, and it would be “a disaster” if an attempt was made to replicate this in Nama.

Dr Somers appeared fazed by the gargantuan task facing his agency, a State body employing 170 people and already overburdened with responsibility for running the State Claims Agency, the National Pension Reserve Fund and the National Development Finance Agency.

He said his agency was entering new territory, and it had not been adequately staffed to deal with the challenge of running Nama or even working on the resolution of the banking crisis.

Staff at the NTMA, and particularly directors John Corrigan and Brendan McDonagh, have been working flat-out, including nights and weekends, said Dr Somers, in an effort to fix the banks.

Mr McDonagh has been appointed the interim managing director of Nama, although he did not attend yesterday’s committee hearing yesterday as he suffered a family bereavement this week.

In his absence Dr Somers illustrated “the appalling dilemma” facing the Government on how it would create the “bad bank” agency and manage one of the largest balance sheets in the State.

Driving home the point, Dr Somers said the NTMA had been “aghast” at the amount of loans advanced by the banks to a small number of developers and that its review of the books of Allied Irish Banks and Bank of Ireland ahead of the State’s recapitalisation was “a huge eye-opener”.

Following reports that property developers are preparing to challenge the Government on Nama, Dr Somers said he had heard that “people down in the courts” were “delighted” at the setting up of the agency and in line for “a bonanza” given the disputes that could emerge over the plan.

He also said that, if the banks did not pay up for the €7 billion that the State was investing in AIB and Bank of Ireland, they would “tip into State control” and that the banks knew the consequences.

“This is not a soft deal,” he said.

Dr Somers said the agency had turned to outside consultants and advisers to complement the NTMA’s staff.

He said economist Dr Peter Bacon, the architect of Nama, was being paid less than €100,000 for his work, but he would not disclose his exact fee.

He said investment bank Merrill Lynch would be paid a total of €6 million for its advisory work on the bank rescue plan.

Turning to the State’s record borrowing requirement of €25 billion this year, half of which has been raised, Dr Somers said Ireland was still paying a high rate for money as there was “nothing but bad news coming out of Ireland”.

The NTMA will try to raise another €1 billion at the auction of two bonds next Tuesday. Dr Somers said the downgrades of Ireland’s debt rating had not helped.

He said the surge in private credit to €400 billion during the boom meant Irish banks had turned to investors outside Ireland – “Fritz and Gunther and Heinz”, said Dr Somers, “and now Fritz and Gunther and Heinz want their money back”.

The NTMA chief said he had “taken a lot of flak” from German investors following the rejection of the Lisbon Treaty. They were also angry that the Government had left non-Irish lenders out of the guarantee and over the handling of the failed German-owned Dublin-based bank Depfa.

Investors in Irish State and bank bonds were “not as well disposed to us as they used to be”.