If you ask the Government what it has done to deal with this country’s debt, particularly the debt arising from the €68bn* bank bailout, you will get a three-part response. Firstly the Government claims to have saved the State €10bn through negotiating a reduction in the bailout interest rate from about 6% to 3.5% last July 2011, secondly the Government has saved €5bn by negotiating deals with subordinated bondholders at the state-guaranteed banks and thirdly the Government negotiated a deal whereby the €3.1bn payment of the Anglo Promissory Note in March 2012 was deferred.
On the first you might rightly point out that the interest rate reduction was secured on the shirt-tails of Greece’s woes and that Ireland had to give corporate tax concessions for the reduction, something Portugal didn’t have to provide even though Portugal got the same interest rate reduction on its €52bn EU bailout (Ireland’s EU bailout is €45bn).
On the second, the Government has indeed saved us €5bn on subordinated bondholders. Having said that, Fianna Fail and the Greens saved us €10bn on subordinated bondholders up to March 2011, so all the Government did was continue the same programme of negotiations. And indeed the Government was met with more legal challenges, some of which are still ongoing eg the Fir Tree case in New York.
But on the third, it seems that you will shortly be able to say “what deal?”. Remember the outline of the “deal” was that NAMA would temporarily pay the promissory note in March until Bank of Ireland had ratified with its shareholders a deal whereby it would loan IBRC the €3.1bn for a year, after which the Government would seek to get the bond markets or Troika to fund the payment. The Minister for Finance, Michael Noonan issued a Direction to NAMA to provide the temporary loan for a period of up to 90 days. In fact NAMA loaned IBRC the €3.1bn for 60 days which expires on 30th May, 2012 – that’s today and it looks as if “the deal” is now in tatters.
Bank of Ireland was to have held an Extraordinary General Meeting to approve the Bank of Ireland board’s nod to the Government that it would provide temporary lending. 53 days after the announcement of the “deal” in the Dail by Minister Noonan, there is still no notice of any such EGM. And today, NAMA’s loan runs out.
Will NAMA renew its €3.1bn loan for another 30 days to an institution which is bust? Where the planned source of funding – Bank of Ireland – is showing no signs of agreeing to provide that funding? All for a total interest return of 2.35%? Or will NAMA do what it should have done in March and seek a judicial review of the Direction, have its board, particularly the non-Irish former-IMFer, Steven Seelig, speak out about political intereference? Minister Noonan’s Direction issued on 29th March, 2012 told NAMA to extend facilities to IBRC for up to 90 days which expires at the end of June 2012, so the betting is that NAMA will renew for 30 days its loan “on commercial arms-length terms” to one of the most bust banks in history, with serious doubts that NAMA will get repaid at the end of June.
It’s funny that even An Taoiseach Enda Kenny has gotten involved in the Quinn shopping centre machinations inKiev,Ukraine where there are accusations of “raidering” whereby the €50m shopping centre is being stolen from beneath Anglo’s noses. And we hold our noses at the corruption in Ukrainian courts and business generally. And yet here in Ireland, we have the farce of Minister Noonan “raidering” NAMA’s coffers to support a deal which looks as if it is coming off the rails, and which may substitute €3.1bn of cash in NAMA’s books with a doubtful loan to IBRC. “Classy” as the Americans would say. It certainly tarnishes the three accomplishments of reducing the debt burden, about which the Government is so proud.
*So far the Government has pumped €62.8bn of funding, cash and promissory notes, into the six state-guaranteed banks, AIB, Anglo, Bank of Ireland, EBS, Irish Life and INBS plus NAMA has paid €5bn in state aid to the banks in acquiring its loans
UPDATE: 30th May, 2012. The Sunday Business Post website is reporting that a NAMA spokesperson told Bloomberg News that the loan from NAMA to IBRC has been extended to the end of June 2012. No further information on the extension is provided.
UPDATE: 31st May, 2012. Bank of Ireland issued a circular announcing the EGM yesterday afternoon. The Bank’s board is recommending acceptance for four reasons, the margin, the benefit to the wider economy, protections and a guarantee of repayment from Minister Noonan. There is NO MENTION of the fact that the Irish government bond repayable on 18th April, 2012 is presently paying 4.62%. So the “protections” which have not yet been disclosed in detail may account for the difference between the 2.35% that Bank of Ireland is earning versus the 4.62% it could get on the open market. The “protections” are described as follows : “The Agreement contains several provisions which protect the Bank against market, liquidity and credit risk. These features include early termination provisions, daily margining requirements and protections in the event that the Bank is unable to fully finance the purchase of the Bonds under the standard ECB open market operations.” The EGM is set to take place on 18th June, 2012 and reporting suggests that NAMA has extended its loan to IBRC until 20th June 2012. Bank of Ireland is set to loan IBRC €2.83bn based on the ECB discounting the value of the collateral by 5.5% (this is not quite clear because the bonds were to have had a face value of €3.5bn) but it will seemingly mean IBRC has to rustle up €180m from its own cash to add to the €2.83bn to pay NAMA back its €3.06bn. Curiouser and curiouser…