Government plans to liquidate Anglo in bid to cut debt Post author By Philip Lane Post date February 6, 2013 Story here. Dukes confirms the IBRC board ‘has been liquidated’ – here. Update – live blog here. Update – Q&A file from DoF here. Categories In Uncategorized 120 Comments on Government plans to liquidate Anglo in bid to cut debt ← ESRI QEC Research Notes → Death of Kieran Kennedy 120 replies on “Government plans to liquidate Anglo in bid to cut debt” Really love the sound of that ‘LIQUIDATE’ … LI..QUI…DATE … lovely! Cyprus may be setting the supportive precedent ….. thanks to the Greeks, the Portugese,and the Cypriots …. Bloomberg [h/t docm donie mac] has a somewhat different take to Reuters http://www.bloomberg.com/news/2013-02-06/ecb-said-to-be-ready-to-hear-new-honohan-pitch-on-anglo-irish.html @Bundestag Ireland calling. What’s goin on? Fitzpatrick’s Core Philosophy. Extract from “The Fitzpatrick Tapes”(Tom Lyons and Brian Carey) Chapter 7 “Massacre” page 123 ” Our exposure is not to the biulding it’s to the money that comes from the leasing of it. If the value of the property goes down it doesn’t matter we still get our loan repaid” Fitzpatrick was nothing if not consistent in this ,one of his core philosophies. If you examine Fitzpatrick’s core philosophy,if the property was was worth zero, it didn’t matter because he wasn’t lending against the properties,he was lending against the feudal leases. Ruinous Irish commercial property lease law i.e.upward-only rent reviews tied to long leases,say 25/35 years with no break clauses,were only available in Ireland.No other eurozone country,or any other country in the world allowed this ruinous lease law. This is the Real Anglo Irish Bank story. Lets see how it goes! Fingers crossed the preliminary work has been done on this. The ‘liquidate’ part of the headline may be overstating it. There is no mention of the remaining assets in IBRC being sold. It seems the IBRC balance sheet might be split among other state entities. CB? NAMA? A new entity? There is no doubt the ECB ELA will be paid off in full, the keys are over what timeline and who holds the interest-bearing instruments after the switch. This looks like it will be “technical” and might take some time to digest. The Promissory Notes were introduced in March 2010 and there is still some confusion over how they actually work. I predict 100+ comments on this thread. And then maybe we can all start talking about something else for a change. I wonder how this will affect the Quinn case against IBRC (Anglo)? Interesting that this device has not to my knowledge been canvassed in the media over the last months. Have the government, and its legal advisers on this move, kept their cards close to their chest? OR Is this a last minute wheeze? @Brian Existing litigation rights can constitute assets capable of being transferred so should not affect that. But as Seamus points out the ELA must be repaid so there is only so far reaching that this deal can be, don’t know why so much political capital has been invested in instruments which are so badly understood and so frequently misrepresented. Sorry am I missing something. “IBRC’s remaining loans will be transferred to Nama, which will pay for them with Nama bonds, the source familiar with the discussions said.” IBRC loans to NAMA NAMA bonds back to IBRC Who is the final recipient of the NAMA bonds on the IBRC side? @ Aisling This is a point made repeatedly by some, myself included, on this blog. The explanation is not far to seek. When faced with difficult domestic choices, governments seek distractions abroad. (The recent visit of the French president to Timbuktu is a good current example). The previous party in government is readying itself to “to do a Berlusconi” i.e. try to pocket political advantage immediately when the reality is that the one-fifth or so of the adjustment required that is likely to be met by deferring the capital payment of the PNs (i.e. piling it on our children and grandchildren) will still leave four-fifths to be made up. The electorate will not be happy when this sinks home. Reading between the lines it looks like a combination of straight QE for the PNs, along with merging the rest of IBRC into NAMA. At the end the gov will have as liabilities a bond for 31bn or so and 16bn in ELA to the CBI, corresponding to the 16bn of loans being transferred to NAMA. By QE, I mean the CBI prints up 28bn and buys the gov bond, and the gov uses the money to pay off the old PN-related ELA. CBI can hold the bond for 4-5 years so interest flows are circular during this time (through election 2016), with effective rate of ECB refi rate till then. The difference between the 28bn purchase price and the 31bn face value would reflect the current market rate (same as last year’s 3.5bn bond to cover 3.1bn payment) Or maybe its something completely different… Germany wants to ‘Liquidate’ some Cypriot banks … “Watch Cyprus” (Colm McCarthy) Timing may be everything …. free passports to be issued to all grandchildren at birth … Ninap, 80% of those posts will oppose whatever solution the authorities have cooked up. Shane, Mattie and Mat Cooper sound doubtful. Four years too late. It should have been liquidated when Morgan Kelly was comparing putting money into it to making a big pile in SSG and burning it. @Tull This site should really be called irishhurlerontheditch.ie This is an optical exercise to placate the domestic population. Nothing will change, just as nothing changed when Anglo and Nationwide were wrapped up into IBRC in the first place. Come March 31st, the ECB will be getting their €3.1 billion come what may. The only interesting part will be how long this pantomime is scripted to last. We may be looking at 8 weeks of political drama and financial musical chairs to distract people from the real €3.1 billion payment being made on March 31st. I consider what happened last year to the pilot episode of what will be a long running annual series, which will be aired around St. Patrick’s Day every year till 2030. Or maybe its something completely different… Not completely different, but a different slant from Namawinelake I’d be surprised if the ECB went for an approach that ended up replacing one non-marketable debt instrument (PNs) with another (Nama bonds) as collateral for ELA. I think they will want to see only regular gov bonds used for this purpose. What is the short version for non-Irish, non-experts… some European institution will end up lending Ireland the 3.1B euros to make the PN payments? And the good part is that the loans will be cheap? Again, we are taking the cowardly way out. The IOU to Anglo is now being turned into sovereign debt that will be paid for by our children and grandchildren. Whatever about arguing about the PN being imposed on us there is no arguing about the providence of these new bonds these are part and parcel of the debt straight jacket we have woven for ourselves. Promissory Notes should not have been paid end of story. I wonder how this