Ireland says EU backs its “bad bank” valuation

The European Commission supports Ireland's plans for its "bad bank" to pay for banks' risky commercial property loans well above their market value, Irish Finance Minister Brian Lenihan has said.

Market fears over an EU regulatory clampdown on state aid have intensified this week after the enforced break-up of Dutch bancassurer ING, helping to drive shares in Bank of Ireland and Allied Irish Banks sharply lower.

The European Commission has already urged Dublin to adopt the law setting up its National Asset Management Agency (NAMA) as soon as possible, but some analysts said it could yet force it to cut the total 54-billion euro ($80.04 billion) price it is paying for the assets, 7 billion euros above their market value.

In a parliamentary committee debate running into the early hours of Friday, 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," he cited from the document.

"That's an extraordinary sentence," Lenihan added.

Lenihan was also quoted as saying 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.

Amending the plan to include the surcharge was "necessary to ensure the balance sheets of the banks are not infected with a contingency that'll devalue them," Lenihan was quoted in the Irish Times newspaper as telling the committee.

The change could mean that banks only pay for participating in NAMA if they make a profit.