Ireland has a mature parliamentary democracy, it has an independent media, we don’t depend on a single commodity like bananas for our wealth, we are judged internationally to be a relatively honest and corruption-free country. Events last week have undermined these perceptions, namely the publication of the Mahon report on political corruption in zoning and planning, but the past 24 hours has been even more damning with a major financial transaction involving billions of euro in a country with a GDP of €160bn getting a few minutes in the national parliament, confined to a statement which brooked no subsequent questioning and where phone-calls to the Department of Finance apparently went unanswered. And politicians have now gone on holidays for three weeks. Never mind, we can fall back on our “independent media” to analyse what happened yesterday and here are the headlines from our main national media outlets today:
“Deal puts off Anglo cash payment”
“Noonan: €3.1bn deal on Anglo a ‘one-off’”
“Noonan seals deal on €3.1bn Anglo debt repayment”
“Government wins backing on €3.06bn payment”
Here’s why we have taken a step closer to Banana Republic status yesterday.
1. There is no “deal” with the Troika consisting of the EU, ECB and IMF. In particular the ECB has given nothing and taken everything. The ECB has issued a statement – not available on the ECB website, but reported by Reuters here – in which it notes the €30bn loan which had been given under its auspices by the Central Bank of Ireland – referred to as “Emergency Liquidity Assistance” or ELA – is being repaid exactly on the terms which existed when the loan was made, and specifically the payment of €3.1bn due today will be made. Any “deal” involves three state-controlled entities – (1) IBRC which is the new name for Anglo/INBS (2) NAMA (3) the Government – and may additionally involve an entity which is presently only 15% controlled by the government but which needs a state guarantee to operate, Bank of Ireland. Those are the parties to the “deal”. Nothing has been given by the Troika and everything has been taken.
2. There is no “putting off” or “deferral” of the payment today of the €3.1bn to IBRC. The money is being taken from NAMA and will pay back the loan from the Central Bank of Ireland today. The Central Bank of Ireland will take the €3.1bn, bring it outside, douse it in lighter fluid and set it alight, or whatever the electronic equivalent is of destroying money which was created when the ELA loans to Anglo were originally made.
3. The payment today of the €3.1bn was originally going to be funded by the Troika who charge us 3.5% per annum for our €67.5bn bailout. Instead, Ireland is issuing a bond repayable in 2025 – we think, the Government yesterday merely referred to a “long dated” bond – and which will pay 6.8% per annum. In other words we will fund the payment with an instrument which costs us twice the rate the Troika would charge us. However, initially it is NAMA that will benefit from the 6.8% and we own NAMA so there’s a saving there of 6.8% less what NAMA was earning on its cash. However the intention is that Bank of Ireland, which we only own 15% of these days, will acquire the bond. What happens next is not clear – here is the Bank of Ireland statement if that helps. Bank of Ireland intends exchanging the bond for cash at the ECB and paying 1% per annum for it, and then charging the Government 2.35% it seems which gives Bank of Ireland a margin of 1.35%, but it is unclear how this sits with the fact that the bond pays 6.8%.
4. Minister Noonan made the statement in the Dail yesterday and then disappeared. There was no debate or elaboration of the details of the “deal”. I understand from sources that attempts were made by Opposition parties to get further information from the Minister and the Department of Finance but phones were not answered and the Government seemed more pre-occupied on the prospect of a three week holiday which began yesterday. That may be unfair but it seems clear that no further statement or elaboration has been forthcoming. NAMA has not issued any statement. There is no evidence of the Department of Finance issuing a Direction to NAMA, under the NAMA Act, instructing NAMA to pay the promissory note today in exchange for a bond.
5. NAMA has in the past invested a small sum – less than €50m – in short dated Irish government debt as part of, what NAMA calls, its “treasury management”. NAMA sold that debt last summer though it recently told an Oireachtas committee that it had €4.3bn of cash at hand with €2bn on deposit with the Central Bank and €2.3bn “is invested in short-term investments pending the use of the cash to redeem NAMA bonds, which we expect shortly”. What NAMA is being called on to do now is to invest €3.1bn in long dated government bonds which represents a significant departure for the Agency. The stated intention is for Bank of Ireland to take the bond off of NAMA’s hands, but that requires Bank of Ireland shareholder approval, and it is not clear why Bank of Ireland would take on a deal which would only pay it a 1.35% margin when it could theoretically buy one-year Irish government bonds today at 4% and exchange these for 1% loans from the ECB, thereby making a 3% margin. So this “deal” with Bank of Ireland, which now needs shareholder approval, has potential to unravel.
