“The above provision on close links does not apply to: (a) close links between the counterparty and the public authorities of EEA countries or in the case where a debt instrument is guaranteed by a public sector entity which has the right to levy taxes;”

That seems to settle that issue pretty definitively.

I think it is clear that private institutions will shortly stop being eligible for emergency liquidity of the type Anglo was given.

The close links question is a good one. It could, of course, taken to a logical extreme, also rule out the NAMA plan. Clearly, the Irish banks have “close links” with the government—preference shares and a liability guarantee—and these links may get closer if government common equity is purchased after the NAMA transfers.

The only thing that I have heard about this is the following from a European Commission spokesman:

Begin quote:

A commission official confirmed that, in its view nationalised banks could continue to subscribe for Irish bonds as long as they were not buying them on any kind of preferential terms.

It has been suggested that if the government nationalised the banks the state would lose them as potential subscribers for Irish sovereign debt. The commission spokesman has also said it would take a neutral stance on the ECB exchanging Irish Nama-type bonds with Irish banks if they were nationalised.

A commission official at the Economic and Financial Affairs Council (Ecofin) confirmed that ‘‘the commission would have no difficulty with the use of the securities in ECB monetary operations, irrespective of whether the bank concerned is in private or public ownership’’.

End quote
Link here http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=MARKETS-qqqm=nav-qqqid=43966-qqqx=1.asp

I’m guessing this guy wasn’t talking out of his hat so, for now, I’m taking it that this isn’t an issue. If anyone has evidence to the contrary, please bring it on.

(Note that, either way, this issue is a sort of technicality unrelated to the general prohibition of monetary financing of government raised by Kelly and King, and others.)

hmmm. Government bonds are guaranteed by the government (obviously), so a government owned bank couldnt use this as collateral? Interesting! Karl et al? So nationalised banks CAN access the repo window, but they cant do this using their own governments bonds???

“An implicit guarantee is a necessary but not sufficient condition for the banks to issue debt.”

Huh? So they need an implicit guarantee, plus something else? Then how’d they issue debt today?? What exactly has changed between now and the last year or so? Oh wait, NAMA…

“Irrespective of the fact that a marketable or non- marketable asset fulfils all eligibility criteria, a counterparty may not submit as collateral any asset issued or guaranteed by itself or by any other entity with which it has close links.”

This casts a doubt on whether a state-owned bank in Ireland can use Irish sovereign debt as collateral at the ECB, to the extent that the state-owned bank and the state have ‘close links’ - the existence of the state guarantee on the liabilities of banks may be interpreted as establishing such a close link.

Regarding the Latin, just google it.

It puts the AIB issue in an interesting light. They got away 1 bn of 3 bn ordered. The yield at swaps + 250 bp is on the 1 bn. What would it have looked like on 1.5 bn or the full 3 bn?

Some of us suspect that the primary dealers are setting ‘happy’ yields on Irish government debt. This happy arrangement might have to stop if they were nationalised (i.e. they would have to follow private primary dealers).

But it is just a suspicion…

agreed. I’m pro-NAMA and this sort of thing upsets me, especially from someone like Euan King. A couple of times over the last few months i’ve thought to myself, “can nationalised banks access the ECB in the same way as private banks?”, and almost immediately i’ve remembered all the German banks that are state owned and that must have interactions with the ECB. As far as im aware, the only requirement to use the ECB discount window is to be a credit institution that maintains a ‘minimum reserve ratio’ with one of the National Central Banks in the Euro system, and this is available to both public and privately owned banks.

btw, to clarify one of my comments, AIB has actually issued 1bn in 3yr bonds outside of the guarantee, @ L+250, not 3bn as i stated (c.3bn was the order book, but they decided to only issue 1bn. Assume they’ll look to do more in either a longer maturity or tighter pricing at another date).

Within the eurozone, variations on government bond yields have narrowed impressively. One reason was that politicians made clear the monetary union would not be allowed to fall apart. The architects of the scheme had written a “no bail-out” clause into European Union treaties, which prevents collective liability for debts incurred by a member. But in February, Peer Steinbrück, Germany’s finance minister, broke the taboo by admitting that in the worst case “we would have to take action”.

Eurozone political leaders showed unexpected unity in other ways. They agreed quickly not to allow any Lehman Brothers-style bank collapses….

if their senior debt was always going to be implicitly guaranteed by the State, why didn’t they issue any outside of the guarantee over the last 15mths+? Your answer to this question answers your own second question. Not sure what the Latin is for “you don’t need to be a rocket scientist….”

listen, thats a reasonable objective and suggestion to have. But i just think its one laced with hugely dangerous execution risks. The biggest general anti-NAMA alternative that has been put forth has been the “apply loan losses, wipe out capital, declare insolvent, nationalise, attempt to make some bond holders take a bit, re-capitalise, re-launch, re-privatise” process, so thats the one i’m going to deal with.

I don’t believe that you can nationalise an entire banking industry en masse and just presume that credit/funding lines will remain in place as is at the same nominal size and cost. I also don’t believe that you can just assume that private capital will soon start flowing in from private investors when you’re doing your darndest to wipe out existing private capital investors via insolvency at the same time. Further, i don’t believe that if you sack en masse the senior management of these banks overnight (as suggested by many) that you’ll be left with a business-as-is situation in terms of credit availability to customers. These are the issues i have with this plan, and i think the assumptions which underly its success are based on pure theory and zero practicality.

