Former Irish Finance Minister Dukes Supports Bad-Bank Plan

Former Irish Finance Minister Alan Dukes said the government’s plan to set up a so-called bad bank, known as the National Asset Management Agency, may be the best way to help the financial industry.

The comments put Dukes at odds with Fine Gael, the opposition political party that he led in the late 1980s, which will vote against the bad bank in parliament this month. He made the remarks in an RTE radio interview in Dublin today.

On NAMA:

“It seems to me that it’s the best of the proposals that’s on the table.

“NAMA has big questions hanging over it because of the nature of the problem. We don’t know whether we’ve hit the bottom of the property market yet, we don’t know how long it will take to recover and we don’t know how far it will recover.”

Of the proposals, “it’s the one that’s best.”

On Fine Gael’s “good bank” plan:

“I have grave doubts about the feasibility of that proposal. It seems to me to be very cumbersome.”

On nationalization:

“Having three major banks nationalized would create very difficult political problems for any government.”

Even if the government has to take larger stakes in the banks, “if and when things turn around, it would be easier for the government to unwind out of that as a shareholder rather than a 100 percent owner.”

On the discount NAMA will apply to loans it takes over:

“The lower the price, the greater will be the need for recapitalization. The higher the price, the lower the need for recapitalization. The combination of those two figures is the same no matter which way you do it.”

On a two-stage payment to banks:

“There may be a difficulty with that. The problem is that if there is uncertainty about the amount or timing of the second part of the payment, the banks would have to treat it differently on their balance sheet as compared to an upfront payment. That might create another capitalization problem.

“The advantage of doing that means that you have time to look at the property market and make maybe a better educated guess, but as I said there are downsides to that also.”

To contact the reporter on this story: Fergal O’Brien in Dublin at fobrien@bloomberg.net.

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net.

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