6. Why is the money now being taken from NAMA? The Government already has a piggy bank, the National Pension Reserve Fund (NPRF) which has access to over €14bn, and it is normal practice for the Government to direct the NPRF to make specific investments. So why not use the NPRF? The answer is probably that this “deal” is so last minute that the NPRF cannot liquidate investments it has made in time to meet the ECB deadline today.
7. What is the cost of the “deal”? We still don’t know. Minister Noonan referred to the 2012 deficit adjusted by €90m. He said “this will have an approximate €90m impact on the general government deficit in 2012 which is small relative to the overall benefit of the removal of the requirement for the Exchequer to settle €3.06 billion in cash.” Such was the confusion about this statement that there was debate as to whether the “€90m impact” was an additional cost or benefit. It looks as if it is a cost. However we still don’t know if it is a real cost, for example, money going from this state into the pockets of shareholders in Bank of Ireland, or if it is a theoretical cost such as money going from the State to NAMA or IBRC which we both control, and which will eventually come back to us.
8. As for the Irish media and its “winning”, “deal”, “deferral” – the Financial Times calls the arrangement announced yesterday “a bit more bonkers”, it is one of the few international media organisations to report yesterday’s development, which given the headlines in the Irish media noted above, seems curious. Maybe the absence of hard facts, and the reality that there has been no “deal”, that there is no “deferral” (until Bank of Ireland takes on the bond, and even then it is not clear what the financial impact of the arrangement will be) means that yesterday’s arrangement is not very newsworthy at all and that Ireland is repaying its debt exactly as planned.
9. As for so-called “debt sustainability”, the governor of the Central Bank of Ireland had a go at explaining the concept to the Oireachtas finance committee earlier this week, and he claimed that even though our national debt might increase, if the interest rate or duration for repayment improved, then “debt sustainability” may also improve. The Troika loans are repayable, in the main, by 2022 so substituting a Troika loan with a bond repayable in 2025 pushes out the duration, but a bond paying 6.8% is, on the face of it, more expensive than the 3.5% loans from the Troika. So at this stage, it is unclear if our debt sustainability has in fact improved.
All in all, yesterday was not a good day for the reputation of this country.
NAMA Wine Lake 
Maybe we’ve invented a new paradigm… The “burger republic”
Wimpy Noonan!
http://www.japlandic.com/2012/03/wimpy-noonan.html
Well, isn’t it really amazing how the “independent media” spin works, if you ever needed one single and outstanding example, yesterday was it.
This is nothing but a kleptocracy of elected thieves. Noonan continues to serve those who “make money” and not those who “earn money”. The timing and instant flight into holidays is truly remarkable.
Reblogged this on Tomás Ó Flatharta and commented:
We are governed by forelock-tuggers – running a failing state to the west of Great Britain – is all changing, changing utterly?
Central Bank can probably save expense by not sending the Governor to Frankfurts meetings, where he clearly isn’t getting any hearing worth wondering about . “We’ve taken one for the team ” alright, and it’ll be a cold day in hell before any relief is given. Noonan should be ashamed of himself for spinning that the ECB have not closed the door on banking debt relief. It’s true only in the sense that the door is, and has always been, firmly locked.
Noonan should be ashamed of himself spinning that the ECB haven’t closed the door on a banking debt relief agreement. It’s blindingly obvious the EU will be in tatters first.
[…] […]
“it has an independent media, “………
Excellent analysis of our compliant media but what you expect:
Indo et al owned by a tax avoider who was one of the 6 owners of the plundered, now in administration, Eircom.
Supposedly independent Radio owned by another tax avoider, tribunal condemned businessman.
The Irush Times one of leading property hypers during the boon.
The Murdock lot enough said.
