Ireland’s Lenihan Says Banks May Need More Capital

By Dara Doyle

Oct. 8 (Bloomberg) -- Irish Finance Minister Brian Lenihan said the country’s biggest banks may need further money from the state even after selling real-estate loans to the government.

The proposed National Asset Management Agency will pay 54 billion euros ($79.4 billion) to buy loans with a book value of 77 billion euros from five lenders, including Bank of Ireland Plc and Allied Irish Banks Plc. Losses on those loans are likely to leave the companies needing more cash, Lenihan said.

“You can see some element of state capital, but certainly an element of private participation would be most welcome,” Lenihan, 50, said in an interview in Dublin yesterday. “If they can raise funds on the private markets, well and good. The market analysis is that will be very difficult at this stage.”

The minister wants to purge the banks of toxic assets related to the slumping property market to revive lending and reignite what used to be Europe’s most-dynamic economy. Nobel Prize-winning economist Joseph Stiglitz said yesterday that the plan is “squandering” public money.

Lenihan pointed to the U.S. as an example of a rescue package that was attacked before succeeding.

“I simply do not accept his analysis,” Lenihan said. “As far as Professor Stiglitz is concerned, he made the same criticism of the U.S. bank package, which is now proved to be a tremendous success.”

Allied Irish will transfer 24 billion euros of loans to NAMA, while Bank of Ireland will move 16 billion euros. The current market value of the 77 billion debt is about 47 billion euros, the government has estimated.

‘Massive Transfer’

“It’s a massive transfer of money from the public to bankers,” Stiglitz said at an event in Dublin. “There are consequences going forward.”

NAMA will complete its valuations of the bank loans by the middle of next year, Lenihan said. The government has said the agency, which can hold assets for up to 15 years, may break even or even show a profit. Tom O’Connell, chief economist at Ireland’s central bank, said earlier this week that there is a “fair chance” that it won’t lose money over its lifetime.

Bank of Ireland rose 2 percent, or 6 cents, to 3.06 cents at 8:18 a.m. in Dublin, while Allied Irish advanced 2 percent to 3.08 euros.

“The bigger valuations will be completed by the end of this year,” Lenihan said. “Clearly the government then will be in a position to look at the capital ratios, look at the extent of the writedowns, and come to a conclusion with Bank of Ireland and Allied Irish about their capital structures.”

New Regulator

The minister, who has already pumped 7 billion euros into Allied Irish and Bank of Ireland, said the proposals creating NAMA should pass into law by the end of the year.

Separately, Lenihan said the appointment of a new financial regulator is “close” and will probably be made “within a matter of weeks.”

The new regulator will join the recently appointed central bank governor, Patrick Honohan, on an international tour to help restore investor confidence in Ireland, Lenihan said.

The ISEF index of Irish financial stocks has plunged 76 percent over the past 18 months.

To contact the reporter on this story: Dara Doyle at ddoyle1@bloomberg.net