is going to effect David Hall’s case and if that case actually fed into the general government panic? Just when we have hard hitters such as Hans Werner Sinn telling us we should simply refuse to pay the Promissory Notes, the government runs out puts it’s hands in the air and says we have a deal! What exactly was the hurry? Why another late night in the Dail? Every time this happens it turns out to be an ill advised crock and this time will be no different. @OMF Surely the €3.1 billion promissory note payment would go to the Central Bank of Ireland. Or did I miss something? No deal! That’s an excellent post by namawinelake. If its accurate, then the biggest question remaining seems to be the seniority and jurisdiction of issue of the new govt bond. Could the Irish Govt eventually default on this bond without risking the position of exisiting and future bondholders? Also, now that it is clear that we have no friends in the ECB and they are not going to help us one way or the other, shouldn’t the Govt initiate legal proceedings against the ECB over the payment of unguaranteed bank bondholders, as suggested by CMcC? @Aisling “..Existing litigation rights can constitute assets capable of being transferred so should not affect that..” That may indeed be the correct legal position but it would seem strange to me that NAMA would have anything like the appetite to continue on with the torturous legal cases currently laid out before the IBRC and the Quinns. We already know that NAMA run a significantly tighter ship than IBRC and I for one don’t see NAMA continuing to fess up with the outrageous legal bills this case is extracting from the Govt coffers. Why is this being rushed for tomorrow’s ECB meeting ? There are other ones available before next repayment. I really don’t like to see complex legal and financial engineering being rushed with little debate…especially when there is no need ! That should increase Nama’s loses nicely, lets hope that the ICB sell this shite in 5 years! Market interest rates should be interesting. Smacks of the forbearance theory used for house occupiers (not owners) that can’t afford to pay for the house they bought, delaying the inevitable, inflation isn’t going to solve this problem, least not while we are in the Euro Vincent Browne 10.00pm on ‘De Liquidation’. A Special on the ‘Special Case’. @YOB that’s a fair point although suspect there is still political appetite to go after Quinns so long as there’s half a billion in missing assets. What a shambles for limited potential return but as DOCM pointed out it is a nice distraction and kills off the name of Anglo Irish Bank Fine Gael backbencher Peter Mathews criticised the appointment of KMPG as liquidators of IBRC and said there was no moral or legal obligation on Ireland to pay the banks debt. He pointed out that the firm was the auditor for Irish Nationwide, which lost €6 billion on a balance sheet of only €10 or €11 billion. (Irish Times) @David that’s typical Peter Matthews clap trap to be fair. All the big 4 audited one of the big financials prior to the crisis but if you want to liquidate IBRC you can only appoint a Big 4 auditor because only they will have the scale and PII to cover one that size. Audit and reorganisation services are a world apart. Whether liquidating it helps or not is a different matter, but blaming the necessary big four appointment is an exercise in futility and self promotion. @ Desmon Brennan You are absolutely correct! Whatever happens, the ECB is unlikely to allow itself to be seen coming out with its hands up. There is a broader issue here. Can there be any doubt any longer with regard to the near total ineptitude of the governing class in Ireland? And what is to be done aboout it? Only appoint a Big 4 liquidator, not auditor I obviously. @DOCM Guillotine? @Aisling The term ‘Liquidation’ is also psychologically satisfying as the serfs can imagine the feeling of released anger and warmt as the hated concrete edifice turns to liquid and floats into the imaginary away [notwithstanding the uncontestable fact that the ‘hape o debt’ hasn’t really gone away we know] @ Aisling You mean we have an aristocracy? Do “political dynasties” qualify? DoCM, Quite, we need to replace our current rulers with some more erudite, experienced in diplomacy and plugged into Europe. Someone who has the time to post endlessly on here and no doubt is in constant touch with the crowned heads of Europe. Now let me see, who could that be? @DOCM Quite the opposite. Behead the politicians and then end this futile adventure in democracy and find ourselves a new aristocracy. Or maybe the Roman model of only allowing the elite elect the senate? National lists might be less controversial? @David that’s a fair point, appeal to the hearts when you can’t really get a deal which can appeal to the minds. “He pointed out that the firm was the auditor for Irish Nationwide, which lost €6 billion on a balance sheet of only €10 or €11 billion. (Irish Times)” And Mr. Mathews is what passes for a banking expert? Clearly he doesn’t have a memory for figures – INBS had a balance sheet of 14 bn euros… http://ec.europa.eu/competition/publications/cpn/2011_3_7_en.pdf There’s something up with the rush to legislate. A leak of the plan being fatally destabilising for the continued existence of IBRC? @ Tull You take blogs a bit too seriously. Stick to the issues and leave out the ad hominem remarks. You may have noted that I do not indulge in them. You might care to return the compliment. @ Aisling National lists are the answer. But there is little or no chance of it happening. … a leak at the ECB … tut tut tut … floods the Dail in the evening. @Tull Donie Mac is your only man! @De Bundestag … click – Welcommen … NEIN …click DOCM, Yes, let’s have party hacks. Actually what we need to do is change the electorate. TV3 reporting that the leak came from ‘Frankfurt’ around 2.30pm and Irish Government felt obliged to go full steam ahead with liquidation for ‘legal and fiduciary’ reasons. @ Gavin ‘full steam’ … ‘liquidation’ …. lets get really metaphorically rich and VAPORIZE Anglo-Irish, Irish Nationwide & IBRC. Don’t just liquidate – VAPORIZE! Minister Noonan to speak at closing time [live on TV3]. After hours available … Text from Seven_of_9: I hear that Two_of_7 is now on the dole! Must be gettin rough down there! Here’s what happens: 1: The govt essentially will not pay the promissory note so 2: IBRC collateral is bad so 3: It can no longer function as a bank so must be wound down Now you could leave it at that and most decent governments would but not ours so 4: The government decides that it will owe the ICB the same money as IBRC owed the IBRC for no national interest so that 5: Debt that should never have been incurred by us can be eventually owed by us to the markets after they buy the debt making the ECB (ICB branch) whole. Winners are – ECB and the markets Losers are – the Irish people The government should have stopped at step 3 – stupid fu**in’ b*****rds The text of