Central Bank realised €1bn on bonds in 2015, Noonan says

The Central Bank realised a €1 billion capital gain in 2015 on the disposal of government bonds held after the deal to scrap the Anglo Irish Bank promissory note scheme, Minister for Finance Michael Noonan has said.

In reply to a parliamentary question in recent days from Fianna Fáil finance spokesman Michael McGrath, Mr Noonan said preliminary figures pointed to a capital gain of €1.07 billion on sales of the bonds.

The Central Bank is known to have sold €2 billion of the bonds last year in line with a policy of disposing of the debt at a rate faster than the minimum schedule agreed with the European Central Bank.

The Minister said the capital gain figure for 2015 was subject to the completion of year-end accounts and the audit process, but he added that such gains contribute to the bank’s overall surplus.

About 80 per cent of bank’s surplus goes to the exchequer via dividends.

As the election campaign proceeds, Fianna Fáil said in its “national economic strategy” document that it would apply to the ECB to hold the bonds to maturity as the annual interest on the bonds sold by the bank are paid to a third party.

Pace of disposal

Mr McGrath told a press conference that the current pace of disposal is almost six times faster than agreed at the outset of the deal.

Holding the bonds to maturity has potential to improve the State’s finances, he argued.

While it is not known whether the ECB would have any appetite to revisit the promissory note transaction, the institution has pressed for a speedier disposal than agreed as the minimum target, as it had concerns that the arrangement came close to the financing of the Government by the Central Bank.

In reply to a separate question from Mr McGrath, Mr Noonan reported €669.9 million in “draft” interest income to the bank last year in respect of the bonds it holds after the promissory note deal. Such income also contributes to the bank’s surplus.

It is acknowledged that the future stream of interest payments on bonds sold by the Central Bank now goes from the National Treasury Management Agency to third parties instead of Dame Street.

Citing low borrowing costs on private markets, however, the Central Bank has argued previously that any small short-term gain to the exchequer resulting from a slower refinancing of the government bond portfolio could be more than offset by a higher cost of refinancing in the future.

The promissory note deal led to the liquidation of Anglo’s successor, Irish Bank Resolution Corporation.