Central Bank sells off another €500m of Anglo’s legacy debts

The Central Bank has sold another €500 million of the legacy debts of Anglo Irish Bank, bringing total disposals this year to €2 billion. Some €22.5 billion in bonds remain outstanding from the 2013 deal to scrap the Anglo promissory note scheme.

The speed at which these debts are being sold is much faster than the minimum schedule agreed with the European Central Bank, which had concerns that the arrangement came close to the financing of the Government by the Central Bank.

The 2041 floating rate government bonds were acquired and cancelled by the National Treasury Management Agency on Monday. The effect of the transaction is to substitute government bonds held by the Central Bank with debt the NTMA has raised from investors, the aim being to take the benefit now of low borrowing costs on private markets.

Neither the Central Bank nor the NTMA would comment on the price at which the government bonds changed hands. It is known, however, that the Central Bank realised a €180.3 million gain on the sale of €500 million of 2038 notes this day last year.

Cancellation of bond

The Central Bank has since sold a further €1.5 billion of the 2038 notes to the NTMA in three €500-million transactions carried out in June, August and October. These sales concluded the cancellation of the 2038 bond.

The first sale yesterday of 2041 bonds leaves €1.5 billion of that debt outstanding in nominal terms. The remaining bonds mature between 2043 and 2053.

The Central Bank is obliged to drip-feed the bonds into the private market at a minimum rate of €500 million per year until 2018, rising to €1 billion per year for five years and to €2 billion per year after that.

Much of the Central Bank’s gain on the €2 billion sales this year will go to the exchequer via dividends from the Dame Street institution.

However, the future stream of interest payments on the bonds which were previously to go the Central Bank – and eventually to the exchequer – will now go from the NTMA to third parties.

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

The sale of notes is in line with the bank’s policy of selling down the debt “as quickly as possible” once the disposals do not disrupt financial stability.

The promissory note deal led to the liquidation of Anglo’s successor, Irish Bank Resolution Corporation, and the conversion of €25 billion in debt into government bonds held by the Central Bank.