Sunday, 9 December 2012

THE DIRTY DOZEN w/e Dec 16th 2012

Any of you who may be tempted to believe the bullshit being peddled in the last few days from the government spokespeople on the Promissory Notes of 2012, please read this extract from the report  from the Comptroller and Auditor General's office on the Gross Government Debt, Item 2.11, page 20:

The level of Government bonds in issue increased in March 2012 when bonds were issued to meet a promissory note payment of €3.06 billion due to Irish Bank Resolution Corporation Limited (IBRC). The bonds issued will mature in 2025 and have an annual interest rate of 5.4%. As the market value of the bonds at the time was just over €88 per €100 nominal, the State issued bonds with a nominal value of €3.46 billion in order to meet the payment. The yield on the bonds and, therefore, the effective interest rate on the repayment of €3.06 billion, is just over 6.8%.

Contrary to the outright lies being told by various Ministers and allowed go unchallenged by our mainstream media, not alone was the 2012 Promissory Note paid in full to the Central Bank of Ireland, who then destroyed the €3.1bn, it actually cost us as a nation €400,000,000 more than it needed to, at the time.

Read the above; because the 'market value' of the bonds were only €88 per €100 'nominal' at the time, the State (that's us, people) issued bonds of €3.46bn to get their hands on the necessary €3.06bn to give to the Irish Bank Resolution Corporation - Anglo - which Anglo then gave to the Central Bank, which then - under orders from the ECB - destroyed that money. That's the extra €400 million.

Compounding the additional cost of what was done last March, and again referring to the above, the effective interest rate on the €3.06bn is just over 6.8%; we could have got that money from the ECB emergency fund at around 3%. So, not alone did we pay an extra €400,000,000 to get the money, we are paying an additional 3.8% per annum on the €3.06bn - that's another €116,000,000 per annum until 2025, when that bond is due to mature.

That, my friends, was Michael Noonan's vaunted 'deal', that's what it cost. As stated in black-and-white above, the P Note WAS paid; to give the appearance of a 'deal' however Michael went to a new and far more expensive source for the money, issued a sovereign bond that will NOT be paid by this government or even by this generation but now forms part of the legacy we will leave our children.
To give the appearance of having done a 'deal' Michael and Enda engaged in their new favourite sport, 'financial engineering'. The only 'deal', however, was on how they got the money; the P Note WAS paid, on time and in full, but at much greater cost to us, the people.

Now, they're planning to do the same again. The lies, the lies, the lies, the ongoing betrayal of the people at so many levels - it is almost beyond words.


  1. "outright lies being told by various Ministers go unchallenged by our mainstream media"

    As a member of the mainstream media did you attempt to challenge these lies through traditional channels?

  2. Diarmuid,

    You are 100% correct that the March 2012 payment was made; it was much ado about nothing. A similar fudge in March 2013 will gain nothing and it is useful to work through some possible costs.

    The cost is not as large as you suggest though. Yes, a bond with a nominal value of €3.46 billion was issued but there will be no payment of €3.46 billion to meet the €3.06 billion due on the Promissory Notes.

    The €3.46 billion bond was given to the IBRC who (after using NAMA for two months) then sold it on to BOI for €3.06 billion. The IBRC has an obligation under the repurchase agreement to buy the bond back after one year and also for €3.06 billion. See this notice from BOI:

    "Under the terms of the Repo, IBRC will have an obligation to repurchase the Bonds from the Bank for approximately €3.06bn in cash not later than 364 days after the effective date."

    The state (i.e. the IBRC) got €3.06 billion for the bond from BOI last May and will pay €3.06 billion to get the bond back. Under the current agreement the €3.46 billion will not be paid.

    The cost will be in terms of the interest. The coupon on the bond is 5.4%. So over the year BOI will collect around €185 million of interest. BOI has to source the €3.06 billion to give to the IBRC and they estimate that:

    "it is estimated that the Bank will earn €38.7 million under the Transaction."

    It is not clear what money, if any, would be earned by the IBRC (or NAMA for that matter as they were involved for the first two months) on the transaction.

    For comparison purposes if €3.06 billion borrowed from the Troika at around 3.7% had been used to make the payment the interest cost for the year would have been around €115 million.

    The sleight of hand did cost money. At the time, the Minister said:

    "This will have an approximate €90m impact on the general government deficit in 2012 which is small relative to the overall benefit of the removal of the requirement for the Exchequer to settle €3.06 billion in cash."

    This is very vague. The impact is undoubtedly negative but it is not clear if any of this money will go to the IBRC and NAMA. If some of it does then although there is a cost in terms of the deficit the money is not lost by the state as it moves within institutions that are 100% state-owned.

    The cost is likely to be between the €40 million to be gained from BOI on the deal (in which we are a 15.1% shareholders) and the €90 million addition to the general government deficit.

    The benefit is that there is still €3.06 billion sitting in the Exchequer account that would otherwise have been used to make the Promissory Note payment. Of course, the IBRC has to buy the bond back for €3.06 billion from BOI so this may only be temporary.

    If, after the repurchase, the IBRC can find a voluntary private buyer for the €3.46 billion 2025 bond, then given current market prices they would be able to sell it for around €3.55 billion. Of course, then the state would have to make the 5.4% coupon payment each year and would have to repay the €3.46 billion in 2025. If such a buyer could be found it would be the equivalent of issuing a 12-year bond at a yield of around 5%.

    The key concern in all of this has got to be the rate at which the Exceptional Liquidity Assistance drawn down from the Central Bank of Ireland is paid back. This year's fudge, and something similar next year do absolutely nothing to that. As long as the Central Bank gets the €3 billion odd to burn the ECB doesn't care where the money comes from. It is this process that must be stopped or, at the very least, delayed for a very long period of time.

  3. Many thanks for that Seamus - I think I managed to follow it all!

    To sum up, in direct contradiction of what Pat Rabbitte has said, what's crystal clear is that the Promissory Note for 2012 WAS paid and that €3.06bn destroyed by our Central Bank.

    What's cloudy and confusing (probably deliberately so) is HOW the money was raised and paid. Sovereign 2025 €3.46bn bond, NAMA, BofI, then back to IBRC via repo, possible sale, possible redemption of full €3.46bn bond in 2025, interest to be paid in the meantime.

    Again though, when you follow the trail and regardless of which direction it takes, we - the Irish people - are paying for that bond. Whether it's in March 2013 after a repo or in March 2025, we'll pay.

    Perhaps what Pat Rabbitte means when he says 'We didn't pay in 2012' is 'we' the Labour and Fine Gael government, thus disassociating himself from 'we the people'.

    On your last line, you know my feelings on that already; no deal, no delay, just outright destruction of those notes most odious!