the Bill to be introduced in the Dail tonight can be found at http://karlwhelan.com/IrishEconomy/IBRCBill.pdf There is nothing about PNs or the ECB deal here – it looks like a technical bill that allows the MoF to do what he wants in the liquidation and to grant immunity from any legal action. One thing of note is that all IBRC employees are immediately laid-off (but may be rehired to work on the wind-down). Merging the IBRC and NAMA loan recovery operations makes a lot of sense. NAMA has 3 times the assets and 1/2 the employees of IBRC. Instead of needing over 1,000 people, IBRC should need far less, maybe a few hundred, and this should save at least in the 10s of millions annually. I suppose I should post a summary of bill here for anyone not reading NWL comments. Re: The Bill Basically, the Bill invents a new process called “Special Liquidation” just for IBRC. (Think of “examinership” for Beef companies in the 1990s) Special Liquidation appears to be supercharged liquidation, superior to all other processes, and indeed superior to all legal proceeding (“there shall be an immediate stay on all proceedings against IBRC”). A lot of the automatic process of ordinary liquidation may or may not apply as the act dictates. There’s stuff about the Irish Central bank and obligations being “ultra vires” or other such legalese. Search me. I assume some stroke or other is being considered. NAMA is in there; empowered to bid or buy and get funds from the ICB, and it appears to hire people from IBRC. The Minister for Finance is empowered to issue interest bearing securities as he “thinks fit”. “You hear the sound of distant thunder”. Other than this, I can’t see anything about €40 billion of bonds or indeed any numerical amount of bonds at all. The employees of IBRC, their holiday pay, sick pay, and indeed jobs have all been protected above all other things(not your ordinary liquidation). They’re all to retire to NAMA. I think this is just wide-boy, stroke-politics, extraordinaire. FG have even less respect for the State than FF. @Bryan G That Bill looks draconian…especially in relation to extinguishing property rights “permanently or temporarily”. Wonder if it’s constitutional. AND WHEREAS IN THE ACHIEVEMENT OF THE WINDING UP OF IBRC THE COMMON GOOD MAY REQUIRE PERMANENT OR TEMPORARY INTERFERENCE WITH THE RIGHTS, INCLUDING PROPERTY RIGHTS, OF PERSONS; Article 43 (Constitutional provision which protects property rights) gives State significant leeway to interfere with property rights in the interest of the common good, as does A1P1 of the ECHR. Otherwise how could a State every levy a tax (which by definition interferes with property rights)? Am sure it will be tested in court if there’s enough private skin left in this game, but it is not clearly unconstitutional. There was a previous banking Bill (CIFS ?) introduced by the last government which, to a non-legal eye at least, looked similar – the MoF can do anything he wants. I think almost all private liabilities left in IBRC were guaranteed by the gov anyway. The vast majority of IBRC’s liabilities are to the CBI/ECB. The main ambiguity at the moment seems to be whether the assets to be acquired by NAMA (in exchange for NAMA bonds) include just the remaining loan assets or also include the PNs. Gosh, Ireland really is the Twighlight Zone of finance! One of the frequent lines from Laurel & Hardy seems appropriate. How about not getting caught up in another bizarre spectacle in the Irish parliament, which is really just a spectator sport, and considering this. The letters of comfort will apparently be honoured. They have some interesting redactions in a rather significant place, that defining the strength of the commitment or ‘comfort’: “It is the policy of the government that the Bank should not incur a loss in the provision of emergency liquidity assistance to support Irish credit institutions. Accordingly, if any such loss is in prospect the government will [consider taking steps to] provide for the Bank to receive payment to make good any shortfall” http://www.rte.ie/news/special-reports/2011/0718/303839-banksfeature/ Check out and squint at the letters, do they seem to have slightly different wording? [Note; this bit might be what that particular letter of comfort says or it might not, but who cares, its only billions and billions of Euros.] @Bryan G The Credit Institutions Financial Support Scheme (CIFS) provided support to 6 banks, commenced on 30 September 2008 and expired on 29 September 2010. It was a blanket Scheme covering all deposits, senior debt, covered bonds and dated subordinated debt of participating Irish banks. The scheme was replaced by Eligible Liabilities Guarantee Scheme (ELG Scheme) which commenced on 9 December 2009. This new scheme moved away from the blanket nature of CIFS towards an opt-in/opt-out Guarantee. This scheme has been extended annually. NAMA will not own the PNote (or the new bonds). Your point re incremental QE by the ECB (in this case via the CBI) is more to the point. @DottyDiver I went back and checked – it was the Credit Institutions Stabilisation Bill (Dec 2010) that the current Bill reminded me of. In the 2010 Bill the MoF was granted very broad powers to appoint a special manager and restructure the banks. NAMA will not own the PNote (or the new bonds). Your point re incremental QE by the ECB (in this case via the CBI) is more to the point. The scenario where NAMA does not take the PNs certainly makes most sense to me – it’s the phrase in Noonan’s speech – “It is intended that the net debt owed by IBRC to the Central Bank and its associated floating charge security will be purchased by NAMA, using NAMA bonds” that suggested that as a possibility. Noonan sidestepped any questions on the nature of the PN deal on the basis that that was outside the scope of the Bill, and that, as yet, there is no deal. I suspect most of the remaining issues are how and when the CBI will reverse the QE, and how to pretend it isn’t “monetary financing”. @Robert Brown, If Hans Werner Sinn said that Ireland shouldn’t repay the p.notes then that was pretty scary for the ECB. Is there a link for that? There are more details to emerge, it seems that the government may have been bounced into converting the p.notes for a more secure debt instrument. If I wanted to bounce the Irish government or people into something I would set up a situation where there might be a ‘firesale’ of properties/assets in Ireland, which would then need to be ‘proctected.’ Even though unintended, the fait accompli should give cover to most of the govs apart from Weidmann. Last rites read for Anglo Irish Bank – – the damned builders’ bank http://www.finfacts.ie/irishfinancenews/article_1025552.shtml @MH Go ndeana Dia trocaire ar a anam lofa. Mornin all … The hape o national debt has been INCREASED … Grating success story … Blind Biddy is fuming and Patricia the Irish_Sovereign_in_Exile is disconsulate … Thousand thanks from the Financial System to PD/FF/gp/FG/Lab and the ECB. New legislation in the Dail this evening to change the name of the state to NAMALAND. Hope of the serfs has been VAPORIZED. End. Has Colm McCarthy really emigrated to Montenegro? @ Aisling ‘Behead the politicians and then end this futile adventure in democracy and find ourselves a new aristocracy. Or maybe the Roman model of only allowing the elite elect the senate? ‘ Provided we exclude the many leading members of the professional classes who facilitated, condoned, turned a blind eye to, engaged in, or concealed the looting of the banks and the cripping of the state finances. The Big 4 are just better at it. @ Bryan G CISA which was due to expire at the end of last year was extended until the end of 2014 in December. As you say it already had powers for the Minister to arrange a liquidation and transfer of assets to NAMA. The need for additional legislation to CISA appears to be to (a) facilitate restructuring of the Promissory Note to whatever is finally agreed with the ECB (and others in Troika) in the next day(s)/month, and (b) provide additional protections against (foreign) creditor claims. In respect of the later, the Central Bank has a floating charge over all the assets of IBRC establishing its priority. (source: CRO). Presumably the additional legislation ensures that similar protection is afforded NAMA as the new owners of the loan assets. “On 6 February 2013, the board of the IBRC were stood down by the Irish Government and replaced by accountancy group KPMG. The Minister of Finance introduced emergency legislation to dissolve the IBRC, and replace its promissory notes with bonds with an average maturity of 27 years. Dáil Éireann began debating the legislation a few minutes after midnight on 7 February.” http://en.wikipedia.org/wiki/Irish_Bank_Resolution_Corporation 27 years of servitude. Wo0oooo00ooot! Sisqo shakedown everyone.. Irish people (including myself) probably deserve about 10 years of discomfort in line with a rough estimate of how long the state has been the farce that is liberalism, and have already been punished to some degree over 5 years, but an additional 22 years. Even I don’t believe we deserve that as people after what we’ve been through as a people. Heads need to roll methinks. @DottyDiver “,,Presumably the additional legislation ensures that similar protection is afforded NAMA as the new owners of the loan assets..” I presume what you actually mean here is that the legislation continues to protect the CB floating charge over the assets transferred to NAMA from the IBRC? I’m not sure however under the terms of a liquidation that charge rights are necessarily proetected I would have thought (I know) that’s the job of the liquidator to establish priority. Its seems odd does it not that we go through the process and end up in exactly the same place i.e. no deal, no writedown (not getting one regardless) and similar charges over the assets. What has changed overnight is that c850 people have lost their jobs.Not a lot else it seems. @Bryan G I am wrong – from the department of finance website: “It is intended that the net debt owed by IBRC to the Central Bank and its associated floating charge security will be purchased by NAMA, using NAMA bonds, in a way that ensures that there is no capital loss for the Central Bank. The Ministerial Guarantee underpinning the net debt owed to the Central Bank will also be transferred to NAMA. Eligible depositors, bondholders and counterparties will be repaid under the Deposit Guarantee Scheme and Eligible Liabilities Guarantee Scheme. There is also a Derivatives Guarantee in place. ……… As indicated, the IBRC debt to the Central Bank, which is intended to be purchased by NAMA, is secured by a floating charge over the assets of IBRC and a Ministerial Guarantee. Following an independent valuation process, the Special Liquidators will sell the assets of IBRC (which are subject to the floating charge) to third parties at or above their independent valuation and failing that, the Special Liquidators will sell the assets to NAMA at their valuation price. The proceeds of these sales will be used to repay creditors in accordance with normal Companies Acts priorities, so that preferred creditors, including employees would be paid first, and then the IBRC debt to NAMA would be paid under the floating charge. To the extent that there are proceeds available after repayment in full of the NAMA debt, these proceeds will be applied to remaining unsecured creditors who have not been paid under the guarantee schemes (which, for clarity, do not include the Deposit Guarantee Scheme). These remaining unsecured creditors will include the Minister to the extent that he has paid out under guarantee schemes. Similarly, if the proceeds are not sufficient to pay IBRC’s debt to NAMA, the shortfall to NAMA will be met by the existing Ministerial guarantee.” The big question is who will own and/or finance over 20bn of NAMA bonds – ECB/CBI or Mr Regling? @Paul I woke up much more enthusiastic about the Guillotine route, yet pretty ambivalent about the replacement (a field of cows would have struggled to do worse than our political classes yesterday) Who leaked? Who the hell benefited from last nights shambles? What was this Act trying to protect? Clearly the IBRC balance sheet does not support a risk of €12bn as our politicians were suggesting, maybe somewhere between €1bn and €2bn. Why did politicians think creditors would be in the courts today based on rumor? Is this Act saving us money i.e. are we burning the remaining bondholders in IBRC? The Act clearly reads like we could, but if that was the intention surely the politicians would have been shouting it from the rooftops. When was this Bill drafted? @ Yields or Bust “I presume what you actually mean here is that the legislation continues to protect the CB floating charge over the assets transferred to NAMA from the IBRC? I’m not sure however under the terms of a liquidation that charge rights are necessarily proetected I would have thought (I know) that’s the job of the liquidator to establish priority.” The legislation appears to create the necessary “facts” for the liquidator to determine the priority. “Its seems odd does it not that we go through the process and end up in exactly the same place i.e. no deal, no writedown (not getting one regardless) and similar charges over the assets. What has changed overnight is that c850 people have lost their jobs.Not a lot else it seems.” If an extension to maturities is settled on as part of the restructure, it is possible that in value terms that there will be a write-down, in nominal terms a write-up. We might get an inkling later today at the ECB press conference. My scorecard so far: The issue of who leaked when, where, what and why needs to be cleaned up if possible or another shadow may fall over this whole proceeding. The government seems to have been able to keep quiet about it since last September. If this is a prelude to turning the PN notes into a long term, lower interest bond, then in-so-far