Trichet cool on bid by Noonan to cut rate on Anglo notes
ECB chief 'pretty non-committal' on debt plan
Published 19/09/2011 | 05:00
THE Government's attempt to restructure the €30bn promissory note used to bailout Anglo Irish Bank is likely to meet significant resistance from the European Central Bank (ECB), the Irish Independent has learned.
Sources also confirmed that the proposals have not yet been discussed with ratings agencies or with the bank's own management. The news comes after Finance Minister Michael Noonan as good as admitted he was giving up on forcing losses on Anglo's senior bondholders in favour of pursuing changes to the promissory notes used to finance Anglo.
Speaking to reporters in Wroclaw after a meeting with ECB president Jean-Claude Trichet, Mr Noonan said Ireland would get a "much bigger advantage" from changing the promissory notes than by pursing the bond issue.
The notes are effectively IOUs from the State to Anglo that require capital payments of about €3bn a year and total interest of more than €12bn over a 14-year period.
Mr Noonan is hopeful of reducing the interest rate and/or extending the duration of the payouts so the State will have to pay less every year over a longer period.
While there are potentially billions of savings to be achieved, the Irish Independent understands that the ECB is particularly sensitive to restructuring since the notes are a commitment of the sovereign state.
The current notes are also the only reason that Anglo is able to receive exceptional liquidity assistance (ELA) from the Central Bank of Ireland as the notes allow the bank to consider Anglo "solvent".
Another concern is that making the notes payable over a longer period could extend the duration of Anglo's ELA programme, which the ECB is keen to have wound up as soon as possible.
When the Government makes payments on the notes every year, that money typically goes to repay Anglo's ELA and, all things being equal, a longer pay back for the notes would increase the duration of the ELA programme.
Speaking to reporters in Frankfurt after a meeting with Mr Trichet, Mr Noonan admitted that the ECB boss had been "pretty non-committal" on the promissory notes issue.
"He hadn't been warned or briefed about it in advance," Mr Noonan said. "He agreed that we could access some of his technical people if we were trying to design something."
Asked by the Irish Independent about his reaction to the minister's proposal, Mr Trichet said: "I have no comment to make on that."
Meanwhile, Mr Noonan admitted that the Government had not yet spoken to ratings agencies about the potential implications because "we haven't gone that far yet".
The Government is also understood to have had no meaningful conversations with Anglo management about how changes to the promissory note could impact on the bank.
The situation isn't "urgent", Mr Noonan stressed, since the main issues won't develop until an interest rate holiday on the notes ends in 2013 and an interest payment of €1.8bn is required.