Alan Ahearne, an adviser to Irish Finance Minister Brian Lenihan, disputed a “terrible” estimate that loans to be bought by the government’s so- called bad bank are worth a third of their original value, defending a plan to salvage the banking system.
The National Asset Management Agency will buy loans with a face value of 90 billion euros ($129 billion) at a discount from lenders led by Allied Irish Banks Plc (ALBK) and Bank of Ireland Plc to cleanse their balance sheets of souring real- estate assets, in the government’s latest bid to revive lending.
The loans are now worth about 30 billion euros, 46 economists said in an article published today in the Irish Times. The government will pay a price “greatly in excess of the market clearing price,” the economists said.
Ahearne said the loans had been used to buy real estate valued at 120 billion euros during Ireland’s property boom, as developers had put up about 30 billion euros themselves.
“If you think average property prices have fallen 50 percent, then properties have come back to 60 billion,” he said in an interview with RTE radio. “So what would you pay for the 90 billion of loans? You would pay 60 billion.”
Allied Irish rose 7.4 percent to 2.36 euros in Dublin trading and Bank of Ireland rose 8.6 percent to 2.37 euros.
The agency, also known as NAMA, will buy the loans at a discount. It may pay more than current market prices for some of the loans as it seeks to avoid bankrupting the banks.
Lenihan said in an interview with the Dublin-based Today FM radio station today that he will give valuations of assets to go into NAMA on Sept. 16.
Ahearne, an economist at National University of Ireland in Galway, said the agency won’t make “optimistic assumptions” about property prices. Development land and commercial-property values will drop around 70 percent from peak levels, Dublin-based securities firm Davy estimates.
“At the end of say ten years, when NAMA is shut down, can it repay all the loans it made? Absolutely,” he said, adding the agency may make a profit.
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