as it makes the budgets, debts and hopefully bond rates lower then it is a Good Thing. However, it does means that the specific money paid through Anglo and Irish Nationwide looks, walks and quacks like sovereign debt and it will be harder to argue that it isn’t. That doesn’t mean a case couldn’t be taken. My position remains pretty simply that nationally and internationally governments/citizens should not be subordinate to banking/finance interests – ie banks should not be able to take private profit but socialise losses. In Europe the development of the FTT and the Bank Resolution Scheme are central to this. In Ireland, if the state is not willing and/or to get the 64bn and counting back one way it needs to work out another. Glancing at the RBS Libor rigging fine, if the banking sector is simply like the scorpion in the story of the scorpion and the frog, then I would incline to nationalise the lot as being too risky. http://www.guardian.co.uk/business/2013/feb/06/rbs-libor-fixing-transcripts-exchanges @ Aisling When the furore dies down, I cannot see how the outcome will be viewed by the markets as anything other than positive in terms of coping with Ireland’s debt crisis. Developments here may have swamped the media in Ireland but there is so much going on elsewhere – notably in Spain and Italy – that the focus will be on the European Council rather than the travails of just one – and not the most significant – of the EA countries in trouble. Brendan Keenan cuts to the chase in this article. http://www.independent.ie/opinion/columnists/brendan-keenan/export-growth-will-reduce-debt-but-only-if-spending-is-curbed-29053707.html The only point not covered is the safety-valve impact of emigration. As Niall O’Dowed puts it in the IT today. “This feels like the 1980s again, even a tinge of the 1950s, with people who have no business emigrating – either because of their lack of skills or their sheer inability to handle the massive emotional and physical disconnect involved – making the trek. That is a failure that can be squarely laid at the feet of successive administrations who have failed the basic challenge of keeping their people employed. Ironically, it is those leaving who are keeping the powers-that-be in power. If they stayed unemployment would rocket and social unrest would likely occur. But as long as there are flights bound for New York or London, the crisis will never truly hit.” @aisling “What was this Act trying to protect? Clearly the IBRC balance sheet does not support a risk of €12bn as our politicians were suggesting, maybe somewhere between €1bn and €2bn. Why did politicians think creditors would be in the courts today based on rumor? Is this Act saving us money [my edit: notwithstanding any change in t erms of the debt that replaced the PNs] i.e. are we burning the remaining bondholders in IBRC? The Act clearly reads like we could, but if that was the intention surely the politicians would have been shouting it from the rooftops.” These are the questions I would like answered too. What creditors are we (the government) getting in ahead of? The “Special Liquidator” provisions appear to ride roughshod over property and employment rights – surely this cannot be constitutional? @DOCM Leaving aside that our legislature passed legislation based on numbers which simply don’t add up here’s the other issue. ELA is only available to banks. IBRC had a banking licence, NAMA does not. The IBRC recap and NAMA had State Aid blessing, this deal does not. So given Noonan said that as yet there is no deal on the ECB side, I can see a risk that this liquidation risks making things worse and not necessarily better and I don’t understand the pressing need to liquidate yesterday. If it all joins up then it could be a good thing, but the shambolic nature of yesterday is not instilling much confidence. Incidentally namawinelake is suggesting that replacing the PNs with Government guaranteed NAMA bonds will reduce our debt to GDP, which seems absurd if the Gov guarantee is necessary to prevent CBI haircutting them as corporate debt. @ Aisling This debate since the very start has been up every tree/technicality imaginable. This serves to obscure the wood. Brendan Keenan does a very good job of describing it. This is not in any way to suggest that the actions of the government should not be subjected to the greatest possible scrutiny, especially as the national parliament is being deprived of the opportunity to do so. Whether the ECB says no, yes or maybe this afternoon, the basic problem confronting the country will remain unchanged; recovering – on an equitable basis right across society – the unsustainable income premium generated by the property boom. @DOCM “the basic problem confronting the country will remain unchanged; … the unsustainable income premium generated by the property boom. ” That is a fairly one dimensional view of the crisis. Yes there is an income problem which is realised in the deficit. That can and will be fixed in the next couple of years. In fact, we should move into primary surplus in the next year or so. The other crisis facing the country is the total stock of public and private debts. Coupled with the fact that we do not have our own currency, these debts are unsustainable. The debt needs to be restructured one way or the other, via inflation/devaluation (not going to happen in Euro), a Euro exit or a negotiated write down. The idea that a country with an unemployment and banking crisis can piss away 5-6% of GDP every year in interest and more in principal repayment is ridiculous. There will be no recovery until the debt issue is resolved. Why is that so hard to understand for some people? Could it be they are more interested in preserving their Euro-denominated pension and other other assets built up during the boom and to hell with the recovery and the next generation? As Upton Sinclair once said… @ bazza Leaving aside the issue of private debt for the moment, the fact that I mention one dimension does not mean that I have lost sight of the other. Where we disagree is where the emphasis should lie. I put it where the bulk of the government funding problem lies i.e. the gap between taxation income and government outgoings. It seems increasingly likely at this stage that a deal on the easing of the debt problem will emerge today which will, incidentally, I think, answer the question posed by DottyDiver above. “The big question is who will own and/or finance over 20bn of NAMA bonds – ECB/CBI or Mr Regling?” RTE report on Hall appeal on legality of PMs today. State claiming case is moot as of last night. Was this the reason for all the rush. Government ECB, and FF may be saved embarrassment. http://www.rte.ie/news/2013/0207/366634-david-hall-promissory-note-supreme-court/ … and the result of all this? Every Cent (select your colour) to be paid to the FInancial System. Sinn Féin finance spokesman Pearse Doherty accused the Government of repeating the mistakes of the past in rushing through unclear