What happened yesterday?
It seems that some un-named source told Reuters and Bloomberg that there was a plan to liquidate Irish Bank Resolution Corporation – IBRC, the entity that houses Anglo and Irish Nationwide Building Society. Rumours flourished and around 5pm, RTE started reported its understanding that IBRC was to be liquidated and that emergency legislation would be introduced in the Oireachtas because it is to be a special liquidation. KPMG were appointed liquidators yesterday afternoon and the IBRC board was dismissed. At around 8.30pm, a copy of the Bill was given to the parliamentary parties and at around 10.30pm it was given to the Opposition. The Dail and Seanad worked on the Bill to which no amendments were admitted, and in the end it was supported by Fine Gael, Labour, Fianna Fail and a couple of Independents. The President, who had rushed back from Rome, signed it into law earlier this morning.
So we’ ve got a deal with the ECB?
Not at all, though we might get more clarity on that today. All we’ve done so far is some domestic rearrangement of banking assets and liabilities. Sources this morning say ECB approval of a scheme may take another three weeks.
In outline what will happen?
IBRC which has about €16bn written-down value of loans to developers and businesses and mortgage holders (INBS) will transfer the loans to NAMA. NAMA will issue NAMA bonds. NAMA will manage the loans until 2020 by which time it hopes to have generated enough to redeem the bonds. Most of the 1,000 IBRC staff will move to NAMA which has a true present staff of about 700 at present. I would expect about 300 redundancies, but it should be stressed that is sourced here and here alone.
How does the cost of what is proposed compare to the existing arrangements
Good question. We don’t know the ECB leg of the deal so we can’t say right now, but we can say that using NAMA bonds to take assets off IBRC means that the State will save because NAMA just pays 0.75% on those bonds and hopes to recover that through its operations.
Are there risks of hidden losses?
Oh yes, questions remains about what will happen to the bonds at IBRC. IBRC has at least three sets of litigation where it is defending actions from bondholders who want full payment. Minister Noonan last night referred to all bonds being repaid and it remains unclear if this means that IBRC will have to foot an additional €460m-plus loss. We await details of redundancy and pay-off costs.
Are we better off?
We will probably be better off, but we still await details of the ECB leg of the scheme. However we are converting promissory notes which the ECB fears we will renege on, to a direct commitment to the ECB which we can’t renege on without a clear sovereign default.
What’s in it for Ireland? What’s in it for the ECB?
We get to use NAMA bonds to fund assets at IBRC and NAMA bonds are cheap and NAMA will expect to make sufficient profit to cover their cost. The ECB sees the wacky promissory notes replaced with a firmer commitment from Ireland.
What effect will the new arrangements have on our debt, deficit and budget adjustment
NAMA bonds don’t form part of our debt so I would expect our debt to drop by €16bn or 8% from 122% to 114%. We will pay interest only on whatever instrument we replace the promissory note with and for illustration, if we replace it with a 4% 10-year bond, then on the estimated €10bn, we will pay €400m interest compared with about €1.8bn this year for the promissory note. We will make similar savings in 2014 and 2015, though the savings reduce after that. This consequently means we can potentially cut the adjustment this year by €1.4bn and the Budget in December would be €1.7bn of adjustments rather than €3.1bn.
What happens to IBRC staff and premises?
Most staff will transfer to NAMA. The estimate on here is that there will be about 300 redundancies from the 1,000 staff presently employed. Look out for termination packages. Remember this is a bust bank. The IBRC premises will probably be kept for the short term, but would expect moves to Treasury Buildings in next six months.
What happens to the Quinn litigation?
Nothing. NAMA steps into shoes of IBRC, and NAMA is harder than IBRC. In any event, the Quinn litigation will now die down until after the Fitzpatrick trial next year.
Why was there a mad rush yesterday?
I don’t know. Min Noonan said it was because there was a threat to the assets of IBRC. Those assets are loans and it is unclear to me why those loans would have been jeopardized by a litigation. I am doubly suspicious because it has been the intention, apparently, to liquidate IBRC for several months, so there was always going to be such a rush AT SOME POINT. Given the Keystone Cops yesterday, I just don’t believe Minister Noonan that if there had been such long-prepared plans that it would have been so chaotic.
There are scores of questions that remain unanswered. The ECB may answer some today. But what most of you are looking for is an illustration of the cost including interest of the present scheme by year compared with the proposed scheme. That will be worked towards on here.
UPDATE: 7th February, 2013. This evening there are a raft of references to help us understand the scheme. To start off, the Fianna Fail finance spokesperson Michael McGrath asked An Tanaiste the following
Michael McGrath: The Tanaiste might say in his response how long the Irish Central Bank will be allowed to hold these long term Government bonds, which is the key issue at the heart of all of this. As long as the bonds are held by the Irish Central Bank the true interest rate to the State is reduced
The Tanaiste: On the specific questions asked, the Irish Central Bank will only sell the bonds where such sale is not disruptive to financial stability. There is a schedule of sales, which if the sale conditions are right, will amount to €500 million up to end 2014, €500 million in the next four years, €1 billion in the following five years and €2 billion per annum thereafter. As I stated, such sales will only be in circumstances where they are not disruptive to financial stability. The interest rate will be a floating interest rate. We expect it to be between 3% and 3.5%.