It is truly remarkable that more than two months after the special liquidation of Irish Bank Resolution Corporation that the smoke is only now beginning to clear on some very important aspects of the liquidation.
In the Dail this week, the Independent TD for Wicklow and East Carlow Stephen Donnelly asked Minister for Finance Michael Noonan about exposure of Irish pension funds to the liquidation at IBRC. You will not be surprised to learn that after the repayment of 10s of billions of euros to bondholders, domestic pension funds are indeed now exposed to losses. Thankfully the losses would appear to be capped at €1m, but in his response, the Minister set out the pecking order of creditors to be repaid and it is (with the top ranking at 1)
(1) Preferred creditors
(2) debt purchased by NAMA from the Central Bank
(3) “if there are proceeds available after repayment in full of the NAMA debt, these proceeds will be applied to remaining unsecured creditors” which apparently includes part of the pension fund deposits at IBRC (by the way, if your pension fund had no-notice deposits at IBRC, it might be an idea to demand an explanation as to the actions of your pension fund)
In February 2013, Minister Noonan directed NAMA to buy IBRC debt at the Central Bank and NAMA issued €15bn of state guaranteed bonds to buy the charge over €15bn of IBRC assets held at the Central Bank.
Here is the IMF schematic of the IBRC liquidation.
So, it is now NAMA that is exposed to losses on these bonds, and the estimate on here is that IBRC’s assets were worth €1-3bn less than their book values in February 2013. This is beginning to look maverick, ah-hoc despite being planned since last October 2012 and amateurish, and worse, Minister Noonan refuses to provide us with the meat of the NAMA directions. But what we do know, is that bondholders covered by the ELG are being paid €933m ahead of NAMA which we own – according to the March Exchequer Statement, €933m was provided to IBRC by the Government on our behalf in March 2013.
This is just crazy.
The full parliamentary questions and response are below (with my emphasis added) and available at the Oireachtas website here.
Deputy Stephen S. Donnelly the total value of Irish pension funds on deposit, or in any other financial product, on the books of the Irish Bank Resolution Corporation at the time of liquidation under the Irish Bank Resolution Corporation Bill 2013; and if he will make a statement on the matter.
Deputy Stephen S. Donnelly the total write-down in the value of Irish pension funds due to the liquidation of the Irish Bank Resolution Corporation under the Irish Bank Resolution Corporation Bill 2013; and if he will make a statement on the matter.
Deputy Stephen S. Donnelly the number of individual pension funds, that is persons, affected by the liquidation of the Irish Bank Resolution Corporation under the Irish Bank Resolution Corporation Bill 2013; and if he will make a statement on the matter.
Deputy Stephen S. Donnelly if he will publish the analysis done prior to the liquidation of the Irish Bank Resolution Corporation under the Irish Bank Resolution Corporation Bill 2013 on the effect of the liquidation on Irish pension funds held by IBRC; and if he will make a statement on the matter
Minister for Finance, Michael Noonan: I propose to take Questions Nos. 275 to 278, inclusive, together.
As the Deputy is aware, I am not in a position to advise on the specifics of any accounts with IBRC (in liquidation). I have been informed that there are a number of customer accounts that may not be entitled to full compensation under the deposit guarantee scheme, DGS, or the eligible liabilities guarantee scheme, ELG, due to the nature of the products or deposit options in which those account holders invested. At the time that such products were offered there was no additional guarantee provided by the State in respect of those products. It was always the case that the ELG scheme covered only those liabilities which were entered into during the issuance window.
I have been advised that the total value of Irish pension funds placed on deposit with Irish Bank Resolution Corporation at the time of liquidation was in the region of €1m. This could exclude any funds placed on deposit with the Bank in client accounts opened on behalf of beneficiaries, where these beneficiaries are Irish pension funds. The total value of Irish pension fund deposits is currently under review with the respective Guarantee Scheme Operators, regarding consideration for payment under the respective schemes. The total number of individual pension funds with funds placed on deposit with Irish Bank Resolution Corporation at the time of liquidation was 23. Again, this could exclude any pension funds who are the beneficiaries of client accounts opened on their behalf.
Through the liquidation process, the proceeds from the disposal of IBRC’s assets will be used to repay creditors in accordance with normal Companies Acts priorities and consequently, preferred creditors will be paid first and then debt purchased by NAMA from the Central Bank will be paid. If there are proceeds available after repayment in full of the NAMA debt, these proceeds will be applied to remaining unsecured creditors. This would include depositors to the extent that their deposits are unguaranteed.
NWL
No need to worry about the 1-3 billion losses as nama will not recognize them unless they are legally forced.
If Banks started recognizing losses their would be a massive domino effect.
Sorry for being a bit slow here but what is the issue?
Is it that minister Noonan is treating IBRC like a regular company and its depositors as unsecured creditors; as opposed to a bank where the depositors (I would like to think) would rank higher?
@CO, the issue is that it has not been apparent until today that NAMA was carrying risk with respect to the IBRC transaction. The impression given was that NAMA provided temporary funding to IBRC but there would be a “square-up” as the Department of Finance called it when the remaining unsold loans at IBRC were transferred to NAMA. The square-up was interpreted as NAMA would pay the market value for the legacy loans it was acquiring, and that the Government would fund any shortfall. Now, what is being said, is that NAMA will pay the book value for the unsold loans even if that is higher – and I suspect it is substantially higher – than the market value.
You might say “what’s the difference, it’s either the State or NAMA that shoulders the loss” but the impression given was that there would be no loss because the book value was the market value.
Is the IBRC liquidation an Irish version of the Cypriot precedent? A bank’s assets are worth less than the liabilities. Now, the Govt has to allocate the shortfall among the creditors. DGS’s and contractual obligations are subject to government fiat—kinda like taxes.
Reblogged this on Machholz's Blog.
@NWL
Just so you’re aware – Credit Unions and other deposit holding regulated credit institutions who hold deposit protection accounts with the Central Bank have taken a hit on their holdings to compensate deposit holders in IBRC under the deposit protection scheme. The hit thus far is c2% of deposit protection held in such accounts – I’m led to believe there’s a lot more to come. So the decision to liquidate IBRC has had the effect of blackening all financial houses good or bad.
M Noonan and Co and his predecessor informed the Dail that
the term THE eu/imf REQURIED from Ireland before any money lent would be that Ireland:
1 capitalise banks
and
2 bondholder senior debt honoured –
backed by apparently ag opinion was and is NONE OF DAIL BUSINESS.
The Government stand that the CHARGE on public funds and assets for the cost of capitalising banks seems to be in direct conflict with an article of the constitution art 29 5 2 which states that no international agreement involving a charge on public funds will be legally binding on this country unless the terms of that agreement are approved by Dail Eireann.
The Government entered into a memorandum of understanding pledging a further 24 billion of the loan to named banks and to merge the two unviable banks INBS with Anglo Irish bank – not approved by Dail.
This is all about Irish people going to their local T.D. to APPLY TO THE Court which organ of state has authority to bind the people government (as government says) or Dail and if dail then an order compelling the govt to put that memo to dail for its REJECTION as to merger of anglo irish and INBS (IBRC) as the state organ whose approval is necessary for the doc to be binding on the state.