BoI won't be forced to make €280m payment to Exchequer
THE National Pension Reserve Fund won't take any action against Bank of Ireland when it fails to make its first interest payment next weekend, following the State's investment in the bank last year.
Under an agreement with the Government, Bank of Ireland (BoI) is obliged to pay €280m by February 19 in its first coupon payment, which is due under the €3.5bn preference-share deal it agreed with the Department of Finance.
However, the chief executive of the National Treasury Management Agency (NTMA), John Corrigan, yesterday revealed that the bank would not be compelled to make the payment. It has been temporarily blocked by the EU Commission, which is studying restructuring plans by AIB and Bank of Ireland.
Under an agreement with the State, Bank of Ireland should be forced to make a "payment in kind'' if it cannot make the €280m cash payment. This should be in the form of €280m worth of ordinary shares, to be vested in the National Pension Reserve Fund. However, Mr Corrigan told the Oireachtas Public Accounts Committee that the NTMA, which oversees the pension fund, would prefer to receive a cash payment.
He rejected criticism by Labour TD Roisin Shorthall, who said it was a matter of major concern that taxpayers were not being paid for the €3.5bn investment.
He said the EU had imposed a "coupon stopper'' and the Irish authorities had to be pragmatic. "You have to be patient about these things,'' said Mr Corrigan.
Failure to make the coupon payment would "strictly speaking'' trigger a payment-in-kind arrangement, he said, but the pension fund preferred to wait to get the cash.
Asked how long he would give the bank before it was forced to pay the coupon, he replied: "A matter of weeks."
However, he was not in position to say when the EU Commission would finish reviewing Allied Irish Banks' and Bank of Ireland's restructuring plans. "We are in a state of limbo at the moment,'' he said.
Mr Corrigan declined to comment on the capital needs of the banks, but said a lot would depend on the EU Commission.
"They could take other measures that affect the balance sheets.''