The long-term valuation methodology proposed by the Government will see the National Assets Management Agency (Nama) overspend billions of euro on toxic loans, Fine Gael has warned.
The claim comes following a statement this afternoon by the European Central Bank (ECB) which backed the Government's plans to move toxic bank loans into a national 'bad bank', but which urged caution on how much banks should be paid for the toxic assets.
Fine Gael's finance spokesman Richard Bruton said the valuation methodology preferred by the Government is based on an "untested, unreliable estimate of some form of long term intrinsic value of the asset."
"The taxpayer is going to overpay by billions of euros for toxic assets held by Irish banks as a result of Fianna Fáil's commitment to stick to its "long term economic value" methodology for valuing the assets it will acquire," Mr Bruton claimed in a statement released this evening.
"This methodology has been criticised by Fine Gael from the outset as it ensures that the taxpayer is overpaying for bad debts racked up by banks and developers," Mr Bruton said.
"The Nama approach also ensures that the taxpayer will shoulder the full weight of the risk associated with bad debts being bought up while professional investors escape any of the burden", he claimed.
Mr Bruton's comments came after Minister for Finance Brian Cowen told the Oireachtas Joint Committee on Finance this afternoon that he will value the loans, some of which are still performing, to reflect their "long-term economic value".
The Minister outlined the valuation methodology proposed for Nama which he said would "adjust the value to reflect the fact that the market for this security is currently illiquid but will not remain so".
"This recognises that these assets are at crisis values and that the fundamental long term value having regard to cash flows and longer time horizons is appropriate," Mr Lenihan said.
While ruling out 'blanket nationalisation' of the country's banks, Mr Lenihan also said the State may take majority stakes in Irish banks covered by the guarantee scheme if they need additional capital after loans are transferred to Nama.
In a legal opinion published on its website today, the ECB said Nama created no major legal state aid problems or unfair advantages, adding it should help strengthen Irish banks' balance sheets and increase liquidity.
However, it highlighted the dilemma and risks of deciding a price for the bad assets.
"The preference expressed in the draft law for the long-term economic value of assets, rather than current market values, requires careful consideration," the ECB said.
"It should be ensured that the assumptions to determine the long-term economic value of bank assets will not involve undue premium payments to the participating financial institutions to avoid creating inappropriate incentives from their side as regards the use of the scheme."
Mr Bruton said the ECB's statement indicated the bank has now "questioned two of the major planks of Nama - the "long term economic value" concept and the proposition that taxpayers should take all the risk and responsibility of the work-out of the toxic assets."
Mr Bruton said it was "not too late" for Minister Lenihan to listen to concerns over the Nama plan.
"Of particular importance is the ditching of the "long term economic value" valuation methodology preferred by Fianna Fáil and the need to alleviate the burden on the taxpayer who, under current proposals, will shoulder all the risk of Nama,¿ he concluded.
