17/12/2012: More spin on Promo Notes 2012

Here's the latest saga on Anglo Promo Notes 'non-payment' in March 2012:

This relates to the past here on the topic.

The point raised, allegedly, by the Department of Finance is as follows: Promo Note was 'settled' not in cash, but by issuance of a bond, so that

1. Irish Government issued a bond (which is to say borrowed money) to the IBRC
2. IBRC took the bond to the 'market' to obtain cash in exchange for it
3. Absent a 'market' for this bond, Bank of Ireland took the bond on for one year and paid the IBRC €3.06 billion (presumably, Bank of Ireland borrowed the funds to do so from the ECB using the bond as the collateral)
4. The IBRC paid down the ELA with the money.
5. ELA was written down by the required amount in 2012.

Let's re-narrate this in more simple terms:

1. Irish Government official went to a restaurant for a working lunch without having any money
2. The official, upon consuming lunch, wrote an IOU for €100 covering the bill to her lunch companion who had a credit card with him.
3. The credit card was maxed-out, so the second official called his bank and arranged for a 1-day overdraft facility from the bank to cover the bill, using as security the IOU from his lunch companion.
4. The credit card owner then used the credit card new facility and paid €100 bill.
5. The restaurant recorded payment of €100 bill.

Now, two questions:

Question 1: was the bill paid? Answer: yes. Proof: if no, then the restaurant could claim that no payment was received, so no tax is due on the proceeds from this payment. I doubt the Revenue will be so keen to allow this.

Question 2: did the original official pay the bill? Answer: it depends on which scenario will take place in 1 day: Scenario A: Original official does not intend to settle the debt (IOU) - in which case she defaults on loan from the second official and no payment by her was made under the IOU agreement. Scenario B: Original official honors her commitment, and the original IOU was a form payment.

However, Question 2 is purely academic from the standpoint of whether the lunch was paid for or not - it was paid. Full stop.

Substitute 'Promo Note' for 'lunch' and you have it. Promo note 2012 was paid. QED

16/12/2012: Stop the nonsense on 'non-payment' of Promo Notes 2012

In recent weeks, the Irish Government has engaged in a willful and undeniable distortion of fact. Here is one example of a senior Minister on the record saying that : ""[The Government] didn't pay the promissory note this year…"
http://www.herald.ie/news/rabbitte-rules-out-31bn-payment-for-anglo-debt-3321386.html

The same was repeated today on RTE programme.

The Ministers must know that according to the official exchequer accounts, the Promissory Note due 2012 was paid in full.

In the Budget 2013 Economic and Fiscal Outlook (official document released by the Department of Finance: http://budget.gov.ie/budgets/2013/Documents/Budget%202013%20-%20Economic%20and%20Fiscal%20Outlook.pdf) contains the following references to repayment of the Promissory Note 2012:

Page C.19, explanatory note to Table 10 (reproduced above): "The 2012 IBRC Promissory Note payment was settled with a Government bond…"

In Table 10 above, 2012 item for "Promissory Note Repayment of Principal" enters -€3.1 billion, fully confirming the repayment was made.

Page C.22 Table 13 clearly identifies 2012 Promissory Notes repayment as being "Non-cash payment in 2012 of IBRC promissory note" and states in the explanatory note below the table that "In 2012 the annual promissory note payment to IBRC was made with a Government bond". The same is entered on page C.5 under the Table 1.

The details of the bond settlement scheme are here:
http://www.finance.gov.ie/viewdoc.asp?DocID=7195

ECB position on what transpired vis the Promo Notes in March 2012 is outlined here: http://www.ecb.int/press/pressconf/2012/html/is120404.en.html quoting from Mario Draghi's responses to press query regarding the note payment (emphasis mine):
"we take note of the scheduled end-March redemption of the promissory notes and a subsequent reduction in Emergency Liquidity Assistance provided by the Central Bank of Ireland. We expect that the future redemptions will be met according to the schedule to which the government has committed itself."

The above was confirmed less than a week later: Few days after repayment of the March 2012 note, Joerg Asmussen, a member of the ECB's executive board, was speaking in Dublin where he "reiterated the ECB's view that Ireland must continue to repay the Anglo Irish Bank promissory note". Asmussen clearly did not believe that Ireland did not pay 2012 installment on the notes.
Soruce: http://www.rte.ie/news/2012/0411/ecb-official-warns-irish-banks-on-debt.html


The transaction of 'non-payment of cash payment' involved Irish State issuing a €3.06bn bond that was funded by Nama for the period of time it took Bank of Ireland to deliver approval by shareholders. Thereafter, the bond was transferred to the Bank of Ireland for 1 year. Which means that comes April 2013, Irish Government must have some sort of an agreement in place as to what to do with this bond. Either the Bank of Ireland agrees to hold it longer, or the bond has to be sold to another holder.

Here is NTMA Issuance Circular for that bond: http://www.ntma.ie/erratum-2015-bond-offering-circular/

Now, note: the coupon on that bond is 4.5%, far less than 5.5% issued in August 2012, after significant improvements in Irish secondary markets bond yields, so 4.5% Promo Notes Bond is a 'better' deal than ordinary bonds. Which means that Bank of Ireland was buying a dodo. Of course, Nama effectively backstopped Bank of Ireland, which simply borrowed money from the ECB to fund the bond.

All of this stuff I explained back in April 2012. But here's a bit worth repeating: in 2012 Promo Notes carried no interest (the last year of a two years holiday), while in 2012 the state paid 4.5% on 3,629.92 million bond. Thus, the cost to the taxpayers of Minister Noonan's 'non-payment' was €163.35 million annualized.

Which means that were Minister Noonan to repeat the exercise comes March 2013, he will be increasing the interest bill on Promo Notes by the above amount on top of the already hefty €1.9 billion one scheduled for 2013.