Minister Pat Rabbitte: Ireland won’t pay the 3.1 billion promissory note in March.

This post was written by Stephen Kinsella

Details here. From the piece:

Communications Minister Pat Rabbitte has said that the country will not pay the €3.1bn promissory note for former Anglo Irish Bank when it is due in March.

He told RTÉ’s The Week in Politics that the Government can not pay this “IOU” entered into by the last Government after the collapse of Anglo Irish Bank.

He said the European Central Bank was a difficult institution to “bring around” to stamping the deal Ireland needs on the promissory note.

But Minister Rabbitte said he believes it will happen before the payment is due next March.

Was planning on having an early night, but it’s #twip all the way now.

Your thoughts, most distinguished commenters?

82 Responses to “Minister Pat Rabbitte: Ireland won’t pay the 3.1 billion promissory note in March.”

  1. DOCM Says:

    Just the thing to maintain the confidence of international investors, especially against the background of the increasing instability in Italy!

    However, as the minister in question seems incapable of deciding whether he is a talkshow participant or a member of a cabinet exercising collective responsibility, his comments should draw the response that they deserve.

  2. The Dork of Cork. Says:

    The state cannot fight a limited war against this institution ……..

    If it is not prepared to bring in a national credit system it will be cut to pieces again.

  3. Mickey Hickey Says:

    The clownishness and foolishness continues unabated. The present gov’t is responsible for any and all obligations entered into by its predecessor gov’t.
    If the five elements of a contract exist then it is legally binding. We could weasel out of it if we can prove that the Minister of Finance, Governor of the CBI and the Taoiseach were mentally incapacitated or millions were lodged in their names in overseas bank accounts. That covers capacity and legality. You could have a shot at “consideration” under the guise that it was only play money and nothing of value was pledged.

    The Minister is living in fantasy land and further damaging the reputation of the country with this kind of mindless drivel.

  4. DOCM Says:

    One could also add that democracies get the politicians that they deserve.

    http://www.spiegel.de/politik/ausland/berlusconi-stuerzt-italien-mit-seinen-comeback-plaenen-in-die-krise-a-871848.html

  5. Sporthog Says:

    Heard it all before……….Labour’s way not Frankfurt’s etc etc.

    Unless of course Labour is going the way of the Green party, on the verge of pushing the self destruct button, perhaps we will have a GE in the summer?

    Seriously, what is Mr Rabbite talking about… deferred payment? Paying in March 2015 or 2016 instead?

  6. Tullmcadoo Says:

    DOCM,
    I think you may be missing the point. Bond meisters are buying Ireland in expectation that the EZ occupying powers agree to debt restructuring. If not they know it ends in the end of the euro and EU prioject.
    At this stage, I am not sure which is a better option for Ireland. I am tending towards default, balance and exit.

  7. DOCM Says:

    @ TMD

    Missing the point?

    What is the government’s position? And if it does not have one, how does it behove a senior minister to invent one on the hoof?

  8. Rob S Says:

    We are ALL behind you on this Pat.

  9. Desmond Brennan Says:

    If the govt was serious the non repayment would have been reflected in the Budget /spending estimates. Sounds like ‘policy’ made up on the hoof.

  10. brian Says:

    there will be a bloodbath on themarkets tomorrow as this wreaks havoc on confidence levels.

    Isnt that what we’ve been told happens in this instance. Or are we likely to see the “confidence is king” trope take another stumble

  11. Brian Woods II Says:

    This is pure optics. It is only real if it leads to a relaxation of the austerity program and it hasn’t. At most it will lead to the current bail out lasting an extra few months. There is no debt forgiveness here, mere rescheduling. It is quite disingenuous of the rabbit to position this as a macho refusal to honour a previous government’s IOU’s. This misrepresentation may make for good domestic politicking but, if overplayed, could backfire in terms of exiting the programme.

  12. Sporthog Says:

    @ Brian Woods II,

    You would have thought that Labour have learn’t their lesson by now.

    What looks good for the Optics today can make one look very foolish next year. One’s own words can come back to haunt you!!

    I believe the syndrome is called “Present Bias”, perhaps Mr Rabbite is suffering from this?

    I am getting tired of all these false promises, fake dawns and hollow announcements, but maybe this one will be different?

  13. Al Says:

    If we do head towards another bailout then will the Troika make more specific demands as there will be less options available to cut.
    Croke park, welfare rates, public sector pensions all to the fore?
    With that in mind would it be prudent for the Govt to lock into a longer CPA commitment without a Troika caveat clause?

  14. Tullmcadoo Says:

    If the Govt did not secure a refi of the PN and instead did not make the scheduled payment, what precisely would happen beyond finger wagging from Frankfurt?

    I venture nothing

  15. Rory Says:

    Government doesn’t really have a hand to play. Projected deficit next year of -7.5%, the troika will simply withold funds needed to bridge the gap if promissory note is not paid.

  16. Tullmcadoo Says:

    Rory
    And then?

  17. What Goes Up... Says:

    The Irish Central bank printed the money for Anglo to pay back the German bondholders.

    The promissory note was Comical Leni promising to cover up this monetization of private debt by having the the Sovereign collect Irish taxpayer money and burn it.

    The whole premise is farcical to begin with.

    Now the Irish Minister for Communications, Energy and Natural Resources is saying he isn’t game to continue burning Irish taxpayers.

    We’re approaching Swiftian proportions at this stage.

    Except poor Pat obviously doesn’t realise that he is now merely a lower middle-management paper pusher - there to implement the decrees of the middle-management Troika drones like Ajay - who takes his orders from senior management, Merkel, Legarde et al.

    Eh… Pat… in the vernacular of our American cousins…

    Don’t write cheque with your mouth that your ass can’t cash!

  18. Paddy Healy Says:

    There is nothing new in the statement of Minister Rabitte. He said “We didn’t pay it last year and as far as I am concerned we will not pay it this year” This is completely misleading.
    The promised amount was paid to IBRC last year. It was borrowed from BOI and the state will now pay interest to BOI on it. The debt of 3.1 billion will be owed to BOI not to IBRC.
    If the same arrangement is made next year the state debt to BOI will be 6.2 billion plus interest
    The statement of Rabitte is just the spin of a manipulative politician.
    The state will pay c. 9 billion in debt service payment in 2013

  19. fiatluxjnr Says:

    “Mr Rabbitte was then asked if there was no deal would that then mean Ireland would require a second bailout.

    “Personally I don’t think it is as stark as that because we didn’t pay the promissory note this year and as far as I am concerned we are not going to pay it next year. It’s as simple as that.”"

    Pat clearly does not understand. We entered into a convoluted deal with BOI in order to alleviate the effect of the 3b due. Not paying this years 3b would amount to a “selective default” and we would kiss goodbye to any reentry to the bond markets. In which case we would need a second bailout…as Colm McCarthy said today..this is increasingly likely with overoptimistic growth projections. Even the Bundesbank have revised the German growth projections for next year to .4%.
    Mr. Corrigan must be having a fit this evening.

  20. Tullmcadoo Says:

    Fiat,
    You are trying to gave your cake etc?
    You call for the Irish govt to grow a pair and get a better deal. Yet when a Minister follows your advice you run a mile.

  21. fiatluxjnr Says:

    @WGU

    indeed. Draghi firmly ruled it out last week as breaching Article 123 or is it 125 of the Treaty.
    So its not simple, Draghi also indicated that it was up to Euro politicians, so maybe Enda needs to visit Angela again.

    I think Leo Varadker said something similar recently…are they just kite flying?

    Dangerous tactics..threatening default. S&P and Moodys are watching.

  22. Bond. Eoin Bond... Says:

    @ Brian

    “there will be a bloodbath on themarkets tomorrow as this wreaks havoc on confidence levels”

    I think people are reading too much into these comments. It’s justramminging up of rhetoric for a deal, post budget. I reckon the markets give them a slightly negative shrug of the shoulders and nothing more. Ireland will not be doing anything unilaterally on this issue.

  23. Brian Says:

    Excellent distraction from the budget n’est pas!

  24. fiatluxjnr Says:

    @Tull

    I had not seen your post when I posted the last comment.

    I called for a deal to be negotiated…not a unilateral selective default, with all the attendant consequences.

    I would agree with Bond above..the markets will probably just shrug. It might be different with Italy…I see commentators suggesting a big sell off of Italian assets tomorrow.
    On balance I believe its just kite flying by Pat and Leo.

  25. Frank Galton Says:

    It looks like Karl Whelan’s explanations are finally having an impact.

  26. David O'Donnell Says:

    @all

    The Guv’nor is talking optimistically on ‘restructuring’ on ‘TIME’; an Taoiseach is reading a word named ‘RE-ENGINEERING’; LEO IS ON ABOUT ANOTHER 13 YR BOND; Minister Pat is simply playing the same tune ….

    @docm 5.17

    revealing to see you flaunt your atavisitic hatred of all things and beings leftist or serf minded and a possible threat to your beloved financial system on your sleeveen sleeve ….

  27. The Dork of Cork. Says:

    Only now Irish people are beginning to understand politics is of no consequence in a market state.

    “Moving forward…………
    We should always move forward
    And I think if we move forward at the same speed together there will be no time travel”

    http://www.youtube.com/watch?v=EYTYXGsflXE

    Why do they call their party Labour ?
    Is it some sort of sick joke or what ?

    PS.
    Was there monetary words spoken between Clinton on her visit ?

    Have we Fed police back up and do we have a back up to this back up . ?

  28. Tullmcadoo Says:

    Fiat,
    I have never seen a successful negotiation without sabre rattling. A threat to default along with acceptance of the attedant consequences is probably necessary at this stage.
    Italy is interesting. The return of Silvio must cause nightmares in Berlin.

  29. David O'Donnell Says:

    @Ms Britton and all members of the Irish Cross Country team on winning both the individual and the team European Gold Medals ….

    Mighty stuff!

    Men from the South: 15
    Saracens: 9

    Clermont Ferrand: 15
    Men from the Pale: 9

  30. The Dork of Cork. Says:

    One never knows with diplomats and their language……

    Stuff can get lost in translation even between fluent English speakers…….

    http://www.youtube.com/watch?v=0lWz8-TOpKI

    Another double cross again ?

    Of course - with the Euro as your currency you are worth more dead then alive.

  31. fiatluxjnr Says:

    The IT are reporting Pat’s comments slightly differently..
    “”We can’t pay. This was an IOU entered into by the previous Government when the Anglo Irish Bank collapsed and the notion of us paying it next March doesn’t arise,” Mr Rabbitte said.”

    Maybe there is some logic there…however, I am lost.

  32. UL Student Says:

    It’s hard to believe them but if it’s true then it’s great news. Those suggesting this will wreak havoc on the markets are wrong, we’re essentially defaulting on our own central bank which was destroying the money anyway.

  33. seafoid Says:

    There is no way they’ll let silvio back in. Maybe pep guardiola will take over from monti.

  34. Yields or Bust Says:

    Has Christmas come early or perhaps Pat has visited the grotto and Santa promised him all his wishes would indeed come through ?

    This was of course before Santa consulted with the elves and no doubt they’re likely to say “you must be effing joking we can’t deliver such goodies in time for Christmas perhaps sometime after the German elections next Sept or so but no can do now - tell Mr Rabbitte to speak to mammy Enda and daddy Michael and come back with something less ambitious”

    Whatever came over Pat I’ll never know methinks however that this is what pressure does it pushes players into errors that heretofore would simply have been unthinkable…

    https://www.youtube.com/watch?v=6DS-gDP59AU

  35. Mickey Hickey Says:

    The subject of regional and competing currencies as well as the Swiss WIR system are outlined on the website of Bernard Lietaer ex Governor of the Central Bank of Belgium.

    http://www.lietaer.com

  36. Mickey Hickey Says:

    @Dork of Cork

    WIR Bank would be an idea that is rational enough and convoluted enough to have appeal.

  37. grumpy Says:

    My reaction - an enormous yawn. But hey - maybe I’m loosing my touch!

    ““Personally I don’t think it is as stark as that because we didn’t pay the promissory note this year and as far as I am concerned we are not going to pay it next year. It’s as simple as that.””

    So you are being told that another short term loan from BOI or the like (in exchange for no questions asked regarding bank management, salaries etc) to get the money to pay the PNs on time to the Central bank, counts in Rabbitworld as not paying the PNs.

    BORING

  38. Tullmcadoo Says:

    I am amused at the horror of some Of the “stand up and fight” merchants at the notion that the govt might actually do it. Pay and rations under threat?

  39. Eureka Says:

    @ Grumpy
    + 1

    People have this quaint notion that decline is resisted at every step. This is decline. This is decay. It’s grubby, it’s dishonest, its fetid.

    Angela’s CDU conference said all you need to know about Europe. There she stood in triumph forging ahead with more of the same while Europeans sink further into poverty.

  40. Eureka Says:

    @ Tull
    About time you came around.
    You have always struck me as being insulated from the real effects of all this. I’m thinking mid 50’s well educated self employed from Dublin 18. Just a guess and happy to be wrong on all counts.
    Now - move to industrial wage, or dole and a family home to heat. If they get the fight wrong a lot of people could actually go cold and hungry. A simple thing like chosing to default in spring rather than autumn could make a difference. Energy is our Acilles heel.

  41. David O'Donnell Says:

    Did the Irish Admin PAY or NOT Pay the PN last year?

    This is not an ecumenical question, as Father Jack might put it.

    The answer is somewhat Shrode gerrian in an Hibernian postmodernist sense ….

    something along the lines of ‘de did an de did’nt’ …. figure it out!

    will they do it again? De will an de will’int!

  42. Fiatluxjnr Says:

    BIS cautions that we may be in bubble territory again…
    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9733547/World-risks-fresh-credit-bubble-Switzerlands-BIS-warns.html

    The numbers on bank deleveraging look frightening.

  43. Paul W Says:

    “Personally I don’t think it is as stark as that because we didn’t pay the promissory note this year and as far as I am concerned we are not going to pay it next year. It’s as simple as that.”

    @ DO’D “Did the Irish Admin PAY or NOT Pay the PN last year?”
    + 1
    But of course the country paid last year. Not with upfront cash, but with more debt. Agree with Grumpy. Much ado about nothing.

    @ Dork
    “The state cannot fight a limited war against this institution ……..”
    +1

    @ Tull Most interesting watching many of the reactions here…..Fear. Preference not to discuss the concept /even the possibility of some form of default. Why?

  44. DOCM Says:

    @ grumpy

    I agree with you on this one. The issue is not so much the comment itself, or its likely impact, but the insouciance of it i.e. as if collective cabinet responsibility was of little consequence. This would not be a problem if Ireland was constitutionally organised to provide for an independent role for ministers. But it is not. The net result is that no one knows where the government stands with any certainty. Not a good situation! The media in general seems to think that this is all just good fun and par for the course. But it is neither.

    As to market reaction, as BEB can no doubt confirm, the spreads of peripheral countries tend to move in tandem and, if as is likely, Irish spreads widen tomorrow, it will be impossible to say precisely who or what caused them to; the major political upheaval in Italy or the continuing fallout from the budget in Ireland (of which this little episode undoubtedly forms a part as has been pointed out by others on this thread).

  45. Fiatluxjnr Says:

    The clouds are darkening with chickens coming home to roost….

    http://www.nytimes.com/2012/12/10/business/banks-face-a-huge-reckoning-in-the-mortgage-mess.html?hp

    Just when we thought…….

  46. Tullmcadoo Says:

    Paul W,
    If you are a pro- European union poster like DOCM you would be absolutely horrified that an Irish govt would ever do anything in any way euro sceptic even if it was right. Similarly, if you were dependent on taxpayers largesse, you would fear for your stipend. There is of course a huge overlap between the two groups.

  47. Fiatluxjnr Says:

    Now it looks like the Greek debt buy back may not have been as successful as previously indicated…..they are inviting further bids on Monday…
    http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_09/12/2012_473639

  48. grumpy Says:

    @docm

    Italy is the story, to the extent there is a story. Nobody outside the Irish politico-media bubble gives a monkey’s about what some Irish politician says on some Irish political geeks’ show when the track record of action, as opposed to bullshit, is so clear.

  49. Rob S Says:

    @DOD

    They paid alright.

    We didn’t give any cash of course but we did add another 3bn to our Government Bond Debt burden.

    Also, that particular 3bn bond essentially has to be redemmed in March/April as BoI only said they would hold the bond for one year.

    So, as I understand it, we are due to pay TWO 3bn payments in March - the scheduled one and last year’s.

  50. David O'Donnell Says:

    FYI [H/T nakedcapitalism

    Saving Economics from the Economists
    Saving Economics from the Economists
    by Ronald Coase

    http://hbr.org/2012/12/saving-economics-from-the-economists/

    Next: Saving the citizen-serfs from the financial system

  51. Joseph Ryan Says:

    It is clear that the full impact of the budget decisions made last week have taken their toll. The fact that some Labour ministers looked down the barrel of early retirement and exit , and found it not unpalatable, may have reawakened their lost souls.

    Good stuff from Rabbitte. Pity about the budget and the carers.

    That little cabinet walk-out, staged or not, has moved the goalposts.

  52. Eureka Says:

    @ Tull
    You avoid the allegation that you are insulated from this mess.
    If you are a thirty something father of three you don’t want your country to end up with a valueless currency either.
    It has to be all thought through.
    Maybe you just don’t care enough. Maybe you’re just too insulated. In which case that’s your problem - not mine

  53. Eureka Says:

    @ Grumpy
    Italy isn’t a story. Here’s what happens. Monti says he goes. Markets cause a bond yield spike. Italians get worried. Sylvio gets f***ed. Right wing financialust a get back in. And Europe continues its descent to misery.
    It’s choreography

  54. The Dork of Cork. Says:

    @Mick
    I don’t really know the system.
    In the below video he describes the WIR system as having the same value as the Franc but is not convertible (which I presume gives the system more redundancy)

    http://www.youtube.com/watch?v=tRSaserOZLw

    But I agree with him about the Redundancy vs efficiency dynamic and its supreme importance in economics and indeed in other areas.

    In his opening site video he talks about commodity currency with a negative (storage) interest used for transactions……..

    I don’t think that will work………..commodity stuff has a store of value function but fiat is best for transactions is it not ?

    He also says Cuba has no redundancy because the Cuban currency is also bank money - that may be the case but the value is local to that political hinterland which must give it some redundancy when dealing with the large $ inflows and outflows in that economy.

    Besides state currency need not be bank money (greenbacks)

    This is more of a equity like currency.

  55. Shay Begorrah Says:

    @Joseph Ryan

    l. The fact that some Labour ministers looked down the barrel of early retirement and exit , and found it not unpalatable, may have reawakened their lost souls.

    When ever there are warning signs of the Irish Labour Party developing a backbone I remember how they did their bit for Mitteleuropean Christian Democracy and swallowed the Fiscal Compact. (Remember when the Self Abasement and Lingering Suicide Pact was going to give Angela Merkel the political cover she needed to allow “burden sharing”? How did that work out exactly former comrades?).

    Still I very much hope it is true that Labour have recovered some principle (and some domestic political nous), we will be able judge if it is this case by checking whether Rehn and Schauble look genuinely unhappy - if not this is just theater.

    There are Irish votes for sale for whoever causes the European axis of neoliberalism the most political difficulties.

  56. What Goes Up... Says:

    The Easter Bunny Rising 2013!

    http://www.japlandic.com/2012/12/the-easter-bunny-rising-2013.html

  57. OMF Says:

    They’ll pay. Maybe not the note, maybe another roundabout scheme with BoI to pay the note + bankers fees, but they’ll pay alright.

    Or to be more precise, we’ll pay. The likes of Rabbit will continue to enjoy the perks of foreign service.

  58. Fiatluxjnr Says:

    @Grumpy
    “Nobody outside the Irish politico-media bubble gives a monkey’s about what some Irish politician says on some Irish political geeks’ show when the track record of action, as opposed to bullshit, is so clear.”

    +1

  59. Fiatluxjnr Says:

    @Rob S

    I seem to remember that BOI could get out after one year but the details are a bit fudged. So what happens now. Do we really have to cough up 6b and is it accounted for in the projections?

  60. Michael Hennigan - Finfacts Says:

    Restructuring is a more likely option through the EFSF or ESM rescue funds as the ECB would likely be reluctant to bend the rules for several countries in respect of advances by national central banks. In fairness to Draghi, he does more than quote rules.

    So back to the political arena and my point that political leaders who speak out of both sides of their mouths on the economy and its prospects, inevitably sow confusion.

    We’re not Greece; the export performance, in particular the remarkable jump in services exports and decline in unit labour costs, are powering the recovery!! It is the truth!

    Pat Rabbitte is feeling the blowback from political cowardice at home.

    Political courage should be welcome both at home a broad and as should an end to spin that also sows confusion at home.

    Today in The Irish Times, Martin Wall reports that 20 multinational drugs firms threatened Taoiseach Enda Kenny that a decision by the HSE not to sanction new very expensive treatments “could have implications for 25,000 jobs and future investment.”

    Also today in the newspaper, Dick Ahlstrom, science editor, in an article titled ‘State bent on deforming science foundation’ pleads for increased funding for researchers.

    Meanwhile, what are the prospects for the unemployed?

  61. veronica Says:

    Pat Rabbitte’s demeanour on ‘The Week in Politics’ last night resembled that of the suspect in the police station picking a spot on the wall to stare at and wishing he wasn’t there to begin with. With FF playing ‘good cop’ and Sinn Fein playing ‘bad cop’, there was no respite for the beleaguered defender of the series of drab, despicable and dreary political compromises that is Budget 2013. The traditional blather and bluster about ‘legacy issues’ and ‘cleaning up the mess’ and ‘protecting the vulnerable’ proved to be of no avail against the facts as revealed by his tormentors. As an alternative to drowning himself in it, he gulped relentlessly from his glass of water.

    Maybe there was something in the water? Either a fabulous deal on the promissory notes is in the offing and the Minister felt compelled to try and redeem a dismal public performance by broadcasting it prematurely? Or, in desperation, as unhappy suspects in the police station frequently will do, he blurted out the first thing that came into his head in the hope that it might bring him some relief?

    It would be good if the former were the case and that our canny Minister for Finance has indeed been playing a long game on this issue. However, one also hopes that our political leadership will have made a better job of negotiating the debt relief deal with Europe than they managed to do between themselves on their unimaginative Budget package in all its shabby detail.

  62. Paul W Says:

    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9733486/Europe-clings-to-scorched-earth-ideology-as-depression-deepens.html

    Well written article by Mr. Evans-P in the Telegraph about the debate in the UK.
    “There is a choice. No such choice yet exists in the eurozone…..There is hardly an economist in Italy, Spain, or even France who believes that health can return under current policies. Yet there is no coherent opposition. No major party in any EMU county is willing to grasp the nettle…….[However] Creditors always hold the whip hand at the onset of a debt crisis, though not always at the end……we have a foolish Germany, spouting pre-modern economic quackery, seemingly unwilling to give up the mercantilist advantage it now holds over EMU trade partners. It resists wage inflation to close the North-South gap (understandably). It resists a debt union and fiscal transfers (understandably). Yet it also resists the only other option, which is an orderly break-up of EMU. We have a total impasse.”

    However, in Ireland it seems that the status quo will be pursued regardless, with fear of a proper debate on the alternatives. Too many self-interested in maintaining the status quo. However, that ‘dnies’ the economic realities and trajectory…..and denies any real responsibility for leadership and self-determination of the country’s fate. The result is an Ireland of ’sheep’, mindlessly following the status quo dogma (group think) over the cliff….

  63. Eureka Says:

    First part of the predicted choreography
    http://mobile.bloomberg.com/news/2012-12-10/italian-stocks-bonds-plunge-dragging-european-markets-lower.html

    This is getting boring now. Markets ruling by fear. Just like the olden day moneylenders.

  64. DottyDiver Says:

    @RobS
    “…..Also, that particular 3bn bond essentially has to be redeemed in March/April as BoI only said they would hold the bond for one year.

    So, as I understand it, we are due to pay TWO 3bn payments in March - the scheduled one and last year’s.”

    Not so…..The existing 3bn NTMA bond will not be redeemed by the State as it matures in 2025. Instead the bond will be returned to IBRC as contracted under the existing repo agreement between IBRC and BoI in June. IBRC will then need to to fund it. Most likely it will try to enter into a new repo agreement with BoI, or failing that look for another repo counterpart to finance it. The incentives for BoI (or another bank counterpart) to continue are substantial - it counts the bond as a liquid asset eligible at the CBI/ECB, requires negligible capital as it is sovereign debt and it receives a very healthy margin (135bps?) for the privilege. (Source(s): BoI’s interim statement, the annual report and the Pillar 3 disclosures on BoI’s website).

    Also, in addition to BoI’s profits on the transaction, IBRC will also book a profit on the transaction this year as it will receive a coupon of 5.4% on 3.4bn of bond for a funding cost of < 2% (=Euribor+1.35%) on 3.1bn. All of this largesse courtesy of the Irish taxpayer.

    As for this year’s payment of 3.1 bn expect more of the same - Promissory Note performance, another tap from the NTMA, set-off arrangement for the funds, a private sector repo to finance it although probably with different counterparts to avoid distorting BoI’s balance sheet too much (NAMA / AIB ?)

    @Fiatluxjnr

    “I seem to remember that BOI could get out after one year but the details are a bit fudged. So what happens now. Do we really have to cough up 6b and is it accounted for in the projections?”

    Just 3.1bn + a coupon of c.180m on the bond. Both are in the government projections. If we are in for more of the same this year, we will see another 3.1bn of debt issued in March and the government schedules revised later on.

  65. Brian Woods II Says:

    Dotty

    Thanks for the reminder. Seems all Pat is referring to is more of the same but dressing it up all macho Workers Party Way. One slight quibble, isn’t any taxpayer largesse proferred to IBRC just going round in circles?

    All

    Aren’t the vast majority of sovereign debt in this planet IOUs written by previous governments?

  66. Rory Says:

    @ Tull Mcdo

    and then the government has to close the budget gap to 0 in one year. major (unexpected - making the macroeconomic effects worse)shock to the economy.

    @Michael H

    We are all familiar with what you think of all the spin and waffle flying around. but do you have any better ideas??

  67. DottyDiver Says:

    @Brian Woods II
    “Thanks for the reminder. Seems all Pat is referring to is more of the same but dressing it up all macho Workers Party Way. One slight quibble, isn’t any taxpayer largesse proferred to IBRC just going round in circles?”

    Sort of …. There is definite “kicking the can down the road” going on at present. From a one year cashflow point of view, the entire setoff arrangement is circular and allows the NTMA to issue term debt and keep 3.1bn of cash to finance govt deficit spending. However, the State commitment (and therefore taxpayer largesse) did not fall, is real and is growing at a faster rate than Ireland’s economic growth rate.

    Under the current approach, the commitment of 47bn Promissory Note (principal & interest) + 3.4bn NTMA bonds&coupon keeps growing and, in isolation, is negative for debt sustainability metrics. Most of this commitment has been used to accelerate writedowns of Anglo/INBS assets and will never be seen again as the loan portfolios are liquidated. If Chairman Dukes’ recent assertion to the Oireachtas of a possible 8bn return of capital in 2020 is to transpire, then the current commitments of the State (and taxpayer) to Anglo/INBS is growing faster than that needed for future loan write-downs/debt forgiveness and gives rise to a build-up of capital in Anglo/INBS.

    If we ignore the loan portfolios which are small (currently c.17bn) and rapidly getting smaller, the bank is not a conventional commercial bank or even a standard run-off/windown bank but straightforward government financing vehicle consisting of the Promissory Note and NTMA bonds. Both of these assets represent commitments (claims) on the State whose only source of revenue is taxation (since the State is non-productive!)

    The above is predicated on the State meeting its commitments in a conventional manner. Cancellation (polite word for default) or monetisation of the State commitment where the CBI/ECB effectively expands base money possibly permanently are other, more radical approaches. Technically straightforward but provokes all sorts of hostile reactions at the ECB/EU level due to the associated risks!

    “Aren’t the vast majority of sovereign debt in this planet IOUs written by previous governments?”

    Yes……

  68. Brian Woods II Says:

    @ Dotty

    I think I get you. Do you agree that this Rabitte out of a hat is all smoke and mirrors?

  69. Rob S Says:

    @DottyDiver

    “Not so…..The existing 3bn NTMA bond will not be redeemed by the State as it matures in 2025. Instead the bond will be returned to IBRC as contracted under the existing repo agreement between IBRC and BoI in June. IBRC will then need to to fund it.”

    Right…but as of right now, we are scheduled to essentially pay 6bn in March. Maybe something re: last year’s bond will be worked out but if IBRC is forced to give BoI 3bn to take the bond back….

    You seem to be speculating and may well be right but the bottom line seems to be that IBRC will owe 6bn+ in March (3bn to BoI and 3bn to the CBI).

  70. DottyDiver Says:

    @Brian Woods II
    lol……. I would agree that most transactions of this nature have numerous stakeholders with complex and contradictory incentives to accommodate.

    e.g. The ECB will want the government to be seen to honour its commitments (i.e. Promissory Note to perform/not default), Anglo involvement in MRO to reduce as per the plan agreed with EC, ELA to fall as per scheduled, avoid eurosystem contagion, maintain adequate system collateral quality, etc.

  71. John Gallaher Says:

    @DD NAMA bridged it,they will again.
    IRBC just “closed” the Boston office…still paying rent …to a “Paddy” who is also a large debtor ….he’s fond of hotels…art too in south france.
    Lots chatter bout PN notes..anyone done a revised run off scenario after the rate gets adjusted,law of unintended consequences.
    It’s “rouge” should be shut down…..lawsuits accumulating.

    “Net interest income for the period totalled €538m, with €769m of interest income on the promissory notes being a key contributor.”
    http://www.ibrc.ie/About_us/Financial_information/Latest_interim_report/Interim_Report_2012.pdf

    They enjoying positive arb. there was an excellent post earlier regarding bank supervision ignored naturally…BIG banks have provided living wills in the US.
    Where is the silver bullet or stake for this zombie ?
    Get a living will from IRBC yesterday,needs to be shut down.
    http://www.fdic.gov/regulations/reform/resplans/index.html

  72. brian lucey (@brianmlucey) Says:

    we will pay. Thats clear from PH.
    The meme now has become clear that its real sov debt, that it must be repaid. It mustnt. It shouldnt. It will.
    The dislocative effects of even the worst outcome, which wont happen, would be less than this fcuking millstone round the neck of the next generation
    Prior to the election I spoke to a person who is now a cabinet minster (not PR). They said “look, we will just have to walk away from this, its unsustainable, its Fianna Fail’s ultimate poision pill that we cant swallow, it will hobble us and we cant and shouldnt repay it”
    They have not said word one since about two days in.
    The lack of courage, of foresight, of spheroids is astounding.
    Just dont pay. Let the CBI and ECB swing. The world will heave a sigh of relief and move on, as wil ireland.
    This political posturing is nauseating.

  73. David O'Donnell Says:

    @Brian Lucey

    The Guv’nor is solely focused on TIME. We are in DEEP SH1T, v. deep SH1t.

  74. John Gallaher Says:

    Yis flog 10 Billion of state assets yeh 10,000,000,000 here’s your answer,close it down….interesting section on PN’s. too.
    Ps-they ahem don’t have any more us loans,just closed up…but it’s commercially sensitive!

    “Deputy Kevin Humphreys: What was the loss on the US loan book sold for $10 billion?
    Mr. Alan Dukes: We have not revealed the details of the sale because it is commercially sensitive. frankly, I do not want to set a benchmark for the next bunch of sales we do. I must say we were pleased with the outcome.”

    http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/WebAttachments.nsf/($vLookupByConstructedKey)/committees~20121031~FIJ/$File/Daily%20Book%20Unrevised.pdf?openelement

  75. john gallaher Says:

    it may be a ‘yank’ thing,the exchange and attempted link is to
    JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM
    Wednesday, 31 October 2012
    The Irish state via IBRC disposed/sold/dumped 10 BILLION of US loans…sorry the price is commercially sensitive…no really,its a secret!
    But Dukes is ‘pleased’ with the ‘outcome’ he means loss…
    FYI- IBRC impaired loans are 18bil,excluding PN total assets are 25bil.

  76. DottyDiver Says:

    @john gallaher
    “Deputy Kevin Humphreys: What was the loss on the US loan book sold for $10 billion?
    Mr. Alan Dukes: We have not revealed the details of the sale because it is commercially sensitive. frankly, I do not want to set a benchmark for the next bunch of sales we do. I must say we were pleased with the outcome.”

    ??? a transaction of that size is material to and warrants a description in the annual report. Sure enough, you can work it from Note 15 on page 68 in IBRC’s 2011 accounts:
    “During the year the Bank sold the majority of its US assets. Loans with a gross value of €6,060m (before provisions for impairment of €1,219m), together with related derivatives with a fair value on date of disposal of €195m and investment property classified as held for sale with a carrying value of €47m were sold, realising a loss of €343m. Total external professional fees incurred on the US bulk sale transaction amounted to approximately 30bps of the gross assets sold. The US loan book was principally classified as loans and advances to customers at 31 December 2010.”

    This gives an average portfolio price of around 80c. on the portfolio. i.e. the total cost to the taxpayer was c.€1.5bn

    Not sure why the bank couldn’t disclose to the the oversight committee what it already had published!

    Source: http://www.ibrc.ie/About_us/Financial_information/Annual_Report/Annual_Report_2011.pdf

  77. john gallaher Says:

    @DD thank you for that,working my way through the joint committee report and recent IBRC reports.Dukes is “pleased” with the loss here,but in comparision to recent prices for irish loan books he has a point.
    Strange he refused to answer the question given it was in public domain………..unless he did not know the answer

  78. DottyDiver Says:

    @john gallagher

    No problem…..

    As a transaction of this magnitude would have been a Board decision, suspect he “forgot” the details.

    The comparison between US and Irish prices is not really useful - they’re different markets and are not correlated.

    The issue of whether the sale was a good one is an interesting one. The sale seems to have given rise to an additional loss on disposal of between 400-500million over and above what the bank had impaired the portfolio to. i.e. what the bank expected to get for it in the normal course of events. The decision to liquidate and incur this incremental cost is a big decision for any Board. The trade-off is the risk premium of remaining in the market for longer versus the additional cost. Probably a few other considerations such as deleveraging, ELA payback as well. Not surprising that this wasn’t really discussed with the oversight committee.

  79. DOCM Says:

    @ Veronica

    I enjoyed that. Irish bond spreads are up, as might have been expected.

    @ Dotty Driver

    “The above is predicated on the State meeting its commitments in a conventional manner. Cancellation (polite word for default) or monetisation of the State commitment where the CBI/ECB effectively expands base money possibly permanently are other, more radical approaches. Technically straightforward but provokes all sorts of hostile reactions at the ECB/EU level due to the associated risks!

    “Aren’t the vast majority of sovereign debt in this planet IOUs written by previous governments?”

    Yes ”

    + 1

    Alan Ahearne gives his views on the PK show (farming item!).

    http://www.rte.ie/radio1/podcast/podcast_patkenny.xml

    @ Paul W

    A more realistic assessment of the strengths and weaknesses (mostly the latter) of the UK’s position by Blair’s former chief of staff.

    http://www.ft.com/intl/cms/s/0/5909529c-4387-11e2-a48c-00144feabdc0.html#axzz2Em62xS3Y

    In fact, it seems now very likely that there will be a deal on the ground-breaking initial legislation on a banking union, with the imprimatur of the UK!

  80. john gallaher Says:

    @DD i took a bit of interest in that transaction,as an aside the broker received 181,800,000….to sell part of this book to its parent!
    http://www.eastdilsecured.com/_about/history.htm

    Again,thank you for that info. there as no reporting on the final pricing and i have only reviewed 2012 reports.I don’t think is was a ‘board’ decision,more like a political one,was always curios why NAMA did not take this on.
    Regarding,timing and pricing very curious as the Commercial RE mkts. stateside have improved significantly from this low point.
    the comparison to Irish mkts. was tongue in cheek,having a go at Dukes and his non answer:)

  81. danny Says:

    this is just a knocked-kneed attempt a brinkmanship. when the EU demand the payment our frightened little politicians will revert to ‘we had to pay, if we didn’t it would look bad for Ireland, blah blah……. . The markets know we are going to default sometime, they’re just milking us for what they can get until we elect someone with the balls to tell them piss off.

  82. Mickey Hickey Says:

    Major setback for US Mutual Funds.

    According to FT, Ghana ordered to release Argentinian sailing ship by UN.

    + 1 for the Argentinians.

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