Ballyhea protesters launch bank-debt writedown proposals

Tomorrow will see the 115^th weekly bank bailout protest in Ballyhea, the parish just south of Charleville in county Cork. At 11.30am after mass, they’ll again march the 15 minute route up and down a stretch of the main Cork-Charleville road to signify in a modest way their opposition to the bailout of the Irish banking system at the expense of its citizens. The group has achieved national recognition and has inspired groups in other towns and villages to hold their own weekly bank bailout protest.

What has been happening over the past five years is actually quite simple if you follow the money. Creditors of banks, known as bondholders have seen their loans bonds repaid 100% in the case of senior bondholders, and the money has come from the Government who poured that money in as “recapitalization”, the money came from the State and its citizens and from loans from the Troika and the international bond market. There are still bonds outstanding at Irish banks, but all of the bonds have now been repaid at Anglo and Irish Nationwide save for less than €200m which are at risk after the special liquidation of IBRC in February 2013.  Some bonds remain at Permanent TSB and AIB which are still weak banks. Bank of Ireland is now the healthiest of the Irish banks. But the bulk of the bonds have now been repaid. That money is gone and what we have left are depleted State coffers and huge international debts.

So, this week, the Ballyhea protesters have launched a set of proposals around which they hope to galvanise support. You can read the proposals here and on Thursday this week, the protesters visited Leinster House where they met with several TDs whom they have asked for support – at time of writing Clare Daly is the only TD to have provided a written endorsement but other TDs said they would take the proposals away to consider, some with their Parties. The proposals attempt to deal with the reality that much of the cash has now been handed over by Ireland – we can point to where some of the cash came from, the National Pension Reserve Fund and where some of the loans came from, in February 2013 we created €25bn of sovereign bonds to swap with the infernal Anglo and Irish Nationwide promissory notes. But to a large extent, at this point the money is gone.

The group wants the €28bn of sovereign bonds issued to settle the Anglo and Irish Nationwide promissory notes, cancelled. The counterparty to these bonds at present is not the open market but the ECB, and the group wants these cancelled because they relate to promissory notes which are an abuse of the ECB’s own rules, possibly illegal under Irish law and were created by the Irish state under duress by the ECB who otherwise threatened a withdrawal of liquidity to Irish banks.

The second proposal seeks reimbursement of the cash costs of the bailout – some €35bn. Minister for Finance, Michael Noonan has not dismissed the possibility that the ESM may pay these costs in the €20bn-plus range, and Minister Noonan has taken issue with statements by the Dutch finance minister that the ESM will not be used to refund legacy bank bailout costs,

The protesters are back on the road in Ballyhea tomorrow, but with are now seeking support for their proposals so as to build a position which can be brought to the ECB and our partners in Europe.

What is the gross cost of the bank bailout?

It comprises the famous €64.1bn – comprising €20.7bn to AIB/EBS, €4.7bn to Bank of Ireland, €34.7bn to IBRC and €4bn to, what was, Irish Life and Permanent once you take into account the €1.3bn paid for the assurance business – plus an additional €933.775m shoveled into IBRC in March 2013 plus the €5.6bn state-aid which NAMA paid the banks for the loans it acquired – the “state-aid” was mostly the long term economic value premium that NAMA paid the banks on top of what the loans were actually worth. Because the State didn’t have €71bn to give the banks, it has borrowed some of that money and the loans carries interest; we have also practically depleted the National Pension Reserve Fund which means we no longer earn interest on that money. The jury is still out on NAMA and one senior minister has stated that it might make a loss of up to €15bn though you would need deduct the state-aid in the context of the calculation here, and banks might need further capital to deal with the mortgage crisis.

What is the net cost of the bank bailout?

We have received some money back from the banks. They have paid us approximately €4.5bn in fees in return for providing guarantees though with the withdrawal of the guarantee at the end of March 2013, that income has now dried up. In addition, we have sold part of our stake in Bank of Ireland to a group of North American investors for €1.05bn and we have sold €1bn of so-called contingency convertible notes for €1.01bn at the start of this year. We have also received dividends of €0.5bn in Bank of Ireland. We have received €1.3bn on the sale of the insurance part of Irish Life to Canadian company. We have also received enhanced surpluses of approximately €4bn from the Central Bank of Ireland since Irish banks needed to borrow very large amounts from the Central Bank after the inter-bank market froze in 2008.  So the net is closer to €59-60bn and we still notionally have valuable stakes in AIB, Bank of Ireland and Permanent TSB, though at this point it is really just the Bank of Ireland stake worth €2.5bn including €18bn of preference shares that looks sound.

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