NAMA loaned €3bn to IBRC without taking out credit insurance

The “nod and a wink” culture that is coming to symbolise Minister for Finance, Michael Noonan’s way of doing business becomes clearer with each passing week. We are today on the final day of a 3-day bondfest with an overall total of  €1.15bn being paid by this nation to unidentified, unsecured, unguaranteed bondholders at what remains of Sean Fitzpatrick’s Anglo Irish Bank and Michael Fingleton’s Irish Nationwide Building Society. The reason for this insolvent State, which is in the middle of an IMF bailout programme, making the payments? According to Minister Noonan last year, it is because “a nod is as good as a wink to a blind man”

Separately, that part of the public which follows these things continues to scratch its head at the deal done between the Government, IBRC and Bank of Ireland, by which BofI is lending €3bn to IBRC for one year at 2.35%. Last week at the BofI EGM, it was confirmed by the BofI CEO Richie Boucher that he was unlikely to see any profit from the loan after taking so-called “credit default insurance” into account; in other words, BofI is insuring its loan to IBRC and once you take the cost of that insurance into account plus the 1% interest BofI must pay the ECB for the cash in the first place, the transaction generates no profit. Why would BofI engage in such business? It’s not clear but you would have to suspect that the “nod and a wink” culture is at play again. The Government has a 15% shareholding in BofI so it doesn’t have majority control, and only two of the 12 directors on the BofI board have been appointed by the Government. Yet BofI engaged in a seemingly, philanthropic act in lending €3bn to IBRC for no profit. No doubt the appointment of Wilbur Ross and Prem Watsa to the BofI board announced just after the EGM, is purely coincidental – both men represent the North American companies which invested in BofI last summer.

BofI is taking over a loan to IBRC that was originally funded by NAMA in March 2012. And you might recall that NAMA was, like BofI, charging 2.35% per annum on its loan which was capped at 90 days. NAMA claimed it was providing the loan on an arms-length commercial basis. It was noteworthy that NAMA failed to issue a press statement for what has been the Agency’s biggest financial transaction to date, and the commentariat was suggesting that the transaction was conducted at Minister Noonan’s behest on terms which were closer to the “nod and a wink” culture than the arms-length basis asserted by NAMA. Earlier this week, in a Dail response to the Sinn Fein finance spokesperson Pearse Doherty, we found out that NAMA, unlike BofI, didn’t even take out credit default insurance. The full exchange is here

“ Deputy Pearse Doherty: asked the Minister for Finance following on from reports that suggests that, after taking credit default insurance into account, Bank of Ireland will not make any profit on the arrangement whereby it replaces the funding provided by the National Asset Management Agency to the Irish Bank Resolution Corporation in order to satisfy the promissory note commitment that fell due in March 2012, if he will confirm if NAMA made a profit on its part in the arrangement; and the amount spent by NAMA on credit default insurance.  [30418/12]

Minister for Finance, Michael Noonan: I am advised that NAMA did not take out credit default protection against the short-term financing facility. I am also advised that for the duration of the short-term financing facility between NAMA and IBRC, NAMA received a rate of return of 2.35%, which was above its interest cost on its NAMA Senior Bonds. The difference represents the agency’s profit in relation to this transaction.

In relation to Bank of Ireland, as the deputy may be aware I have no role in the day-to-day commercial and operational decisions of the bank, which include these matters. These decisions are taken by the board and management of the institution.”

So apparently NAMA’s view of an arms-length transaction, albeit for up to 90 days, is different to the view of the BofI board.

On a related subject, Minister Noonan is not saying if BofI is using a  related party or indeed one of its principal investors to provide the credit default insurance which will apparently cost €40m approximately for the forthcoming year.

Minister Noonan says “I am not aware of any such announcement. As the Deputy will be aware, risk management policies and actions are a matter for the Management and Board of the Bank of Ireland. I have no role in the day-to-day commercial and operational decisions of the bank, which include these matters. These decisions are taken by the board and management of the institution.”

Just the sort of response we are coming to expect in this flourishing “nod and a wink” culture.