Brussels seen delaying Ireland’s ‘bad bank’ scheme


Ireland's plans to establish a new agency to buy up bad loans from Irish banks are in limbo while the EU considers whether the scheme breaks state aid rules.

A spokesperson for the European Commission told EURACTIV that the EU executive is examining Ireland's 54 billion euro National Asset Management Agency (NAMA) and will announce its decision before the end of the week.

In the meantime, the transfer of toxic loans to the new agency has been put on hold, according to Dublin.

The Commission approved a German 'asset-relief scheme' in May 2009 and adopted a Communication on the Treatment of Impaired Assets in spring 2009.

"Asset relief schemes provide a window of opportunity for banks to offload assets impaired by the crisis to eliminate uncertainty regarding the value of their balance sheet and, more importantly, to be able to continue performing their most important task, which is to lend to the economy," the spokesperson said.

However, it emerged earlier this month that the International Monetary Fund (IMF) had told the Irish government that the NAMA scheme may not boost lending to households and small businesses.

Formal complaint by former EU official

The Commission is also considering a detailed formal complaint made by Irish Senator Eugene Regan, who claims the plan violates state aid rules and does not ensure adequate burden-sharing between banks and taxpayers.

Regan, an opposition senator and competition lawyer, was a member of cabinet during Peter Sutherland's term as competition commissioner in the late 1980s. He told EURACTIV that the NAMA scheme is not sufficiently transparent and is no guarantee that credit will flow once banks have been relieved of their non-performing loans.

"The complaint to the Commission calls for the exclusion of the Anglo-Irish Bank (AIB) from the scheme and the divestment of non-core assets of the Bank of Ireland and the AIB to ensure that the focus of each institution is on the provision of credit to the Irish economy," Regan said.

The first batch of bad loans was originally due to be transferred to NAMA this month, but Dublin now says the end of March is a more likely deadline.

Irish Finance Minister Brian Lenihan said yesterday (22 February) that work to value the total loans, initially worth €80 billion, would continue while a final decision from Brussels is pending.

Government takes 16% stake in bank

The Irish government was forced to take nearly 16% ownership of the Bank of Ireland yesterday in lieu of a payment due on the 25% indirect stake it took last year.

The bank said the transfer of nearly 200 million ordinary shares to the Irish state comes instead of a €250 million payment that could not be repaid until the European Commission reviews its state aid rules.

The Commission had told the Bank of Ireland and its rival Allied Irish Bank to stop paying dividends on shares and interest on some debt pending a verdict on their restructuring plans for state aid. However, governments have the right to payment in ordinary shares.

Lenihan said it was possible the taxpayer would have to inject further capital into the banks but restated his preference that the lenders meet their capital needs privately.

This view was echoed by the newly-installed governor of the Irish Central Bank, who told a session of the British-Irish Parliamentary Assembly that he expected the state to take further stakes in the banks.

"There will be more I'm quite sure," said Patrick Honohan, a former university professor at Trinity College Dublin. He added that the loans that will be transferred to NAMA will be valued honestly – a retort to accusations that Ireland risks overpaying for toxic assets.

The European Commission provides guidance on the treatment of asset relief measures by member states. It outlines ways of dealing with impaired assets and explains how state aid will be applied to such schemes.

Asset relief schemes should be fully transparent to avoid conflicts of interest. A coordinated approach should be taken to valuing assets based on "real economic value (rather than market value)," according to the Commission.

Ireland announced plans to introduce a bad bank scheme in 2009, but the proposals have proven to be controversial. A similar scheme was approved by the European Commission in May 2009 but critics of the Irish plan remain sceptical as to its long-term viability.

The Irish government has already nationalised one bank – the Anglo-Irish Bank – and has injected capital into its two largest financial institutions: Allied Irish Bank (AIB) and the Bank of Ireland (BOI).

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