Restructuring the Bank-Related Debt

Simon Carswell provides a detailed report here.

9 replies on “Restructuring the Bank-Related Debt”

@Philip Lane

Thanks for posting.
A good article by Simon Carswell. A few points.

Removing the trackers from AIB (18B) and PTSB (14B), total 34Billion in exchange for the PN sounds like a good idea. Paying with a 30 year bond also makes sense, notwithstanding that the State paying any of the private bank debts is completely non-sensical.

But Simon Carswell makes no mention of how the hole in IBRC’s income statement would be filled without the 8% interest coming from the PN.

A few other points that should not go unchallenged:
1. The “halo effect” from the BOI sale.

“This could tempt investors to buy some of the Government’s shareholding in the banks and lead to a repeat of the sale of a substantial stake in Bank of Ireland to private investors and the “halo effect” associated with that transaction that was helpful for Ireland.”

I am nearly tired pointing out that this was the worst financial deal from the point of view of the State since the decision to guarantee the banks. It was a 75% haircut on an ‘investment’ that was barely 12 months old. It was a dreadful decision. More worthy of ‘hallucination that ‘halo’.

2 ““The best situation is that the banks are not owned by the Irish State and we get a separation of the State and the banking system,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers.”
Really?. BOI is not owned by the State. Do we have separation?
Lets lift the guarantee and find out.

In my view the State should resist the ‘market imperative’ and any EU dictates to re privatise the banks.
At least not until every cent of the ‘bail-outs’ has been recouped from the Irish financial system.
Even if it takes a thousand years.

“In my view the State should resist the ‘market imperative’ and any EU dictates to re privatise the banks.

“At least not until every cent of the ‘bail-outs’ has been recouped from the Irish financial system.

“Even if it takes a thousand years.”

+ 1. Very well said there.

@ Joseph,

Here is an extract from an answer to a PQ given by Michael Noonan from the start of February that resonates with Point 1 above.

A change in the payment schedule could potentially have implications for the solvency of IBRC. If, for example, the principal and interest payments are changed, to avoid creating a potential solvency problem the interest rate after the deferred period may need to increase to make up for a potential capital shortfall. The solvency of the institution is a prime consideration in the analysis of the options for re-engineering the Promissory Note. This analysis is currently under way and the technical group, comprising of representatives of the Troika and the Irish authorities, will report on their findings.

It is at the end of this page.

@Joseph Ryan

In my view the State should resist the ‘market imperative’ and any EU dictates to re privatise the banks.

Seconded. Nice post Mr Ryan. +1

Until there is a banking resolution framework EU policy (well CDU/ECB policy) appears to be that the Irish state is on the hook for every bad banking decision so transferring risks to the state to enable private profit offers us no advantages other than making Fine Gael’s political spinning easier. It also seems likely that any money recovered from privatizing the banks be returned to these same creditors.

We would be exposing ourselves to even more risk so that we can pretend we have functioning banking system and that the markets will rescue us, if only we can win their love.

That boat has sailed, and it sunk.

Simon’s Carswell’s article also offers up this little gem to illustrate just how far down the rabbit hole the EU has disappeared.

EU competition commission officials are, however, understood to be involved in the technical discussions examining the effect of the plans under state aid rules.

The prospect of transforming Permanent TSB into a viable bank to compete against the Government’s two “pillar” banks of AIB and Bank of Ireland could make the restructuring more appealing to EU competition officials.

Nice to know that after a 45 billion (and counting) bailout and the as yet unquantifiable costs to the Irish state of being forced into the arms of the Troika by saving a Zombie banking sector the EU still has its eye on the major questions of the day:

Are all the banks, none of which would not exist without state aid, competing fairly without aid from the state? In correcting a staggering market failure have we interfered too much with the market? Insanity.

NAMA II here we go…As indicated yesterday, assuming favourable-to-the-banks non-market price transfer of the trackers out of the banks, this will simply move the tracker loan valuation downside to the Irishtaxpayer, and create an inability to subsequently sell them into the markets (at market prices….) without huge further capital losses to the Govt /Ireland.

The subsequent sale of the banks to investors will of course be at “fire sale”prices.

@ Joseph Ryan

Re “income shortfall” at IBRC. Assuming assets equal liabilities there will only be an IS if the interest on the assets is less than the interest on the liabilities (ignoring costs). Now the liabilities are largely to the ECB/CBI thus costing 1% or 2%. The 8% on the PNs way exceeds this and, has been pointed out, the current PNs will pay off IBRC’s liabilities way ahead of schedule. That 47bn is incorrect, it should be 31bn rolled up at say 2% not 8%.

Agree re BoI firesale. Has anyone totted up the State’s losses on its overall BoI trtansactions allowing for the current share price of c15c?

The banking sector is almost dead. There is no way how to return it to good health. Paying 31 billion € a year does not seem as a good idea to me. Even the banks are owned by state, it does not mean that the taxes should be used to save them.

Prof. Joseph Stiglitz named this problem Privatizing Profits, Socializing Losses. I think he was right when he criticized bailouts of the big banks and encouraged states into investing to productive sectors of economy. State should first protect its citizens and then care about the business sector. Good health of banks would never bring as much jobs as the industry or service sector.


In what way was the Wilbur Ross investment a 75% haircut on an earlier state investment. Please explain?

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