RTE sounding more and more like Pravda in it’s genuflecting to the government line while taking advertising from every hustler.
Anyone care to point out where we have any independent media apart from the net and of course NWL.
excellent paraphrasing of ‘independent’ Irish media sir! What a sad joke it is!
Thanks for your excellent analysis. When you look at the net cashflows it’s pretty straightforward. The ECB is getting its cash today on time and in full and this is being funded by cash that is now sitting in NAMA’s bank account. This will later by replaced by money that BOI will provide from its capital base when the paperwork is done.
Karl Whelan was right last night on VB. If this wasn’t happening then this is money that BOI would (presumably) be using productively in its lending business by making loans to punters. (The alternative is that they will raise ‘new’ capital to fund this transaction but as ultimately the party getting the money is IBRC and the Irish government and the markets are closed to these parties then this seems unlikely). In the short term then this is money that BOI or NAMA could use. Therefore the costs and impact of this transaction go beyond what is being presented here. The spin is that BOI can trot off to the ECB and use the bond as collateral to borrow additional funds. I don’t really swallow that fully. Like the quantum of electricity loss as it works it way down the line across many telegraph poles, the simplistic analysis doesn’t seem to take account of the various costs and impact on regulatory capital usage along the way.
The big question in this transaction is what happens in a year’s time? This long dated bond is being repo’ed (i.e. being sold by IBRC to BOI in return for cash now but with an obligation for IBRC to repurchase it back – hence the term repo – from BOI in a year’s time.) Where does IBRC get money to repay the repo? NAMA’s involvement is a presented as a short term measure but I suspect that ultimately NAMA will be left holding the baby (i.e. the long dated bond) that is repo’ed. Note that the Minister’s statement says that
“€3.06 billion will be settled by delivery to IBRC of a long term Government bond with an equivalent fair value. Ultimately, it is intended that this long term Government bond will be financed for one year, on commercial terms, with Bank of Ireland who may in turn refinance the bond with the ECB….As a short term interim measure, pending the results of Bank of Ireland’s shareholders’ vote, the financing of the bond will be a collateralised facility provided by NAMA to IBRC on equivalent commercial terms as the financing with Bank of Ireland. NAMA is in a position to facilitate this collateralised financing from its own funds.”
I presume that “a collateralised facility provided by NAMA to IBRC on equivalent commercial terms as the financing with Bank of Ireland” means that the long dated bond will be the security or collateral. What’s the betting that this security will end up back with NAMA in a year’s time? Bearing in mind that I could be wrong in my analysis, anyone out there with sufficient knowledge to explain the chances of that happening? Could yet more assets of IBRC end up in NAMA in the same way as previously?
[…] Banana Republic Status Comes A Step Closer With Anglo Promissory Note Deal (Namna Wine Lake) […]
Yesterday was Noonan’s V.A.T. on childrens shoes moment, I think.
It would be a VAT-on-children’s-shoes moment if anyone understood what the hell was happening. If even experts like NWL and the Financial Times can’t fully follow the logic of this arrangement, what hope is there for the rest of us? Those of us in The Plain People of Ireland category will suspect that we’re still being screwed, just with a differently shaped dildo.
NWL- DO you think that Simon Carswell piece here is just incorrect?
http://www.irishtimes.com/newspaper/finance/2012/0330/1224314097376.html
His impression is that NAMA are just “stepping into BOI shoes temporarily”
Must say, I am well and truly lost. Some excellent coverage from you again though; Kudos.
@DG, yes it is intended that NAMA temporarily pay for the newly issued 2025 bond, up to 90 days according to the ministerial direction. The Bank of Ireland board has approved the future funding of this bond for one year, so the expectation is that once Bank of Ireland gets shareholder approval for the transaction, Bank of Ireland will pay NAMA back its €3.1bn and Bank of Ireland will hold the bond.
Having just listened to Damien English on last night’s Vincent Browne, it is unclear what happens after one year and it was suggested by Deputy English that Bank of Ireland might sell the bond on elsewhere.
So at this point it remains a concern that we have turned down the 3.5% funding from the Troika which would be repayable by 2022 in favour of a 6.8% bond which is repayable in 2025.
