OIREACHTAS COMMITTEE:MINISTER FOR Finance Brian Lenihan has said the two main Irish banks, AIB and Bank of Ireland, are "survivable entities", and it is unlikely the value of their shares will be wiped out by the losses that arise from the National Asset Management Agency (Nama) buying property assets from the banks.
Appearing before the Joint Oireachtas Committee on Finance and the Public Service yesterday, Mr Lenihan all but ruled out the wholesale nationalisation of either AIB or Bank of Ireland on September 16th.
On that date, he is due to announce the valuation of the banks’ assets when presenting the legislation setting up Nama to the Dáil.
Mr Lenihan indicated yesterday, however, that if the losses of the banks were such that there was a need for State equity, it would “take place contemporaneously”.
He also confirmed that the State was prepared to take majority ownership in a financial institution if necessary.
At a hearing that lasted over four hours yesterday, Mr Lenihan defended the legislation against criticism from Fine Gael and Labour.
The Opposition parties said Nama would pay substantially above the market value; that the legislation gave unprecedented power to the Minister; that there was no provision for risk-sharing with bond holders or shareholders; and no way of challenging overpayments.
Fine Gael also contended that the legislation would not be able to solve the credit flow crisis being experienced by small and medium enterprises in Ireland.
Mr Lenihan, in turn, claimed the Fine Gael good bank/bad bank proposal may be unconstitutional and carried great funding uncertainty.
In criticising the Labour Party plan to temporarily nationalise the banks, Mr Lenihan quoted US president Barack Obama, who had said that “pre-emptive government takeovers are likely to end up costing taxpayers even more in the end”. Some 24 TDs and Senators, an unusually high attendance for an Oireachtas committee, were present for the meeting chaired by Fianna Fáil’s Michael Ahern.
Mr Lenihan was accompanied by the property valuer hired by Nama, John Mulcahy, along with the interim chief executive of Nama, Brendan McDonagh.
There were several sharp clashes between Mr Lenihan and both Fine Gael finance spokesman Richard Bruton and his Labour counterpart Joan Burton.
Ms Burton and Mr Bruton criticised the extent of the powers the Minister for Finance had, and also the lack of any provision to challenge any overpayment by Nama for bank assets.
In response to Independent Senator Feargal Quinn, Mr Lenihan said he would like a special commission to be established that would have an oversight role and would be capable of sharing confidential information.
The Minister would not disclose any details in relation to the valuation of assets.
However, during his opening speech, Mr Lenihan did outline the methodology that will be used.
His decision to follow the “long-term economic value” model rather than market value dominated much of the debate.
“Let me make it clear that the success of Nama is not based on any assumption of a return to the recent ‘bubble’ prices for property,” said Mr Lenihan.
The Minister also said there would be measures to prevent developers who defaulted on loans from re-entering the construction business. This was challenged by Fine Gael TD Seán Barrett who described it as a ridiculous suggestion because the measure would be unenforceable.
Later in the debate, the Minister said that he had “huge theoretical problems” with some of Fine Gael’s proposals.
He said the Labour Party’s advancing of the nationalisation argument was important.
However, Mr Lenihan then pointed out that it would be helpful if commentators would say that the two institutions for which they were advocating nationalisation were actually AIB and Bank of Ireland.
