Archive for January 22nd, 2012

“He [Minister for Transport and Tourism, Leo Varadlar] said that the Troika told the Government that “we don’t want you to default on these payments, it is your decision ultimately but a bomb will go off; and the bomb will go off in Dublinand not in Frankfurt.”” RTE reporting Minister Varadkar’s comments 22nd January 2012

The regular audience on here will know that there is generally a lighter tone on the blog at weekends unless there is some major breaking financial news. But the above blog title reflects the very serious comments made by Minister for Transport and Tourism Leo Varadkar today when referring to the €1.25bn bond that falls due at Anglo Irish Bank on Wednesday next 25th January. Minister Varadkar has been accused of being unrestrained in his comments but they have been refreshing in illuminating dealings that other politicians want to remain hidden. The Minister’s comments come a fortnight after the ECB refused to release a letter it had sent to the former Minister for Finance, the late Brian Lenihan on 19th November 2010, a letter which was understood to have warned the Minister not to default on senior bondholders.

Ironic that bankers from the country that produced the Red Army Faction and Baader Meinhoff should threaten in these terms. When I last examined public safety spending decisions (albeit a decade ago) a human life was worth just over €1m. So perhaps 1,250 lives will be extinguished with the payment of this bond anyway, as a consequence of cutting spending, and the ongoing crisis and austerity is projected to force the emigration of 70,000 this year. Perhaps the bankers inFrankfurtmight want to weigh more carefully the certain consequences that will follow the payment to the bondholders, with what is only a possibility that flows from their threats.

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This coming Wednesday 25th January 2012 will see Ireland pay €1,250m to unsecured unguaranteed bondholders in what was Anglo Irish Bank Corporation. This entry provides the detail of what is happening.

What: €1,250m of Anglo Irish Bank senior bonds, not covered by the September 2008 guarantee, not secured against Anglo assets. The bonds were originally issued on 25th January 2007; the ISIN reference for the bond is XS0283695228. You can view its price and its history here. It was trading at close to 60c in the dollar in early 2011. Anglo is set to receive a total of €29.3bn from the State, comprising €4bn in cash paid in 2009 and €25.3bn of promissory notes.

How Much: €1,250m equal to all the new tax to be raised in Ireland in 2012 as a result of Budget 2012. More than the €800m the entire economy is expected to grow in 2012 according to the most recent IMF forecast. 0.8% of our GDP or 1% of our GNP.

When: Wednesday 25th January, 2012

Who (is paying): The bond will be repaid by someone in the Irish Bank Resolution Corporation (“IBRC”, the name of the new company formed by the merger of Anglo with Irish Nationwide Building Society). IBRC’s chief executive is Australian, Mike Aynsley, its chairman is Alan Dukes. IBRC is 100% owned by the State so Minister for Finance, Michael Noonan is the principal Government member responsible for the payment.

Who (is being paid): The identities of the bondholders are not public. Minister for Finance Michael Noonan has described them as “speculative investors”. The Guido Fawkes blog published what it claimed was a partial list of bondholders last October 2010. Senator David Norris began naming them in the Seanad last December 2010 but was told by the chairman Pat Moylan that he was out of order.

Where: The payment will be made by IBRC whose head office is at 18/21 St Stephen’s Green, Dublin 2 (pictured) but ultimate responsibility lies with the Government, and principally Minister for Finance, Michael Noonan and his Department of Finance at Government Buildings, Upper Merrion Street (pictured)

Why: Not clear; but NOT because it is a term of the Memorandum of Understanding with the bailout troika of the IMF/EU/ECB – this was confirmed by Enda Kenny in the Dail last year, but Donal Donovan, formerly of the IMF but now a member of the Fiscal Advisory Council said during the week that Anglo bondholder debt might be considered sovereign debt and consequently part of the agreement; not because it is in any public agreement with the ECB though the ECB refuses to hand over some communication it has had with Ireland. The ECB last week said at the Troika news conference that the payment was so as to ensure confidence in the Irish banking system which I take to be a veiled threat that if it is not paid, the ECB may seek adjustment to the terms upon which it presently provides €151.4bn of funding to Irish banks (secured against appropriate bank collateral). The ECB adopts its position apparently from fear that a default on bondholders in Ireland would mean interest rates demanded by bondholders throughout Europe would rise and that consequently the costs to all European economies would increase, and also that if Irish banks default, the precedent might allow other European banks to default, which would undermine confidence in the entire European banking system. Blair Horan of the Civil and Public Services Union last week supported the payment to the bondholders saying that it strengthenedIreland’s reputation as it tries to recover from the crisis.

Any other argument in favour of the payment? Enda Kenny and Michael Noonan have both claimed that Anglo is paying the bonds from its own resources. This is technically correct in the sense that Ireland gives money to Anglo and Anglo takes that money and gives it to bondholders. No independent commentator that I am aware of, credits the claim that this is anything but a payment by Ireland (and even if Anglo is paying it, we own 100% of Anglo) Separately Minister Noonan claims that he is focussing on negotiating new terms on the Anglo promissory notes, but he has been doing that for at least four months without any evidence of success.

Protests? So far, not really. Today sees the 46th weekly Ballyhea/Charleville bondholder protest in Charleville where a group – varies, might be 10 people, might be 50 – will walk for 10 minutes along the street with a sign. The group maintains the Bondwatch website which details all bonds payable in Irish banks, and there are at least two associated Facebook pages. There is a new umbrella organisation called Not Our Debt which formed last week and is planning a public meeting this week. There is the Occupy group which is planning protests between 23-25th January. But this is Ireland, and unless there are union organised protests, or pensioners/students then recent history shows that protests will be on a small scale; but who knows.. In the Dail, FG and Labour will support the payment, Fianna Fail still seems to be suffering Post Traumatic Stress Disorder. So it will probably again fall to Sinn Fein and the technical group of Independents and the United Left Alliance to articulate protest to the payment.

Map indicating the Anglo (now IBRC) registered office at 21 St Stephen’s Green, Dublin 2 (indicated by red arrow)

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