So NAMA pays now, according to plan BOI pay NAMA in 90 days, do BOI borrow from ECB or who to fund the repayment?
If the ECB, is there effectively no/limited cash effect to the sovereign/NAMA within 90 days (all going to plan); but BOI have converted a prom note into sovereign debt repayable one yr in the future.
So at best the gov have bought 12 months to agree a better deal??
@DG, that’s the general consensus but it’s worth noting that if the Government had borrowed from the Troika to pay the promissory note, it would have paid 3.5% per annum on the loan which is repayable by 2022. What has happened is the Government has issued a bond redeemable in 2025 – we believe! – which carries an interest rate of 6.8%. So we’re nearly paying double interest over the next year. Of course we own NAMA so that interest will ultimately come back to us, but we only own 15% of Bank of Ireland so if Bank of Ireland get 6.8% that’s money that’s lost to the State. It is not quite clear what the Bank of Ireland deal is, it requires shareholder approval, but there are questions being asked by Bank of Ireland would accept a margin of 1.35% as indicated in its press release yesterday when it could go out and buy a one-year Irish bond which pays 4% and would give Bank of Ireland a margin of 3% because Bank of Ireland can get a loan at 1% from the ECB using bonds as collateral. This story hasn’t been completely told yet…
So who exactly is it would have come up with those financial machinations/engineering?
Jesus wept. Media reporting is very poor, with few exceptions. The nwl blog does the public a huge service, albeit unappreciated heretofore…..exception Morgan Kelly…and there’s a man who knows. Respect.
@NWL its Friday…English was so out of his debt,must have scared the s**t out of Wilbur if he watched it.There is NO deal with B of I,its subject too,and will contain a Material Adverse Change (MAC) clause,or exit scenario.Smacks of desperation,scrambling at last minute,would this not be an attempt to ‘lobby’ NAMA !
“Under Section 221 of the NAMA Act, it is an offence to attempt to lobby NAMA. An officer or Board member of NAMA is obliged to report any such attempt to a member of the Garda Síochána and failure to do so is itself an offence.
An offence under Section 221 is liable on summary conviction to a fine of up to €1,000 or a prison term of up to 6 months, or both.”
http://www.nama.ie/governance/lobbying-nama/
@JG – Easy on. Under the Act the Minister can give direction to NAMA and this has been done. In terms of counteracting the spin that is out there I heard Colm McCarthy on the News at One (Sean O’Rourke would be a leader to whom alot of journos would defer). McCarthy was as clear as he could be given the amount of information at our disposal – there is really no deal bar a one year borrowing from BOI. O’Rourke’s final comment is telling …. perhaps this is a mechanism to get us over the government party conferences over the next two weekends? The tide will turn but I suspect that the public and press will have moved onto the next big thing and forgotten it all bar that it is complicated and vaguely positive, not negative. Job done for the spinmasters!
@Capoliman,you don’t even have a one year deal with B of I,its ‘subject to’,but what that minister has done is cash stripped NAMA.No Dail debate,No NAMA board meeting,did NTMA sign off ?
Its over 3,000,000,0000 yep over 3 BILLION,just like that,gone from NAMA.
B of I has an absolute OUT,here,can walk way,leaving NAMA out of cash,what if Paddy wins in London?
JG : I agree with you about the stripping of cash out of NAMA to help fund this payment.
I presume that this cash, being taken out of NAMA, can be replaced by the funds being loaned to us by the Troika.
Pass the bloody parcel.
“Oh what a tangled web we weave………………”
If this works out (somehow) to be a good deal for BoI then why on earth didn’t we channel it through AIB and let the benefits accrue to a (basically) wholly owned bank?
If it isn’t that good a deal then why do the government think BoI shareholders will agree to the setup?
I really hope there is a master plan that isn’t yet clear but I wont hold my breath…
@Shucks11, I don’t know the answer to that, but you could also ask why not give the bond directly to Anglo and let it borrow the money from the ECB. The answer is probably because the ECB is not supposed to lend to sovereigns, and AIB is 99.8% owned by the State and Anglo is 100% owned by the State.
Anglo indicates on page 12 of its annual report published yesterday that the ECB is reluctant to advance it more money.
