Irish banking stocks traded lower this afternoon and finished the day down as the debate over the Government’s proposed the National Asset Management Agency (Nama) rumbled on outside the Dáil.
After hitting their highest levels this year yesterday, Irish bank stocks were lower by 4.10pm, with Bank of Ireland falling 3.2 per cent to €3.27 and AIB 1.8 per cent off €3.53.
Both banks recovered some of the losses later in the day but finished trading 2 per cent and 3.8 per cent lower, respectively.
Ireland's two biggest banks gained €1.16 billion in value yesterday as investors were buoyed that Nama’s writedown of their bad property loans would not lead to a higher Government stake and dilute the investments of the existing shareholders.
Traders noted indications today of profit-taking in Irish Life and Permanent, the only listed financial institution which is not directly involved in the Nama process. It was off just over 10 per cent, or 60 cent on the day, closing at €5.25.
This afternoon, chief executive of the Educational Building Society (EBS), Fergus Murphy, forecast a "gradual" improvement in the Irish banking following the introduction of Nama.
"The banks and building societies do want to lend and Nama will help that process again by cleansing those balance sheets of toxic or poorly performing assets so the focus can be on new business.
“With recapitalisation again, the international community will be more willing to lend to Irish banks, further aiding that process. The bonds we will receive from the Government on the swap of the property assets will also help," he said.
This evening Taoiseach Brian Cowen repeated that he was open to possible changes to the Nama legislation, but said the approach would be broadly as set out by the Government.
Speaking on RTÉ's Drivetimehe said the Government had to solve the problem of how to get credit into the economy.
“The international money markets want to know what is the size of the problem in our banking system. We have identified and given an estimate.” The banks would now be able to go to the European Central Bank and exchange the 'IOUs' given by the State to the banks.
Earlier Fine Gael resumed its attack on the operating costs of the proposed Nama scheme, saying the Government’s estimates on servicing the debt the agency will take on are too low.
Finance spokesman Richard Bruton said a claim from the Minister for Finance Brian Lenihen that Nama can breakeven if assets rise by a modest 10 per cent
“completely ignores Nama’s running costs, and particularly its debt servicing costs".
He said the introductory interest rate of 1.5 per cent was likely to rise and the proportion of loans in default - currently 60 per cent - was likely to rise.
Mr Bruton claimed this means there is a “potentially massive black hole” of €15 billion in the Government’s Nama plans.
The Minster for the Environment John Gormley said he felt confident that he could get further amendments to the Nama legislation but he said such changes would have to be “real and tangible” for Green Party members to be happy with them.
Retail Excellence Ireland (REI), which represents 580 companies, also questioned the Government's rationale in calculating the price that Nama will pay the banks for the loans it buys from them.
REI said that the Minister of Finance's decision to base its evaluation on high property yields was inadequate because the yields were being 'propped up' by inflated rent levels.
“Minister Lenihan’s assertions that higher property yields indicate property values are bottoming out is completely off the mark. In fact, yields are still rising as leased properties are over-rented in a falling market and landlord income is propped up by legislation preventing downward rent reviews.”
“Values will continue to fall as market rents also fall and retail businesses fail," said REI chief executive officer David Fitzsimons.
While there has been mixed reaction to Nama at home, the scheme has been broadly well-received abroad.
The Economist,in its print edition, gave a guarded welcome saying that the plan "makes a good fist of a bad situation".
"Despite its flaws, the Nama plan seems like an advance over those in some countries - at least it gets something done," it said.
Ratings agency Moody's said the fresh information provided on Nama by the Government on the cost of its "bad bank" will not immediately lead to rating changes for the five participating Irish financial institutions.
The Government plans to spend €54 billion on resuscitating its financial system and economy after a brutal property crash, purchasing commercial property and associated loans with a nominal value of €77 billion at a 30 per cent discount.
The United Alliance Against Cuts (UAAC) are holding a protest against Nama and proposed spending cutbacks in Dublin tomorrow.
The demonstration will assemble at 1pm in Parnell Square in Dublin before marching through the city centre to Dáil Éireann.