Do i have a problem with a large govt shareholding in the banks? No, but i think its important that we try and source private capital first as i think it’ll be more difficult to source if the govt has already taken a 60%+ stake. Do i have anything against a long term bank levy being used to re-coup taxpayer losses? Absolutely not, in fact im very much in favour of it. Do i think that the govt/regulator should have a far greater say in the general running of the banks? 100% yes. However, i think that if you want to have a healthy private sector banking system going forward, you have to at least try all thats reasonably possible to keep the existing one alive in the first place. Tearing it all down in the hopes of building it all back up makes for a great taxpayer suggestion, but i’m just very worried it won’t work in practise.

Regarding NAMA, I see your point about ad hominem attacks but to be fair you have not shown how this bit of “good news” is a consequence of NAMA. Evidence please and not “post hoc ergo propter hoc”.

Outside commentators are like brokers. They don’t mind that much who wins or loses on the deal as long as the deal is done and they get their commission. The deal has to be done but the deal has to be as good as possible for the taxpayer.

“A good deal is followed by another good deal which allows for more good deals”. So lets get a good deal.

A good deal for the Irish taxpayer is to get an equity share that is equal to the commitment that is being made on the Irish taxpayers behalf.

i understand your skepticism, but you need to understand mine.

Dr Fitz - “lives in his sons basement and AIB bailed him out. Ergo wrong”
Donal O’Mahony - “waiting for a fee. Ergo wrong”.
Alan Dukes - “he’s gone native in Anglo…Ergo wrong”.
Erik Nielsen/GS - “they had to be bailed out by the US govt, and im sure they’re trying to make money somewhere off this process”
ECB - “ah sure they just want their money back”
AIB shares up - “proof the taxpayer is being screwed. We’d prefer the shares to have crashed. No chance of private capital flowing in…even though this is private capital flowing in…”
AIB bonds up - “proof the taxpayer is being screwed. They haven’t a prayer in issuing outside of the g’tee”.
Irish CDS better - “CDS is discredited, and sure everyone else has been doing even better than us (even though Greece vs Ireland has now converged by close to 20bps in the last week)”.
BoI covered bond issuance program issues outside the g’tee for the first time in around 2yrs - “sure why do they need NAMA then???”
AIB issues close to €3bn in senior bank bonds outside the g’tee, at reasonable pricing - “investors have made bad bets before. Ergo this is a bad bet again”.

So, you’ll understand my skepticism as to everybody on here giving NAMA a fair hearing. It’s only 8 days, its only a few deals, the pricing is still stretched and difficult. However its probably the first semi-sustained period of good news for the Irish financial system in over 2yrs. Its probably the first time in a couple of years that the markets, on who we are far more reliant than people are willing to admit, have actually looked at Ireland and said, “actually, that looks interesting”.

A lot of this process becomes self-fulfilling and self-healing. Confidence creates confidence. One good deal is followed by another good deal which allows for more good deals. Lisbon gets passed, a tough but fair budget gets passed and people start talking about Ireland recovering eventually rather than going broke. Investment and spending return, slowly. Job losses stop. Job creation finally returns. This is the way out of this mess, not by nationalising the entire banking industry or bringing down a government, saying no to Lisbon and threatening all out strikes at even a 1 cent cut in public service pay, all at the most crucial point in this country’s history. There’s plenty of time to ‘fix the system’ (financial, regulatory, political) when things have calmed down and the worst is behind us, but if there’s no system left to fix (insolvent and nationalised banking system, national strikes, ECB/IMF running the show, nation hopelessly divided politically), than what good are we really going to do?

inspired comment there. I forgot the mantra in here - “Anything, or anybody, pro-NAMA is to written off as folly and/or a vested interest.”

wasn’t sure where to post this, but…

*ALLIED IRISH BANKS TO SELL 3-YR BONDS IN EUROS

Senior bond issuance, 3yrs, so outside of government guarantee. Pricing at L+260/265 at the moment. No word on size.

This is bizarrely positive if they can get a decent chunk away at these levels. It would be a massive sign of approval in the NAMA process and the Irish banking system going forward. It would again underscore the positives from NAMA to the funding and liquidity positions of the Irish financial system. It should also silence those who claimed to anyone who would listen that the Irish banking system wouldn’t be able to access funds outside of the govt g’tee.

So the article by Kelly-King is wrong on two fundamental points

1: Nationalised banks can particapate in repo’s and borrow from the discount window in the same way that private banks do, and

2: The ECB is not buying any government debt, merely allowing it to serve as collateral for repos, in the same way it always has

In other words, this is “enhanced credit support” as opposed to QE.

You mentioned that the unlimited 1% main refinancing operations are an implicit subsidy. I remeber WB from the ft writing something about this too. Could you explain that alittle bit, if you can spare the time?

So the article by Kelly-King is wrong on two fundamental points

1:

“If the government was going to issue 6 months T-Bills then why would we have to pay 1.5%?”

Good question. Two thoughts.

First, the lower rate in the NTMA auctions would have to be adjusted for what you think the rate would be if we tried to sell €54 billion of these things as opposed to the much smaller amounts auctioned lately!

Second, this is an off-market deal distorted by all sorts of political considerations. Don’t expect textbook finance thinking to explain this stuff.

And on a purely practical level why would they choose to have the risk of rolling over the bonds every 6 months when it can just issue an FRN?

Seems a little crazy and I just don’t see the upside in it for them.

Of course the government won’t shock me with again with their stupidity.

The ECB’s rules ought never overtly discriminate between national banks. That said, the ECB’s covered bond purchase scheme does have varying implications between countries. I was also intrigued by newswire stories late last year on communications by the ECB in relation to the maintenance of lines to guaranteed domestic banks, during the thick of the crisis.