The entire ‘negotiations’ have been a complete and absolute fiasco,resulting in this half witted shambolic, chaotic solution.
Complete,total absolute failure,no one from the government can articulate what has just happened.The shareholders of B of I ,have the ability to derail this entire scheme,or at the very least dramatically improve on their 135 bps.
Where,does this leave NAMA,they are now in the bridge loan business,still no statement from them or NTMA on this.Assume,its paid as business day over in Europe.
What little moral authority NAMA had,is now completely eroded,THEY lent 3BILLION out the door to an insolvent borrower,based on a possible funding source,subject to !
It won’t unravel until after the ard fheis. No doubt they’ll be spinning it as a greta ‘deal’.
The BOI shareholders would want to be absolutely nuts to have anything to do with this scam.
Step 1,completed.
“Further to the recent announcement by the Minister for Finance, today the NTMA has sold €3.461 billion nominal of the 5.4% Treasury Bond 2025 at a price of 88.11 (yield 6.81%) to the Irish Bank Resolution Corporation..”
Click to access SaleOf2025BondToIBRC.pdf
[…] bad thing that. Today the excellent Namawinelake takes up the media theme with a powerful piece – Banana Republic status comes a step closer with Anglo promissory note deal Why did that smart new media not tell us that the country was being bankrupt by all those smart […]
Wibbbeldy Wobbeldy Wonders ….
@namawinelake
Keep up the good work.
Patrick Honohan said at the Finance Committee on Tuesday that the bond used for this transaction would be “a tranche of an existing bond”
I didn’t see any indication yesterday that this is indeed the case.
I’d be interested to know if this is the deal that the members of the Finance Committee were told about on Tuesday or if the details changed significantly in the interim.
Link to Finance Committee transcript:
http://debates.oireachtas.ie/FIJ/2012/03/27/00003.asp
@PaddyJoe check out the NTMA link above,thats what hes was referencing.
Thanks for that John. So what Honohan was referring to is this:
“The bonds issued under this tranche are identical to, and fully fungible with the existing 5.4%
Treasury Bond 2025 issue. The nominal amount sold will bring the outstanding amount to €11.746
billion. As such, it will be tradable and available for repo transactions in the normal way.
@PaddyJoe the best explanation so far in owned by English on VB Thursday,about 10 minutes in.Its essential viewing,as much for Karl Whealan’s facial expressions as anything.From,my understanding they added more paper to an existing in the market bond,sold it to B of I for just under a year.They stripped NAMA of cash to bridge the canyon,as B of I requires shareholders approval,earliest May before NAMA knows the outcome of the vote.
[…] Note Payment ECB has just released a statement on Ireland honouring the Promissory Notes Banana Republic status comes a step closer with Anglo promissory note deal Last edited by He3; Yesterday at 09:56 PM. "Respect your commitments, pacta sunt […]
Hi NWL. It seems you were right all along to be dismissive of the governments chances of restructuring the pro note.
When I and others argued that you should hold fire and give the government the benefit of the doubt we were probably being a little innocent.
As usual you trusted your instincts and they didn’t let you down. Keep up the good work.
Confusion continues with release of Exchequer figures for first quarter
“The Exchequer deficit at end-March 2012 was €4,263 million compared to €7,066 million in the same period last year. Non-voted capital expenditure is down significantly because the payment in respect of the Promissory Note to IBRC was not part of Exchequer expenditure at end-March 2012 as it was in the first quarter of 2011. Increased tax and non-tax revenues were offset by higher debt servicing costs and higher net voted current expenditure.”
This has been interpreted by RTE news as meaning that Government did not pay the PN and thus “saved” or “avoided” a payment of 3.06 bn when compared with 2011.
In fact, the language in the Dept Finance’s note is ambiguous: on one reading, it might suggest that no payment was made; the more natural reading, however, is that a payment was made, but did not feature in the first quarter’s expenditure. The NTMA press statement suggests that the “sale” of the bond would settle on 2nd April, 2012, i.e. in the second quarter. Presumably the payment of the PN also settled outside the first quarter.
The Minister is guaranteeing the BoI repo of the bond, and thus may have to pay 3.06 bn in cash to BoI in 2012.