The blogpost on here last week about the overall cost of bailing out Anglo Irish Bank and Irish Nationwide Building Society – now merged together into Irish Bank Resolution Corporation or IBRC – seems to have sown some confusion. The authoritative IrishEconomy.ie website referred to the blogpost, but that article by Dr Stephen Kinsella was pulled, and I understand that there was some unhappiness about the claim that the gross cost of bailing out IBRC would come to €52bn, which would mean an overall gross cost of the bank bailout of over €85bn, and a net – after deducting ELG fees, the current value of stakes in the banks and Irish Life, dividends, profit on central bank loans and other interest and fees – of around €70bn, equal to about 45% of our GDP.
In the Dail this week, the Sinn Fein finance spokesperson Pearse Doherty pursued the issue with the Minister for Finance Michael Noonan, and it indeed seems to be the case that the gross cost of bailing out IBRC will be €52bn. In this context “gross” does not only mean “obscene” but also the total outlay needed from the State, though there will be some return of value to the State, and the “net” bailout cost should be less than €52bn.
Firstly, Minister Noonan confirms that it remains the plan to pay €48bn to IBRC in respect of the promissory notes, comprising €31bn for the notes themselves and €17bn for interest. These payments are scheduled to be made each year until 2031, the Minister helpfully provided the schedule. So alongside the €4bn of cash injected into IBRC, it is correct to say the gross cost of bailing out IBRC is expected to be €52bn.
But what about the return of value from IBRC and also from the Central Bank of Ireland which makes a profit on its loans to IBRC, which is in turn returned to the Exchequer? With respect to the CBI’s profit between 2012-2031 from loans to IBRC, Minister Noonan refuses to provide an estimate, baldly stating “the Bank does not comment on ELA operations” So the finance minister of our State is unable to provide us with an estimate of an intrinsic part of the net cost of bailing out our banks. You might describe this state of affairs as “gross” with the “obscene” meaning of the word.
But what about the performance of IBRC? Professor Karl Whelan, the economist, central bank expert and all-round good egg has been assuming that IBRC will break even from Jan 2012- 2022. In the first six months of 2012, IBRC reported a loss of €742m. IBRC is running up costs at €300m per annum. It has a challenging Irish loan book, a territory which now accounts for most of its loans, its INBS mortgage book is dreadful. It lost an important court case to bondholders in the UK over the summer, a judgment which is being appealed but if it is upheld then it may open the doors to perhaps hundreds of millions of euro of claims. So the view on here is that IBRC may continue to run up large losses each year. But what does the sole shareholder of IBRC, namely Minister Noonan, think? He doesn’t know and doesn’t want to hazard a guess! That’s right, even the Permanent TSB CEO Jeremy Masding can tell us he expects PTSB to return to profitability in 2014/5, but Minister Noonan can’t do the same for IBRC! Again “gross”.
What Minister Noonan has done is again state “IBRC has confirmed that the Bank’s CEO has previously indicated that the likely outcome, based on current assumptions, for Anglo Irish Bank at the end of the Bank’s long term forecasting/commitments horizon in 2020 is in the region of €25 – €28 billion.” But what does likely outcome mean? When IBRC chairman Alan Dukes and CEO, Mike Aynsley previously talked in 2010 of “€25 – €28 billion”, they were referring to the “cost” of bailing out Anglo, one component of IBRC. In August 2012, Mike Aynsley talked of the cost of IBRC being €25-28bn. In other words, Mike Aynsley would have you believe that since 2010, when the estimated bailout cost of INBS alone was €5.4bn and Anglo was €25-28.5bn, it is now the position that the expected outturn has improved to be an overall total for €25-28bn. Minister Noona refers to the €25-28bn cost being for Anglo only. It is both confused and lacking in credibility.
Elsewhere Minister Noonan confirms that IBRC is valuing its €843m face-value subordinated bonds at €124m in its balance sheet. So if NAMA makes an overall loss by 2020 then IBRC will just need write off another €124m, which is small change in the overall scheme of things.
So where does all of this leave us? We have a gross cost of the IBRC bailout of €52bn, a net cost for Anglo only of €25-28bn but you would have to be very dubious about the credibility of this estimate, and Mike Aynsley might be long gone before he is called to account on it, and remember he is the person who thought losses at Anglo would be €10bn after he was in the role of CEO for nearly six months. We are likely to see a profit at the CBI on its loans to IBRC but Minister Noonan bizarrely can’t provide an estimate of this.
This is the full text of the questions and answers this week.
