Saturday 21 October 2017

'Europe must pay more than market value for Irish banks'

Finance Minister Michael Noonan listens to John Corrigan (left), chief executive of the National Treasury Managment Agency (NTMA), with David Byrne, chair of the NTMA advisory committee (right), after the sovereign debt management agency published its annual report for 2011 at the NTMA headquarters in Dublin yesterday.
Finance Minister Michael Noonan listens to John Corrigan (left), chief executive of the National Treasury Managment Agency (NTMA), with David Byrne, chair of the NTMA advisory committee (right), after the sovereign debt management agency published its annual report for 2011 at the NTMA headquarters in Dublin yesterday.
Donal O'Donovan

Donal O'Donovan

Noonan sets out terms in renegotiating bailout deal as plans to borrow billions from pension funds are outlined

The Government wants Europe to pay more than the current €8bn valuation of Irish banks if it takes over the stakes in a new debt deal, and plans to borrow huge sums from Irish pension funds as part of efforts to return to the markets.

Speaking at the launch of the National Treasury Management Agency's (NTMA) annual report yesterday, Finance Minister Michael Noonan said any deal for European rescue funds to take over the bailed-out banks would have to offer a better price than the country could get by selling the stakes to hedge funds.

The minister is currently in talks on a deal to renegotiate the Irish bailout agreement that could see ownership of nationalised banks transferred to the European rescue funds.

Mr Noonan said any such deal must value the banks above their current low valuations. The National Pensions Reserve Fund invested more than €20bn in Bank of Ireland and AIB, but now values the investment at €8bn. It was just part of the €64bn overall cost of rescuing the banks.

Bonds

"We wouldn't think we were being assisted or treated fairly if we were only offered the terms we could get from a willing hedge fund," Mr Noonan said.

He added that he is seeking a price "significantly in advance" of the current valuations.

The Government is also hoping to borrow as much as €5bn from Irish pension funds as part of the effort to return to borrowing in the markets.

Yesterday, the head of the NTMA, John Corrigan, said his agency plans to launch two new types of bonds aimed at the domestic market between now and the end of 2013. The new style bonds will be launched at the same time as efforts to tap the international money markets by launching medium to long-term bonds for the first time since 2010.

Mr Noonan said the real measure of success for the country is whether it gets back into the markets.

The NTMA plans to hold three or four more auctions of short-term government debt this year, as well as raising medium to long-term debt on the bond market either later this year or in early 2013.

Early indications from the pensions industry here suggest that between €3bn and €5bn of the new debt instruments could be sold over the next 18 months, Mr Corrigan said. The new bonds will include amortising bonds.

Unlike most bonds that are paid-off in one go at the end of a fixed period, amortising bonds work more like traditional loans. They are paid down gradually in regular installments.

It means they can be used by the pensions industry to create sovereign annuities -- financial products with a fixed long-term return.

Creating sovereign annuities backed by Irish government bonds that pay relatively high interest is seen by the pensions industry as one way to close the funding gap in pension pots.

The NTMA hopes to launch inflation-linked bonds that better protect against interest rate changes.

Speaking at the launch of the NTMA's annual report Mr Corrigan said he was "quietly confident" about the potential of the new instruments.

Irish pension funds invest less in government bonds than their peers abroad.

Scope

There is "considerable scope to lift exposure to Irish bonds", Mr Corrigan said.

He said that having Irish investors buy Irish government bonds would be a necessary vote of confidence.

"International investors don't owe us a living. If the local investors don't have the confidence to invest in the market and aren't seen to have that confidence, it's going to be very difficult to get international investors back," he said.

Before the EU/IMF bailout deal, Ireland borrowed 80pc of government debt -- a mix that left the country vulnerable to investors who were not "natural holders" of Irish bonds dumping their investment at the time of the bailout, Mr Corrigan said.

The NTMA said the National Pensions Reserve Fund generated a return of 2.1pc in 2011, excluding government-ordered investments. Borrowing under the bailout programme stood at just under €50bn at the end of May.

Irish Independent

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