legislation. “After nearly two years of negotiations the Government has succeeded only in achieving a farcical situation. Every last cent of the Anglo Irish debt is to be repaid. That much is clear,” he said. “The only thing clear tonight is that there is no write-down and that the debts are being formalised as a sovereign debt.” http://www.irishtimes.com/newspaper/breaking/2013/0207/breaking1.html Farcical and catastrophic in terms of debt sustainability. We are now in a really horrible place … @bazza “In fact, we should move into primary surplus in the next year or so.” ORLY? I’d like to see those figures… @ All FYI http://www.reuters.com/article/2013/02/07/us-ireland-ecb-idUSBRE91609020130207 DOD, The energy of the opponents of the deal is truly amazing-still hyperventilating after 24 hours. There never was going to be a writedown absent Greek style reductions in PS pay and transfers which this govt seems reluctant to do. You do not negotiate with the Borg. The best that could be done short of unilateral default will be a reduction in debt service costs. Now, let’s talk about the only viable policy alternative – which is unilateral default and exit from the Euro, along with instant budget balance. @Tull ‘… let’s talk about the only viable policy alternative – which is unilateral default and exit from the Euro, along with instant budget balance. Dream on! Time to default on the Promissory Notes unilaterally was before yesterday. Your obsessive sado_istic desire for ‘instant budget balance’ on the serfs is becoming rather tiring – yet it has been present in the geners of the upper middle class professional & propertied since the early 19thCentury. The big losers here are the lumpen Irish citizen serfs – again. @Dod It may be tiresome, but what alternative does Kitty O’Nines propose in conjunction with default? Shouting a lot and planting magic money trees! er… Draghi was just asked to confirm the deal that Reuters are reporting and he said that the ECB council ‘unanimously took note’ of unilateral action by the Irish Government and that there was no deal to report. FT http://blogs.ft.com/money-supply/liveblogs/2013-02-07/ And now questions. First, has the ECB reached a deal on the Anglo-Irish affair. On Ireland, there wasn’t a decision to take. The ECB council took note of the Irish operation. Draghi refers everyone to Dublin. So called ‘Deal’ designed by Irish Gov and Irish Central Bank and the ECB unanimously took note of this. [Draghi] @Fianna Fail For once, do the honourable and ‘liquidate; yourselves and join the PD party in the neoliberal sky. @yoganmahew Time for unilateral on PNs is past. Now to get to a balanced budget before default on unsustainable debt load becomes a ‘scenario’ if not, perhaps, a possibility or probability due to the supine and deferential nature of politicos in power. Draghi looks tired, not as ebullient as in past conferences. And he sounds very tired of the Irish actions. Took note. What does that mean. Not a ringing endorsement. Somebody in the ECB not very happy. Maybe that is a good reason for Ireland to be pleased. Who leaked and why? @Seafóid I’m know thinking that the Irish were telling the truth yesterday and that leak was from Frankfurt. Leak (traced back to Frankfurt) “forced” somewhat inexplicable unilateral Irish Government action last night involving liquidating IBRC in a split second which ECB gets to “take note of” without expressly approving or disapproving of it. But let us see what Enda announces was our unilateral Government action which has removed ELA by liquidating IBRC. @Aisling Thanks. It is all so Byzantine r more detail. Email firstname.lastname@example.org to buy additional rights. http://www.ft.com/cms/s/0/3ed71cc8-712d-11e2-9d5c-00144feab49a.html ” Dublin has won reluctant agreement from the European Central Bank to restructure a chunk of its bank debts in a move the government believes should ease its exit from its international bailout later this year. The deal will not write off any of the €64bn debts racked up by Dublin when it bailed out its banks during its financial crisis. Instead, it will stretch out repayments on almost half Ireland’s bank related debts over a longer timeframe, easing the country’s short-term financing requirements. ” Maybe FF could now be incinerated. @Joseph Ryan Not a ringing endorsement. Somebody in the ECB not very happy. Maybe that is a good reason for Ireland to be pleased. Normally I would agree with you on Draghi’s pain being Ireland’s gain (the struggle between the ECB and the debtor states is a zero sum one) but it is open to question whether it is Irish manoeuvring that has left the man drawn and angry or the internal fight in the ECB over how Germany focussed the solution to the the financial crisis has to be – Asmussen’s systemically important banks and financial institutions that German investors have large exposure to seem to be one in the same. Mario Draghi however has Italian and Spanish financial capitalists to think of too and not just Deutsche and the landesbanken . We can only hope that the tensions in EMU are not reconcilable within the current institutional framework. It seems to me, having listened to the Dail statements, that this deal is as bad as it could have been. We have replaced a dodgy exotic promissory note, owed solely to the Irish Central Bank, with bone fide Government bonds. Not only that, we will have to pay 3% interest on those bonds. When the CBoI sells those bonds, the interest will no longer flow back to the state, unlike in the case of the PNs. Interestingly, a 3% interest rate means that any real benefit to be gained from inflation over the longer period will be negated, as 3% is greater than 2% inflation plus the 75bps of effective interest that we are currently paying. So we have replaced a rather junior low interest debt instrument with sovereign bonds with higher interest that will definately have to be paid back to investors. This is the worst possible deal imaginable. It would seem that the Govt has deliberately locked the taxpayer into the repayment of this debt just so that it could say it got a deal and so that it would put to bed the question of not paying the PN. “When asked by reporters, Mr Draghi repeated that the council took note but he added that there was no more emergency liquidity assistance and he said he could not go any further. He said it would not be right for him to comment on what another central bank was doing or was about to do. Mr Draghi said he knew what he was saying was not very satisfactory but he said it was very difficult for him to say anything different.” from rte Strange…no more ELA..now what does that mean? Did the Governor do a solo run? @Bazza How much would you get for a 40yr Bond paying 3% . Cannot see the CBI being able to sell those. It seems the Governor is justifying what appears to be unilateral action by the Government and CBI.. “FRANKFURT (Reuters) – Ireland’s debt deal is far from being considered as government financing by a central bank, Irish central bank chief Patrick Honohan said on Thursday. “I’m very satisfied with the arrangement that the government has made about the IBRC and that it’s going ahead,” said Honohan, who also sits on the European Central Bank Governing Council. Asked whether the deal avoids being central bank financing the government, a concern the ECB had on a previous Irish plan, Honohan said that would not be a problem. “We have that all examined and sorted, it’s very far from monetary financing.” The Government can be blamed for overspinning and letting expectations get out of hand but it would be foolish to ignore the wider denial about the challenges faced in the years ahead following the end of a temporary period of unsustainable growth. The responsibility for the second monumental economic disaster in a generation is mainly in Ireland and there is much more enthusiasm for blaming Europe for our woes than addressing the failures at home. The cargo-cultists were never going to be satisfied. Threats are the easy part. It’s fatuous to claim that saving the builders’ bank helped to save the Eurozone banking system. The savings on the interest may be exaggerated but the deal is an advance. There was never a serious prospect of a writedown. @ MH At least the government acted on advice this time and seems to have known what it was doing. That at least is progress. “there is much more enthusiasm for blaming Europe for our woes than addressing the failures at home” I dunno. Have you spoken to many people resident in the relevant jurisdiction ? Anyone know the time the Irish central bank is expected to or allowed to hold the bonds before selling? @Grumpy my guess is that this will be viewed as CBI accepting liquid non-cash consideration in satisfaction of the ELA. As a result the CBI is not lending to NAMA (not having a banking licence it cannot), merely accepting NAMA bonds as consideration. Not clear whether the NAMA bonds will then be swapped or otherwise for GOV bonds but the same logic holds, the logic of the SMP or OMT that there is a distinction between lending, and acquiring bonds. If this is the case then as with OMT and SMP the Central Bank cannot say how long it will sit on the bonds, it can sit on them as long as it makes good sense commercially but should liquidate its holding if it can realise more by selling the bonds for cash. Just my guess though based on an analysis that avoids viewing this as being monetary financing, a logic that the ECB has already used elsewhere. Grumpy, Depends on who is asking? 100% Comment 100. http://www.finance.gov.ie/documents/publications/other/2013/pressentation.pdf The details – asset sales for non cash liquid consideration is the route out of Art 123 using the SMP logic Could the bonds not be exchanged for a non cash asset such as the Glass Bottle site or else the Berkeley Court, either of which must have had a notional value of at least €20bn in 2006 ? @Seafóid Those assets would not be liquid and don’t generate income so much more difficult. Here, if Ireland had a great year next year in the bond markets the CBI could chose to flog a couple of billion worth of differing maturities making a tidy profit for itself. Say we have a bad year the year after they can sit tight, sell nothing but still make a profit. Reduces the risk on the CBI and the pressure on the CBI to sell in bad years, encourages CBI to sell in good years (which would make the ECB happy). If we have a cracking next 10 years the CBI would have liquidated all the bonds by then. Credit where it is due, I think they have managed to make this circle just about as square as was possible. Shame that so many people bought into the idea that the circle could be turned into an elephant i.e. that any principal write down could ever have been possible. @ Aisling Philip Boucher-Hayes had coverage on RTE just now which helps explain the situation. The ECB effectively retains its oversight role with regard the bonds (review of collateral requirements) but on a completely different basis to that relating to ELA. Legal honour is maintained all round, if I understand the situation correctly. The outcome overall, by any reasonable measure, is an outstanding achievement by the Irish side with an equally praiseworthy role – at least from an Irish perspective – by Draghi. @ bazza The Lex column had this summary coverage. http://www.ft.com/intl/cms/s/3/51f06ca4-713e-11e2-9b5c-00144feab49a.html Notably; “The deal does not end Ireland’s bank crisis, and its debt ratio will be above 100 per cent for a while yet. But it should end the obsession with Anglo and let in a little daylight to focus on other matters such as the scale of household debt, the second highest in the eurozone.” Amen to that! @DOCM Good point about Draghi. He seemed in good spirits while saying that they had “unanimously noted” the transaction, and fair play to Michael Sheen for managing to get out of him that the ELA would be gone. I agree with Boucher-Hayes that by refusing to bless is the ECB is both in a position to refuse to allow others (Spain doesn’t have a PN structure in place to unwind as ECB refused it) try to do similar, and retains the ability to put pressure on the CBI not to sit on the bonds if it can liquidate its holding at a profit. I take back my guillotine suggestion (but reserve the right to table it again). @ DOCM From the same thread: “There is a broader issue here. Can there be any doubt any longer with regard to the near total ineptitude of the governing class in Ireland?” And “The outcome overall, by any reasonable measure, is an outstanding achievement by the Irish side” I can’t keep up. @ Gavin Kostick It is really not that difficult. “Irish side” means the people involved in the negotiations on the Irish side, mainly officials. The “governing class” in Ireland is a different animal entirely the quality of which, as represented in the Oireachtas under the current method of election, I leave to others to assess. I have expressed a personal view. If you wish to expound on their qualities as you see them, be my guest! @ DOCM My misinterpretation. You can see why, though. Governing Class: noun. “the social class that holds the power in a country” I would have thought that included officials. http://www.collinsdictionary.com/dictionary/english/governing-class @Gavin “I can’t keep up.”