Deputy Pearse Doherty: To ask the Minister for Finance if he will estimate by year the interest received, and receivable in future, up to 2031 by the Central Bank of Ireland in respect of the provision of Exceptional Liquidity Assistance secured by the so-called bailout promissory notes to Anglo Irish Bank, Irish Nationwide Building Society and their successor, the Irish Bank Resolution Corporation; if he will estimate the costs deducted and deductible by the Central Bank of Ireland from interest received and receivable in future on such promissory note secured ELA before the excess profit is returned to the Exchequer..
Minister for Finance, Michael Noonan: The Central Bank of Ireland has advised me that one of the functions of the Central Bank, similar to other central banks, is to grant Exceptional Liquidity Assistance to a credit institution when this is deemed necessary for financial stability purposes. These amounts are published monthly. The Bank does not comment on ELA operations. As outlined in the Bank’s Annual Report for 2011 (pg.107), the Bank earned interest income of €1,627.8 million on ELA operations in 2011 (2010: €516.4 million).
Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Question No 281 on 18 September 2012, to confirm that when he states “I can confirm that, under current arrangements, the scheduled payments on the Promissory Notes are due to continue until 2031 that he means that a total of circa €48bn is scheduled to be paid to Irish Bank Resolution Corporation up to 2031 in respect of the promissory notes”, and that further to Parliamentary Questions Nos 283 and 284 on 18 September 2012 to confirm that when he states “I have been advised that in calculating the projected final net asset position IBRC take into account interest from all assets including customers, securities and Promissory Notes” that the ultimate net asset position which was previously estimated by the management of Anglo for that bank at €3-4bn, takes account of the €48bn of scheduled payments on the Promissory Notes..
Minister for Finance, Michael Noonan: I can confirm that under current arrangements the scheduled payments on the Promissory Notes are due to continue until 2031 and a total of €48bn is due to be paid. I enclose again the proposed schedule of payments. IBRC has confirmed that the Bank’s CEO has previously indicated that the likely outcome, based on current assumptions, for Anglo Irish Bank at the end of the Bank’s long term forecasting/commitments horizon in 2020 is in the region of €25 – €28 billion. This forecast of €25-€28 billion does not include the coupons payable on the residual Promissory Note between 2020 and 2031 but does take into account interest from all assets including customers, securities and Promissory Notes up to 2020. €bn Total interest
Paid: A Total Capital Reduction: B Repayments:
A + B
31/03/2011 0.55 2.51 3.06
31/03/2012 - 3.06 3.06 **
31/03/2013 0.49 2.57 3.06
31/03/2014 1.84 1.22 3.06
31/03/2015 1.75 1.31 3.06
31/03/2016 1.65 1.41 3.06
31/03/2017 1.55 1.51 3.06
31/03/2018 1.44 1.62 3.06
31/03/2019 1.32 1.74 3.06
31/03/2020 1.19 1.87 3.06
31/03/2021 1.06 2.00 3.06
31/03/2022 0.91 2.15 3.06
31/03/2023 0.75 2.31 3.06
31/03/2024 0.57 1.52 2.09
31/03/2025 0.45 0.47 0.91
31/03/2026 0.39 0.52 0.91
31/03/2027 0.33 0.58 0.91
31/03/2028 0.26 0.65 0.91
31/03/2029 0.19 0.73 0.91
31/03/2030 0.10 0.81 0.91
31/03/2031 0.01 0.05 0.05
16.8 30.6 47.4
* These numbers may not tot exactly as a result of rounding
** The March 2012 repayment was settled with a long term Government bond.
Deputy Pearse Doherty: To ask the Minister for Finance as the sole shareholder in the Irish Bank Resolution Corporation, further to the publication of the report and accounts of the IBRC for the six months ended 30 June 2012 when a circa €750m loss after tax was reported, the year in which he expects IBRC to return to a position where it generates a net-after-tax profit..
Minister for Finance, Michael Noonan: I have been advised by IBRC that they are continuing to work to achieve the agreed objectives in the joint restructuring plans which are to dispose of the assets of the Bank in an orderly fashion and to minimize capital losses to the Shareholder. The performance of the Bank during the wind-down period will be driven (inter alia) by the actual recovery rates achieved for assets, the performance of the domestic and global economies and prevailing interest rates in Europe over the duration of the plan. It is difficult to predict the timing of a return to profitability and the final net asset position of the Bank, given the current uncertainties in financial markets, the continued deterioration in asset values (particularly in Ireland), and the complexities, timescales and risks involved in deleveraging.
Deputy Pearse Doherty: To ask the Minister for Finance if he will identify the value attributed by the Irish Bank Resolution Corporation on its balance sheet in its report and accounts for the six months ending 30 June 2012, to subordinate bonds received from the National Assets Management Agency.
Minister for Finance, Michael Noonan: At end June 2012 IBRC’s nominal holding of NAMA subordinated bonds stood at €843m with a carrying value of €124m. This information is contained in p11 of IBRC’s Interim Accounts which can be found at: