Ireland sees EU support for “bad bank” valuation

October 30, 2009

A pedestrian passes a branch of Allied Irish Bank in London August 14, 2009. (File Photo) REUTERS/Luke MacGregor   (BRITAIN BUSINESS)   DUBLIN, Oct 30 (Reuters) – The Irish government said the European Commission supports the valuation of its 54 billion euro “bad bank” plan, as it moved a step closer to becoming law, boosting shares in the main Irish banks.

Market fears over a European Union clampdown on state aid intensified this week after regulators drove the break-up of Dutch bancassurer ING, helping to push shares in Bank of Ireland and Allied Irish Banks sharply lower on Wednesday.

Some analysts said the EU could yet force the Irish government to cut the total 54 billion euro ($80.04 billion) price it is paying to take soured loans off banks’ balance sheets, 7 billion euros above the market value.

The European Commission has already urged Dublin to adopt the law setting up its National Asset Management Agency (NAMA) as soon as possible.

In a parliamentary committee debate running into the early hours of Friday, Finance Minister Brian Lenihan read to deputies from what he said was a European Commission document:

“The value attributed to impaired assets in the context of a relief programme … will inevitably be above current market prices in order to achieve the relief effect.”

“That’s an extraordinary sentence,” Lenihan said before the NAMA plan passed the committee stage of the parliamentary approval process after days of meticulous examination that had prompted fears of delays.

Shares in Bank of Ireland traded 9.3 percent higher by 0913 GMT at 2.0 euros. Allied Irish Banks was up 6.5 percent at 2.08 euros while the wider Irish market rose 1.6 percent and DJ Stoxx European banking sector rose 1.1 percent.

“The completion of the committee stage this morning leaves NAMA on track for enactment by the middle of November, with commencement of loan transfers before year-end still the target,” Davy analyst Emer Lang said.

Lenihan was also quoted as saying in the Irish Times newspaper he would seek to impose a corporation tax surcharge on banks rather than a straight levy to compensate the state for any loss NAMA might make over its 10-year lifespan, though Lenihan does not expect that to happen.

The change could mean that banks only pay for participating in NAMA if they make a profit. ($1=.6746 Euro)
(Reporting by Andras Gergely; editing by Simon Jessop and Erica Billingham)
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Friday, 30 October 2009 05:23:25RTRS [nLU223454 ] {C}ENDS

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