. Neither can I. Now we are flogging 40yr 3% bonds at a profit. Pigs might fly. @ Aisling I think that the epithet Super Mario is fully justified. The misunderstanding in Ireland of the role of the ECB seems to stem from a general lack of appreciation that it is the European System of Central Banks that constitutes the spine of the entire system. It would have been impossible to absorb all the different legal banking systems and central banks into the ECB. With regard to quality of our elected representatives, I should be more clear in saying that they do what they are elected to do i.e. promote local interests, often in competition with representatives from their own party. Their ineptitude relates to their inability to deal with the national rather than local interests in a coherent way. I understand from an interesting interview with Senator Averil Power on the Moncrieff show that the issue of the method of election will be taken up by the constitutional convention. I do not know the details. @ Gavin Kostick My oversight! How about politicians? And their “advisers”. The broader definition is far from inept; insofar as concerns protecting their sectional interests. Joan Burton saying up to now the PNs have prevented investors on focussing on Ireland’s underlying creditworthiness , but will now do so, allowing Ireland to borrow on the markets to invest in jobs. What can you say. @Ailsling, Tull and all Haven’t opportunity to read into this just now, but my guess is the ECB will be interested in the CBI holding period. Remember the PNs allowed the CBI to print the money originally and to the German wing this was regarded as very generous and pushing the envelope. There was an unprinting schedule and significantly extending the amount or the time before it is sterilised would be another significant retreat for them. Again haven’t read or considered this in detail yet but hence the question about whether ther is an agreement over when the bonds have to be sold. The deal is even better now..from the examiner.. “The Taoiseach Enda Kenny has called the deal on Ireland’s bank debt, which will save the country €20bn over the next 10 years, “an historic step in our economic recovery”. He said: “The Anglo promissory-note payments are gone.” I’m lost. The deal is even better now..from the examiner.. “The Taoiseach Enda Kenny has called the deal on Ireland’s bank debt, which will save the country €20bn over the next 10 years, “an historic step in our economic recovery”. He said: “The Anglo promissory-note payments are gone.” I’m lost. Ok What is the ECB target rate for inflation? Assuming that this is maintained for 27 years what does that “reduce” the capital payment by (“i.e in today’s money”) So we have split a payment into two halves – we will at best pay 15 billion in total yearly installemts allowing for inflation and (here’s the beautiful part) probably another 15 billion. So sum total = no gain. And isn’t the current generation meant to make things easier for the next. Ill be 63 when it’s due and my kids will be 37, 33 and 28. @Gavin Kostick On the curious case of the “appointed” good, “elected” bad division in the Irish establishment. My misinterpretation. You can see why, though. You have to understand Gavin, when one posts so many useful opinions occasionally they are not going to seem consistent to the uninitiated. Top ten posters for last thirty articles on the Irish Economy. The median number of posts for a regular (someone who has posted more than three times in this time) is 7. David O’Donnell takes poll position for number of posts but for sheer mass of insight, even if that insight sometimes seems tangential to the matter at hand , there is still one champion on this blog. Posts Characters Author/PR agent/financial sector fifth columnist 84 60441 DOCM 29 40498 Michael Hennigan – Finfacts 88 36524 David O’Donnell 45 ~28895 seafoid 33 25783 grumpy 27 23625 John Corcoran 22 23456 Joseph Ryan 16 13535 bazza 12 14864 Brian Woods Snr 10 12372 veronica @DOCM ‘The outcome overall, by any reasonable measure, is an outstanding achievement by the Irish side with an equally praiseworthy role – at least from an Irish perspective – by Draghi.’ ‘An Outstanding Achievement’ … well what does one expect from the Financial System’s top spinner on this blog …. champagne all round – every cent paid to the financial system. What a Victory. What a Rout! Who cares about the lumpen serfs – let them eat rhetoric. Here is an article in Globe and Mail, Report on Business. Ireland buries its undead banks Subscribers Only Financial Times Published Thursday, Feb. 07 2013, 3:44 PM EST Last updated Thursday, Feb. 07 2013, 3:44 PM EST 1 comment Print AA There is something appropriate about burying the undead under cover of darkness. The Irish government rushed legislation through the Dail in the small hours of Thursday to liquidate Anglo Irish Bank and Irish Nationwide, the banks that triggered the nation’s financial collapse. The aim is to replace €28-billion ($37.4-billion) of expensive promissory notes (issued by the state when the banks imploded) with long-term bonds, spreading maturities and interest payments over a much longer time. There is an element of brinkmanship about the deal, but there is no harm in that if it enables Ireland to finally emerge from under the cadavers of its failed banks. More Related to this Story Ireland saves €20-billion with some debt refinancing magic Ireland hails historic debt deal with ECB Ireland plans to liquidate Anglo Irish Bank Europe Video: Europe hails ‘breakthrough’ but questions linger Video Video: Ireland’s “historic” debt deal with ECB video Ireland’s bailout approved The last time Ireland tried to solve a banking problem in the middle of the night, trouble ensued. This time might be different. The promissory notes have become politically toxic as well as financially crippling. Moreover, the annual €3-billion payment is equivalent to the scale of austerity measures that Ireland must meet annually under the terms of its bailout. A straight comparison is, of course, far too simplistic, but that’s politics. With a payment due by March 31, the government may have decided that it was now or never. New 25- to 40-year bonds carry an interest rate of around 3 per cent, compared with a rate of 8 per cent on the notes and a tighter repayment schedule. The government says the swap will reduce Ireland’s net borrowing over the next decade by €20-billion. If that is true, and a credit rating upgrade ensues, Ireland’s path back to the financial markets will be eased, and the euro zone will have concrete evidence that its adjustment policies can be successful. The deal does not end Ireland’s bank crisis, and its debt ratio will be above 100 per cent for a while yet. But it should end the obsession with Anglo and let in a little daylight to focus on other matters, such as the scale of household debt, the second highest in the euro zone. O’Donnell Time to bring on blind Biddy to explain to us the strange things that happen when the Dail passes legislation in the middle of the night. Were there sobriety tests for example. @Mickey Hickey Sad to relate – dere was drink taken – a lot of drink taken – about 200 found-ons at 5 o’clock but Big Phil promised to ‘sort it’ for all concerned or the Garda involved would be transferred to the arse hole of south Kerry. The Garda wanted to go to Kerry to – as he put it “escape this asylum” – but P’Reilly gave him a nonlethal injection and propped him up in a corner of the bar. Needless to add there was very little read of any of the legislation – a fair percentage have no idea of what they voted on let alone remember voting at all at all. Comments are closed.