Archive for December 23rd, 2010

In what seems like a low point in Irish jurisprudence, the Irish Times reports a judge at the High Court this morning agreed to exclude two journalists from the Irish Times from a hearing which saw some €3.7bn taken from the pension reserve and injected into a bank with little prospect of a return. The judge, Ms Justice Maureen Clark not only acquiesced to the Minister for Finance’s legal representative’s demand to exclude the two journalists but she then refused to entertain any notion of the exclusion being challenged/appealed. All because we are told the matters at hand were commercially sensitive. Whilst some matters may have been sensitive, surely not all of them were. Furthermore there is a reasonably sound history of journalistic integrity in this State when a judge bars reporting on proceedings but that doesn’t mean journalists are excluded from hearings.  Simon Carswell at the Irish Times was one of the two journalists excluded and he reports of at least one other exclusion – a solicitor with a watching brief on behalf of an interested party.

The Irish Times reports on the judge’s determination where she agreed to a scheme which sees the State taking a 49.9% interest in AIB today with frankly jiggery pokery whereby the State’s proper ownership of AIB (put at 92.8%) is deferred until AIB disposes of its 70.5% interest in the Polish Bank Zachodni WBK.  AIB’s shares are to be de-listed and transferred to a grey exchange so they will still have value. There is no news on AIB’s €4bn of subordinated debtholders. There will be fuller analysis on here later.


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You couldn’t fail but be impressed by the delicate choreography to ensure NAMA’s bonds (which it trades for land and development and associated loans at the five Participating Institutions) stayed off the official national debt figures. That of course was back in 2009 when there was some dim hope that we might have contained our official debt:GDP at 60% (the official limit imposed on us when we joined the Euro and took on the terms of the Growth and Stability Pact – GSP). I blame Olli Rehn for us mostly forgetting the 60% limit because he seems to be talking exclusively about the other pillar of the GSP – the 3% deficit:GDP limit. The cynic in me thinks Olli is being selective because if he were to insist on the 60% debt:GDP limit, that would mean a partial default on debts owed to other European banks.

And the choreography to keep NAMA’s debt off the nation’s balance sheet was rewarded in October 2009 when Eurostat issued a preliminary view on the treatment of NAMA debt and declared that because NAMA was an independent entity, Ireland didn’t need regard NAMA’s debt as sovereign debt.

Eurostat reached its view after considering NAMA’s profitability and ownership. NAMA’s profitability has always been contentious – in particular it seems farcical now that NAMA can recoup any losses from a levy on the banks. But as regards ownership Eurostat was assured that the State would own 49% of NAMA and the remainder would be independently owned. The difficulty was that no-one outside of Ireland wanted to invest in NAMA and even in Ireland, the State could only drum up interest from three State-guaranteed banks, Bank of Ireland, AIB and Irish Life who each bought 17% of NAMA. Somehow Eurostat accepted this and felt that the State’s ownership at less than 50% was good enough to mean that NAMA debt wasn’t State debt (never mind about the fact that the State could veto all of NAMA’s decisions).

But later today the State is set to increase its ownership of AIB from 18.6% to 90%+ (possibly 100%). And when it does it will control the 17% investment by AIB in NAMA’s SPV which means that the State controls 66% of NAMA. What on earth will Eurostat say?

Of course no-one in the real world has regarded NAMA as anything other than a State-controlled agency from the start. The ratings agencies have all regarded NAMA debt as sovereign debt despite the whining of John Corrigan and others. The effect of owning NAMA would mean that some €30-40bn (€30.4bn has so far been issued by NAMA but there is some €19bn of loans at par value remaining to be absorbed by the agency) goes onto the State’s books which will increase debt:GDP by 18.75-25% (based on GDP being €160bn). Wow!

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