MINISTER FOR Finance Brian Lenihan has expressed a preference for the creation of a property company to take troubled loans off the banks’ balance sheets.
He also told analysts during a briefing in London last Tuesday that further nationalisations of banks were “the last resort”.
Mr Lenihan said the Government would “seek to implement a loan transfer/insurance scheme plus an extension of the existing credit guarantee”, according to a report by Credit Suisse analysts.
The report said Mr Lenihan had “expressed a preference for setting up a property company to take the troubled loans off the banks’ balance sheets and manage them through to maturity over an insurance scheme”.
Economist Peter Bacon has advised the Government to set up a toxic loan company to take over bad property loans from the banks in a move to free up new lending.
A spokesman for the Department of Finance said the creation of a bad property company was one option being assessed.
“All options are still on the table, but no Government decision has been taken yet,” he said.
Credit Suisse raised its forecasts for loan write-offs at the two largest banks over the four years to 2011, increasing them to €10.2 billion for AIB, or 7.6 per cent of loans, and to €7.7 billion for Bank of Ireland, or 5.3 per cent of loans.
It estimated this would rise to €11.3 billion and €10.3 billion respectively in a stress scenario.
The report said the bad bank scheme would “have to be extremely generous in order to make a material difference”.
It estimated that €36.3 billion in development loans, or 13 per cent of the banks’ combined loans, would need to be transferred.
The report said the biggest risk was at Bank of Ireland, where the analysts said it would be a “struggle to make the scheme work” with upfront loan losses of 15 per cent.
The report said the bank would still need up to €4.2 billion in additional capital, while AIB was “more resilient” but would require €3.1 billion in extra capital.
In a separate development, Green Party finance spokesman, Senator Dan Boyle, criticised Irish Nationwide chief executive Michael Fingleton over the payment of a €1 million bonus for 2008 last November after the State guarantee was introduced.
Mr Boyle said Mr Fingleton’s bonus should not have been paid and he also questioned the extension of Mr Fingleton’s employment at the society last month.
“He should have retired before now and the extension of his employment has never been explained,” said Mr Boyle.
