Depositors in IBRC to lose over €93m

Well, senior bondholders in Irish Bank Resolution Corporation will seemingly have walked away with 100c in the euro, but depositors will now take a hit on their accounts. Last week, Minister for Finance, Michael Noonan confirmed in response to parliamentary questions that at 31st January 2013, IBRC had €323m of deposits. Although not exactly confirmed in Minister Noonan’s response, it appears that €200m of these deposits are covered by the Eligible Liabilities Guarantee and will be repaid in full. However €123m were deposits that existed on 29th September 2008 and were only guaranteed until the end of September 2010. These depositors are now going to be burned, baby, burned. By at least €93m according to preliminary estimates from the Central Bank of Ireland, but that figure may grow.

You might ask why anyone would be stupid enough to keep money on deposit at Anglo and Irish Nationwide. It seems that many of the deposits may have been term deposits, perhaps for five years, so if you placed your money on deposit in June 2008, you wouldn’t get it back until June 2013.

In responses to parliamentary questions from the Sinn Fein and Fianna Fail finance spokespersons last week, Minister Noonan provided what is quite interesting information, because remember, this is the first time in Ireland that depositors have had to revert to the Central Bank to be paid their guaranteed protection portions of their deposits.

Some questions have been received on here asking how the Deposit Guarantee Scheme works. There is a fund held at the Central Bank which collects a levy of 0.2% per annum of deposits held by the banks.  The Central Bank currently holds a balance of €388m to pay out should a bank fail, and should depositors seek their €100,000.

The full parliamentary questions and responses are shown below. Deputy Doherty’s is from 13th February 2013. Deputy McGrath’s from 14th February 2013.

Deputy Pearse Doherty: To ask the Minister for Finance if he will estimate the cost to the Central Bank of Ireland in compensating depositors at the Irish Bank Resolution Corporation for deposits up to €100,000; and if he will confirm if there is a pre-existing fund maintained by the CBI for such events;; and if he will make a statement on the matter.

Minister for Finance, Michael Noonan: I have been advised that the total deposits held by IBRC was €323 million at 31 January 2013.

The Special Liquidator submitted preliminary DGS information to the Central Bank of Ireland on 12 February which estimates eligible deposits of €123 million.  If the threshold for DGS qualification is mechanically applied (i.e. €100,000 per person), the payment in respect of DGS-covered deposits would be just over €30 million. However, the total DGS pay-out is likely to be significantly lower than this figure after the Special Liquidator excludes accounts such as:

·        Accounts that have been legally pledged as security against other liabilities (in IBRC, NAMA or possibly other third parties),

·        Accounts of Large Companies (only Small Companies, as defined in the Companies Act 1986, qualify for DGS pay-out).

It will take some weeks before the final pay-out figure will be known.

The aim of the Central Bank is to pay compensation within 20 working days to depositors who have been duly verified as eligible.

The Central Bank of Ireland maintains a Deposit Protection Account which will be used to fund any Deposit Guarantee Scheme pay-out.  The current balance on this account is €388 million and this is funded by credit institutions who contribute 0.2% of their total deposit.

 

Deputy Michael McGrath:   asked the projected time horizon over which claims by deposit holders at the Irish Bank Resolution Corporation under the eligible liabilities guarantee would have been paid had the institution not been put in to liquidation; the potential maximum cost of such claims; and if he will make a statement on the matter.

Minister for Finance, Michael Noonan:   I have been advised that the deposits held by IBRC at the end of January were €323m. Had IBRC not been liquidated I would expect that these deposits would have been paid in line with their expected contractual maturities. Eligible deposits are covered by the Deposit Guarantee Scheme and the Eligible Liabilities Guarantee schemes. Eligible deposits in IBRC of up to €100,000 for an individual or €200,000 for a joint account are protected by the DGS scheme. Eligible deposits above this are protected by the ELG scheme. The Special Liquidators will provide details of eligible depositors and account balances to the Central Bank. Payments will then be made by cheque within 20 working days of the appointment of the Special Liquidators and will be sent to depositors at the address held by IBRC. The Central Bank will keep customers of IBRC informed by providing regular updates on its website. Claimants covered by the ELG scheme must submit a claim to the NTMA. Claims forms can be found on their website at http://www.ntma.ie .

Deputy Michael McGrath:  asked the expected costs under the deposit guarantee scheme of the liquidation of the Irish Bank Resolution Corporation; and if he will make a statement on the matter.

Minister for Finance, Michael Noonan: It is understood that the total deposits held by IBRC was €323 million at 31 January 2013. The Special Liquidator submitted preliminary DGS information to the Central Bank on 12 February which estimates eligible deposits of €123 million. If the threshold for DGS qualification is mechanically applied (i.e. €100,000 per person), the payment in respect of DGS-covered deposits would be just over €30 million. The total DGS pay-out is likely to be significantly lower than this figure, however, after the Special Liquidator excludes accounts such as:-

– Accounts that have been legally pledged as security against other liabilities (in IBRC, NAMA or possibly other third parties);

– Accounts of Large Companies (only Small Companies, as defined in the Companies Act 1986, qualify for DGS pay-out).

