Tuesday 21 January 2020

Anglo still in the dark over deferral of €3.1bn payout

Central Bank governor Patrick Honohan: 'Depleted personal wealth means that families who would once have been able
to support businesses no longer can. This makes the lack of bank credit a more serious drag on any recovery'
Central Bank governor Patrick Honohan: 'Depleted personal wealth means that families who would once have been able to support businesses no longer can. This makes the lack of bank credit a more serious drag on any recovery'

Laura Noonan

THE Government has not yet had any discussions with Irish Bank Resolution Corporation (IBRC) about how the former Anglo Irish Bank's finances would be impacted if the Government gets the green light to defer an imminent €3.1bn payment.

Central Bank Governor Patrick Honohan was expected to raise the issue of postponing the March 31 payment to IBRC at an informal dinner with his fellow European Central Bank governing council members last night.

Sources yesterday confirmed that a number of potential options for avoiding the March 31 payment were still on the table and that a range of these were likely to be put before the ECB bosses rather than a "solution".

It is understood that none of these options have been put before IBRC, even though any alternative to the €3.1bn cash payment will have to be agreed with the bank's board.

That approval process could be simple if the bank's board shares the Department of Finance's views on how the alternative to the €3.1bn payment, and any knock-on effects, should be treated on IBRC's books.

Valuation

But the bank's management and the Government has clashed on accounting issues before -- most notably the valuation of Nama bonds -- and if differences arose again it could complicate the process.

The Government is trying to avoid having to pay over €3.1bn of cash to IBRC pending the outcome of talks that could see IBRC's bailout fundamentally restructured. The €3.1bn is part-payment for a €30bn government IOU the IBRC was given back in 2010.

Sources said that the Government was "hopeful" of avoiding the end-of-March payment, and that Mr Honohan shares the Government's thoughts on the desirability of not making the payment while negotiations continue.

The ECB governing council has to agree because it has sanctioned the IOU for use as collateral, so IBRC could draw €30bn of funding from the eurosystem. ECB President Mario Draghi may give some hint of the ECB's attitude to the delay at his monthly press conference today.

Mr Honohan will meet his fellow governors once more before the March 31 repayment, when they have their mid-month meetings over March 21 and 22. He may be able to give them further detail on the postponement plans at this point.

"It's not as simple as just delaying it (the €3.1bn)," said one source, pointing out that if the Government avoided making the repayment, the whole €30bn IOU would be considered "impaired", blasting a hole in IBRC's balance sheet.

Possible solutions include giving the bank a top-up IOU for the €3bn, or giving the bank government bonds to the same value as the cash repayment.

Any change to the existing IOU would have to be agreed by the bank's board, which would have to be satisfied that the new arrangement did not push the bank's capital below minimum levels.

IBRC has some 'headroom' to deal with a capital hit and still remain above the Central Bank of Ireland's minimum threshold. But any deterioration in the bank's capital position will lead to a delay in its assets sales programme, since the bank has to absorb losses when loans are sold.

The bank's management will also have to be satisfied that any new arrangement is consistent with the IFRS international accounting standards and will be approved with auditors.

It is understood the Department of Finance has considered all the potential scenarios that could arise, even if they have not yet been discussed with the bank.

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