Anglo promissory note payment to be deferred

The Government has agreed a deferral of the €3.06 promissory note instalment in favour of a long-term Irish Government bond.

In a statement to the Dáil Minister for Finance Michael Noonan said the proposal would not involve any adjustment or variation to the terms of the promissory note for the former Anglo Irish Bank.

Mr Noonan said: “Put simply, €3.06 billion will be settled by delivery to IBRC [Irish Bank Resolution Corporation] of a long-term Government bond with an equivalent fair value.

“Ultimately, it is intended that this long-term Government bond will be financed for one year, on commercial terms, with Bank of Ireland who may in turn refinance the bond with the ECB.”

He said the transaction was approved by the board of Bank of Ireland, but “it remains subject to the approval of the Bank of Ireland shareholders”.

In a statement issued tonight, the European Central Bank (ECB) said it took note of the Minister’s announcement and said it was "of the utmost importance" that Ireland honours her commitments.

“It is very important that the Irish State will honour the €3.06 billion amortisation of the promissory notes,” the ECB said.

Doing that would reduce the emergency liquidity assistance that IBRC receives from the Central Bank of Ireland and thus the Eurosystem of euro zone central banks.

“We certainly expect that also in the future the promissory notes will be served according to the schedule to which the government has committed itself,” it said.

“As Ireland strives to regain market confidence, it is of utmost importance that the commitments of the Irish state are met in line with standing contracts and agreements.”

The ECB said euro zone central banks have provided “unprecedented support” for Irish banking sector.

“The objective should be to reduce over time the reliance of Irish banks on central bank funding and in particular on the emergency liquidity assistance.”

The agreement follows discussions with the EU authorities about settling the promissory note instalment by the delivery of the long-term Government bond.

Mr Noonan told the Dáil this afternoon the use of a Government bond “allows the wider discussions to continue between Irish authorities and the troika, both on the promissory notes arrangement and on how to advance the return to normality of the Irish banking system thus improving the availability of banking services in support of economic recovery”.

It would result in a significant cash flow benefit to the exchequer in 2012 and “our long-term debt sustainability is enhanced”.

He also said it would have an “approximate €90 million 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”.

Urging caution, Mr Noonan said: “We all want to arrive at a successful conclusion that is in the interests of Ireland and the EU."