It will take some weeks before the final pay-out figure will be known.

The aim of the Central Bank is to pay compensation within 20 working days to depositors who have been duly verified as eligible.

The Central Bank of Ireland maintains a Deposit Protection Account which will be used to fund any Deposit Guarantee Scheme pay-out. The current balance on this account is €388 million and this is funded by credit institutions who contribute 0.2% of their total deposits.

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Another blow to transparency in Ireland as Noonan refuses to publish unaudited accounts for IBRC for 2012

When a Special Liquidator was appointed to Irish Bank Resolution Corporation on 6th February, 2013, a key question was, what was the financial standing of IBRC on that date; after all, the most up to date information was provided for the six months ending 30th June, 2012 and a lot may have happened in seven months.

IBRC published its 2011 annual report on 29th March 2012, and that report included its audited accounts. By 6^th February 2013, you would have expected that IBRC would have made some progress in producing its 2012 report. At this stage of course, we don’t need a full report with full audited accounts – after all, the bank is now being liquidated. But it is likely that there were unaudited accounts which might have been finalized or substantially finalized.

Well, it doesn’t really matter because Minister for Finance, Michael Noonan is refusing to release any accounts for the period ending 31st December 2012 – either audited or unaudited. In a response from the Sinn Fein finance spokesperson Pearse Doherty and unusually describing himself in the third person, Minister Noonan said “The Minister for Finance does not intend to lay the unaudited accounts at 31 December 2012 before Dáil Éireann”

Given that this bank has received €34bn of a bailout, that it had loans after impairment of €16bn at 30th June 2012 and given it was running up costs at around €320m per annum and given its assets may now be sold at fire sale prices, at the very least, we should be getting unaudited accounts which are likely to have been prepared by now anyway. Hiding this information is just unacceptable.

The full parliamentary question and response are here.

Deputy Pearse Doherty: To ask the Minister for Finance if he will lay before Dáil Éireann the audited or unaudited accounts for Irish Bank Resolution at 31 December 2012.

Deputy Pearse Doherty: To ask the Minister for Finance if he will outline the arrangements that will apply for the publication of audited accounts for Irish Bank Resolution Corporation for the year ended 31 December 2012.

Minister for Finance, Michael Noonan:  I have been advised by the Special Liquidator that no audited accounts will be required to be published for Irish Bank Resolution Corporation for the year ended 31 December 2012. The Minister for Finance does not intend to lay the unaudited accounts at 31 December 2012 before Dáil Éireann.

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German central bank criticizes promissory note deal

“But on Ireland, let me say this: there was not a decision to take. The Governing Council unanimously took note of the Irish operation and I am going to refer you to the Irish government and the Irish central bank for the details of this operation, which was designed and undertaken by the Irish government and the Irish central bank. I can only say today that we took note of this. We all took note of this.” ECB president Mario Draghi in response to the question “There have been reports in the media in the past hour that the ECB has reached a deal on Anglo Irish Bank and I was wondering whether you could confirm that and whether you could provide us with details of the agreement?” on 7th February 2013

Well, there’s one key difference between the websites of the Central Bank of Ireland and the German central bank, the Bundesbank – on the German bank’s website, there’s a shopping cart because they expect you to pay for some reports.  Remember these are the people from whom we expected a debt write-down.

One report which is free is a report today which provides an overview of the German economy. Thankfully there is an English version available here. The media is focusing on comments on the promissory note deal announced a fortnight ago, and this is what the Bundesbank has to say on the subject.

“At its latest meeting, the ECB Governing Council took note of the remarks by the Governor of the Central Bank of Ireland regarding the treatment of the state-owned Irish Bank Resolution Corporation (IBRC), which the Irish government had liquidated shortly beforehand. The Irish central bank had granted emergency liquidity assistance to IBRC and, following its liquidation, assumed full ownership of the relevant collateral. Among other things, the Irish government and central bank subsequently agreed that the Irish government’s promissory notes which formed part of the collateral would be exchanged for longer-term Irish government bonds with lower coupons. The Irish central bank ultimately pays interest on the new bonds to the rest of the Eurosystem at the main refinancing rate, while the Irish government’s interest payments are collected as net income by the Irish central bank and can be used for distributions to the government at a later date. This approach underlines the increasingly close and problematic ties between monetary and fiscal policy in the European monetary union. Responsibility for providing any assistance to individual member states in servicing their sovereign debts should lie with the European Stability Mechanism (ESM), which was established for this purpose”

What is worrying is that the Germans are members of the ECB Governing Council – see full list of members here – and as the ECB “unanimously took note” of the promissory note arrangement, there might be concern that “problematic ties between monetary and fiscal policy” mean there is pressure on the Irish government to dispose of the bonds used to swap with the promissory notes, on the open market sooner rather than later. Remember under the present arrangement, Ireland is paying a paltry 0.75% on the bonds used to swap with the promissory notes. But if €25bn of 2040 and 2053 bonds hit the sovereign bond markets tomorrow, the likelihood is that we would be paying 4%.

