Appearing before the Joint Oireachtas Committee on Finance and the Public Service, Brian Lenihan all but ruled out the wholesale nationalization of either Allied Irish Banks or Bank of Ireland on September 16.
On that date, Lenihan is due to announce the valuation of the banks’ assets when presenting the legislation setting up the National Assets Management Agency (NAMA) to the D_il.
But Lenihan has indicated 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 last week, Minister Lenihan defended the NAMA legislation against criticism from Fine Gael and Labor.
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 argued the legislation would not be able to solve the credit flow crisis being experienced by small and medium enterprises in Ireland.
But Lenihan claimed the Fine Gael good bank/bad bank proposal may be unconstitutional and carried great funding uncertainty.
Criticizing the Labor Party plan to temporarily nationalize the banks, Lenihan quoted President Barack Obama, who has 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 F_il’s Michael Ahern.
Lenihan was accompanied by the property value appraiser hired by NAMA, John Mulcahy, along with the interim chief executive of NAMA, Brendan McDonagh.
There were several sharp clashes between Lenihan and both Fine Gael finance spokesman Richard Bruton, and his Labor counterpart, Joan Burton.
Both Burton and Bruton criticized the extent of the powers the minister for finance had and the lack of any provision to challenge any overpayment by NAMA for bank assets.
Lenihan’s 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,” Lenihan said.
The minister also said there would be measures to prevent developers who defaulted on loans from re-entering the construction business, a proposal challenged by Fine Gael TD Se_n Barrett, who described it as a ridiculous suggestion because the measure would be unenforceable.