IMF wants almost bankrupt Irish to pay for more kinds of toxic loans

Irish Times
19.06.2009
By SIMON CARSWELL

IMF to recommend flexibility in Nama for further soured loans

THE INTERNATIONAL Monetary Fund will recommend that the Government retain flexibility on the State’s “bad bank” plan to include other types of soured loans such as residential mortgages, should unemployment and bad loans continue to rise.

The IMF, which is the global financial watchdog, will suggest in its imminent annual report on the Irish economy that the Government not restrict the scope of the National Asset Management Agency (Nama) to buy just bad development and associated loans.

The Washington-based fund will suggest that the Government keep its options open due to economic uncertainty over the rising level of bad debts on other classes of loans so they can be included, if necessary, in the bad bank plan.

The Government is drafting legislation creating Nama which will buy €80–€90 billion in development loans and associated assets provided as collateral at a discount from the banks, in an effort to cleanse them so they can lend again as normal.

The IMF met Government officials and executives from the country’s largest banks last month on its annual field trip, as part of fact-finding for its yearly report.

While the IMF does not state in its report that Nama should acquire problem mortgages and business loans, the fund suggests that the Government’s draft legislation should leave this option open.

The Department of Finance declined to comment on the forthcoming IMF report, which is expected to be published either today or on Monday. The board of the IMF discussed the report at a meeting this week.

The organisation is understood to support the Government’s measures to prop up the banking sector, including the Nama proposals to buy the toxic development loans.

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Irish Times
22.06.2009
By BARRY LYONS

The power of one

Is it sensible that one law firm, Arthur Cox, acts as adviser to so many competing interests linked to the banking crisis?

THE REMARKABLE events of the past few months in the financial sector have frequently been captured on our news screens by sombre men following Brian Cowen and Brian Lenihan into Government Buildings.

Adviser to Brian Cowen, Eugene McCague (chairman of Arthur Cox), adviser to Brian Lenihan, Pádraig O’Riordan (managing partner of Arthur Cox), teams of Anglo Irish Bank’s lawyers (Arthur Cox), meet Bank of Ireland’s lawyers (Arthur Cox) in conclave to discuss matters of concern regarding the banking crises.

The announcement of the appointment of Arthur Cox as legal advisers to Nama, the National Asset Management Agency, demonstrates that firm’s phenomenal influence over the extraordinary events as they are unfolding in the economy of Ireland.

However, the question must be asked as to whether the best interests of the State are being served by one commercial interest occupying such a pivotal role in the recovery of the economy.

At the very outset, I have no bias against Cox’s in terms of their appointment as legal advisers to Nama. It is a tremendously regarded firm which is quite rightly one of the top in Ireland. The advice of top-tier lawyers is always going to be required when setting up complex institutions such as Nama.

One of the allegations being made against the banking world is that there existed a golden circle of insiders who were perfectly placed to take advantage of loose lending practices to extract money that should never have been lent. Stories abound of chats between developers, politicians and bankers in the tent at the Galway races that led directly to some of the commercial excesses of the Celtic Tiger. So why don’t we look forward a couple of years and see what some of the fallout of Nama being unsuccessful might be?

Is it possible that the naysayers will take a look at the dramatis personae set out above and suggest that perhaps one entity exercised too much influence over the process?

Is it possible that, even with the best intentions in the world, people whose interests are aligned (being partners in a commercial law firm) call an aspect of their advice wrong, which gives rise to dramatic costs to the taxpayer?

Is it possible that the Government will lose even more credibility arising from allowing one commercial entity so much input into a process vital to any economic recovery?

Of course the fact that the lawyers in Arthur Cox work under the same roof does not mean that they are more likely to get matters wrong. In fact, there is an argument that a more cogent policy will emerge given that the antipathy customarily demonstrated by lawyers to each other will not be present.

At the end of the year, the partners of one firm will sit around their well-appointed boardroom table and will congratulate each other on another profitable year. The lawyers in that firm will have worked themselves to the bone, on foot of which they will be paid for two reasons – to represent their clients’ interests, and to get well paid.

Lawyers are often accused of confusing these motivations. Some might raise an eyebrow as to how a single professional services firm can act for a multiplicity of parties to the same transaction, and the transfer of assets from the banks (sometimes advised by Arthur Cox), to Nama (advised by Arthur Cox), at the behest of the Government (advised by Arthur Cox), to deal with large loans taken out by developers (some of whom are advised by Arthur Cox) might give rise to such a reservation.

In this case, clearly there are numerous grounds on which an allegation of conflicts could arise given the multiplicity of roles for one firm to occupy.

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