It seems however that there is no cast iron guarantee that Ireland can keep the bonds at the Central Bank at its discretion. In response to parliamentary questions from Sinn Fein and Fianna Fail last week, the Minister for Finance Michael Noonan used the same wording “The bonds will be placed in the Central Bank’s trading portfolio and sold as soon as possible, provided that conditions of financial stability permit.  The disposal strategy will maintain full compliance with the Treaty prohibition on monetary financing.”

We have no idea what Minister Noonan means by “financial stability” and the Bundesbank might have a different view to our own. So we might come under pressure to take the bonds out of the Central Bank sooner rather than later. If that happens then the NPV of the deal could dramatically fall from €6bn.

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No wonder Wilbur is happy – NAMA has paid €1bn in state aid to Bank of Ireland

“After-sight is 20:20 vision” goes the saying, and if we had a time machine and could travel back to September 2008 when we gave the bank guarantee, to January 2009 when we nationalized Anglo or to November 2009 when we passed the NAMA Act which led to the formation of NAMA a month later, if we could go back to March 2010 when we started issuing €31bn of promissory notes, or to November 2010 on the eve of the IMF and others’ bailout,  we would probably have done things differently.

But we can’t turn back time, we can’t undo the NAMA scheme approved by the EU which detailed what NAMA would pay for the loans it was acquiring from five Irish financial institutions – AIB, Anglo, Bank of Ireland, EBS and Irish Nationwide. And remember that scheme forced NAMA to pay state aid to the banks, mostly in the form of a long term economic value premium. Or to illustrate, if NAMA was acquiring a loan which might only fetch €10m in the open market, NAMA was to gift the banks a premium for the hope that the loan would be worth more in the future, mostly as a result of property prices increasing. And NAMA paid an average of 9% for this premium, so it would have paid €10.9m on average for a loan that was only worth €10m.

In the case of AIB, EBS – which we 99.8% own – and Anglo, INBS – which we 100% own, this state aid didn’t really matter because one arm of the state, NAMA, was paying the premium to another arm of the state, the banks. But in the case of Bank of Ireland, it does matter because we now own just 15% of that bank. And the latest from NAMA is that we have paid €995m to Bank of Ireland in state aid, or we have purchased loans worth €4,438m in the open market from Bank of Ireland but have paid €5,433m for them.

And how are we doing on long term economic value? At the top of this page, we track the movement in four of NAMA’s key markets, Irish commercial and residential and UK commercial and residential, and on average prices are down 22% since November 2009, the NAMA valuation date, and we need a 28% rebound for NAMA to break even. So, “not good” is the answer.

Meanwhile, Wilbur Ross has been holding forth on his great investment in Bank of Ireland last Friday in Palm Beach, Florida at a meeting of the Ireland US Council. With Bank of Ireland shares trading at 13.5c compared to the 10c which Wilbur and two other North American concerns bought 35% of Bank of Ireland for, no wonder he’s a happy man. I hope he appreciates the state aid from us all, most of which was provided after his investment in Summer 2011.

The state aid in Bank of Ireland was the subject of a parliamentary question a fortnight ago, when the Sinn Fein finance spokesperson Pearse Doherty questioned the Minister for Finance, Michael Noonan on the subject. This is the full exchange. The extract from the Comptroller and Auditor General Report is shown at the bottom of this blogpost. The reference to PQ 272 is a reference to the fact that NAMA’s tranches 3-5 have still not been approved by the European Commission.

Deputy Pearse Doherty: To ask the Minister for Finance the amount of State aid paid by the National Asset Management Agency in its acquisition of €10bn par value loans at Bank of Ireland for €6.1bn..

Minister for Finance, Michael Noonan:  I would like to draw the Deputy’s attention to Table 3 on page 33 of the 2011 Annual Report; this table details NAMAs loan acquisitions by institution. It shows that NAMA paid a consideration of €5.6 billion for loan balances of €9.9 billion in the case of BOI.

I am advised that, when it granted its approval to the NAMA scheme in February 2010, the European Commission stated that the difference between the long-term economic value of bank assets and their current market value was the State aid element of the scheme.

The Comptroller and Auditor General Special Report No: 79 NAMA Management of Loans published in February 2012 gives a detailed breakdown of the State Aid for each of the banks.

However, I would refer the Deputy to PQ No 272 answered on the 29th January 2012, regarding the approval of the final tranches by the EU.

 

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