Sunday 4 December 2016

State aims to cut further the cost of Anglo bailout

Noonan options could include trying to get the EFSF fund to refinance the bank's promissory notes

Published 27/09/2011 | 05:00

Finance Minister Michael
Noonan addressing the
Institute of International
Finance annual meeting in
Washington on Sunday
where he said the deposit
position of Irish banks
covered by government
guarantee has 'stabilised'
and Ireland hoped to return
to sovereign bond markets in
2013
Finance Minister Michael Noonan addressing the Institute of International Finance annual meeting in Washington on Sunday where he said the deposit position of Irish banks covered by government guarantee has 'stabilised' and Ireland hoped to return to sovereign bond markets in 2013

THE Government's efforts to restructure Anglo Irish Bank's €30bn bailout will go beyond pushing for lower interest payments on the bank's state IOUs or spreading the bailout over a longer term, the Department of Finance confirmed last night.

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However, sources also confirmed that the Government had told the European authorities and the IMF it was "not ready" to provide further detail on ways to reduce the pain of Anglo's €3bn annual drain on the taxpayer.

The news came hours after Finance Minister Michael Noonan suggested Ireland could save "billions" if it convinced the international authorities to go along with a restructuring of the so-called promissory notes used to fund Anglo's bailout.

At a recent informal meeting of European finance ministers in Poland, Mr Noonan suggested Anglo's bailout could be made cheaper by cutting the 8.66pc interest rate the Government pays to Anglo on outstanding notes or spreading payments beyond their current 14-year term.

Asked whether this was the full extent of changes being explored by the Government, a spokesman for the Department of Finance last night said "a wide range" of options was "under consideration".

Options

Other options could include trying to get Europe's EFSF bailout fund to refinance the Anglo promissory notes -- or effectively loan the Government the money to pay them down.

If this EFSF money was loaned at a rate lower than the 8.66pc the Government has to pay Anglo from 2013, the State would be better off.

Involvement from the EFSF is seen as increasingly plausible, given growing expectations it will be used to help bail out Europe's banks if Greece defaults on its sovereign debt.

It is understood that the Government has provided no meaningful detail on any of the Anglo bailout restructuring options to the European Central Bank, the EU Commission or the IMF, who together make up the troika overseeing Ireland's sovereign bailout.

Sources last night confirmed that some elements of the troika had asked for further detail on the promissory notes issue on a recent conference call, after Mr Noonan raised the topic with ECB president Jean-Claude Trichet in Poland on September 17.

It is understood that Irish officials told the conference call they were "not ready" to give any details on a proposed restructuring at this stage.

After his meeting in Poland with Mr Trichet, Mr Noonan said the ECB president had been "non-committal" but had agreed to make a number of ECB technical experts available to explore options. It is understood that this engagement has not yet begun.

Sources last night played down suggestions that the promissory note restructuring would be the dominant point in October's review of Ireland's progress on its bailout programme, pointing out that the public finances would take centre stage.

Mr Noonan has described the promissory note issue as "not urgent" since interest payments that will ultimately cost the State more than €13bn do not begin until 2013, when a current interest holiday expires.

The ECB will have a significant say on how the promissory note issue plays out, since the notes are currently used by Anglo to secure emergency liquidity from the Central Bank of Ireland.

This liquidity is sanctioned regularly by the ECB on the strength of Anglo's promissory notes, which allow the bank to be considered "solvent". If the promissory note was cast in less favourable terms for Anglo, that could have knock-on effects for the bank's solvency.

Promissory note

Any move to extend the promissory note (in its current form) could also see Anglo reliant on emergency funding for a longer period of time, since the bank's income from the Government typically goes to repaying liquidity drawn from the Central Bank.

The ECB has made it clear it wants the emergency liquidity programme ended as soon as possible. It has already been running for close to three years.

Irish Independent

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