Ireland’s bank recovery plan suffered a setback on Thursday when grassroots members of the Green party, junior partners in the ruling coalition, called on the party to hold a national convention before giving its backing to the plan.
Ireland is set to transfer €90bn ($128bn, £78bn) of distressed property loans from its five domestic banks to a new National Asset Management Agency in an effort to cleanse the banking sector and encourage resumption of lending to businesses.
Parliament is to vote on legislation to set up the agency next month but the Fianna Fáil-led coalition has seen its parliamentary majority reduced to one after two backbenchers resigned the whip, making Green support crucial.
Under party rules, five Green party constituency organisations are needed before a national convention can be held. Three have so far called for such a move. The party’s two ministers – John Gormley at environment and Eamon Ryan at energy – both support Nama.
Analysts say a two-thirds majority at the Green convention could mandate Green deputies in parliament to vote against or abstain, increasing the possibility this vital piece of economic legislation could be defeated when it is debated on September 16.
Controversy surrounds the price at which Nama will buy the assets. Concern abounds that the government – in effect, the taxpayer – will pay too much for the bank loans extended to developers during Ireland’s property boom.
The issue has come to a head after court actions this week that saw ACC Bank, a subsidiary of Rabobank, the Dutch lender, demand repayment of €136m from Liam Carroll, a developer.
After Mr Carroll failed in his bid to have an examiner appointed, which would have protected him from creditors for 100 days, the courts appointed a provisional liquidator to two of his companies. Bankers and investors are concerned a fire sale of his properties, as the liquidator seeks to repay ACC, could set a lower benchmark for the assets Nama intends to buy off the banks.
Until now the government has said it will use “long-term economic value” – in line with European Commission guidelines on the transfer of impaired bank assets – to price the loans. But analysts say the government will have political difficulties if seen to be overpaying. But the less it pays, the bigger the hit to banks’ profits and the greater the likelihood of de facto bank nationalisations, which the government is desperate to avoid.
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