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Irish Bad Bank Architect Says Agency May Be Doomed to Losses

Ireland’s National Asset Management Agency may be “doomed” to lose money as real estate prices continue to fall, according to Peter Bacon, the economist who advised the state to set up the so-called bad bank.

“Too many assets are being sold too quickly,” Bacon told reporters in Dublin at a briefing today. The briefing was hosted by Treasury Holdings Ltd., which is in legal disputes with NAMA over the agency’s decision to put some of the Dublin-based real-estate company’s units into receivership.

On Bacon’s advice, former Finance Minister Brian Lenihan set up the agency in 2009, as a collapse in property prices began to gather momentum. The agency paid about 32 billion euros ($40 billion) for real-estate loans originally worth 74 billion euros as it purged the country’s banks of their riskiest assets.

NAMA had a 200 million-euro profit last year as charges for bad loans declined, compared with a 1.2 billion-euro loss for the prior year. The agency has to sell loans to meet a target of reducing them by 24 percent by the end of 2013.

NAMA’s losses are set to rise “significantly,” Bacon said, without giving an estimated figure. NAMA declined to comment on Bacon’s estimate, a spokesman said.

The Irish state has pumped about 62 billion euros into its financial system, in part to cover losses generated by the sale of loans to NAMA. The government stepped out of the bond markets in September 2010 and sought a 67.5 billion-euro bailout, as the costs of one of world’s worst banking crises became too big to handle alone.

Debt Restructuring

With Ireland’s debts forecast by the government to peak at about 120 percent of gross domestic product, the nation may be forced into some kind of debt restructuring as global economic conditions worsen, Bacon said.

Bacon said the government should consider a part sale of NAMA to a private-equity firm or a real-estate investment company.

Irish house prices have fallen by more than half from their 2007 peak, according to the country’s statistics office. Commercial property prices have declined about 65 percent, according to Investment Property Databank Ltd.

The yield on Ireland’s 2020 bonds rose 7 basis points today to 7.32 percent. A basis point represents 0.01 percent.

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