Deal on banks part of loan conditions for UK money
IRELAND HAS agreed that there will be no changes to plans to restructure AIB, Bank of Ireland and Anglo Irish Bank’s British operations that would have a negative impact on the banks’ businesses there as part of the conditions for a £3.25 billion bilateral loan from London.
The loan passed its first stage after a lengthy debate by MPs in the House of Commons yesterday.
British chancellor of the exchequer George Osborne said the loan agreement struck with the Department of Finance in Dublin just hours before the legislation came before the Commons contains the “crucial condition” that “no amendments to the restructuring plan that would have a material adverse financial impact on the UK operations” of the three banks will be made.
“Given the scale of those banks’ operations in the UK, that second condition is significant, and it shows in a practical way why I believe it was right for us to provide the loan.
“It allows us to have a say in a restructuring plan that could otherwise have had a major impact on the UK and its banking system, and could potentially have cost the British taxpayer considerable sums of money without our voice even being heard.
“Making the loan has enabled us to set that condition and to be part of the discussion about the restructuring plan and its impact on the UK subsidiaries of banks which have significant presences in Northern Ireland.
“I know that there is concern about the potential impact of the plan on jobs and the availability of credit in Northern Ireland, and, indeed, about its potential impact throughout the UK, given that Bank of Ireland owns the Post Office card account,” said the chancellor.
Numerous MPs from both sides of the House expressed concern that the Irish loan could be used as grounds to drag the UK into supporting bailouts for Spain and Portugal and other euro zone countries, though Mr Osborne repeatedly insisted that the loan is “for a friend in need”, who also happens to be a major trading partner and shares a land border. The government easily won a second-reading vote by 523 to seven votes.
Under the deal, the UK is giving a £3.25 billion bilateral loan, though it will also contribute another £4 billion in loans funnelled to Ireland by the EU-IMF European Financial Stability Mechanism.
The bilateral loan will start to be paid out in eight tranches from September 2011, later than the monies coming from the other sources.
Each loan will last for 7½ years and will be charged at the 7½ year sterling swap rate existing on the day, plus 2.29 per cent. On Monday, this swap rate stood at 3.65 per cent, meaning that an Irish loan given out then would be charged at 5.9 per cent.
The UK expects, said Mr Osborne, to receive £400 million from Ireland in interest payments over the duration of the loans. The interest rate charged “will be slightly higher” than the 5.7 per cent which the IMF is expected to charge for its first loan tranche, but lower than the 6.1 per cent expected to be charged by European Financial Stability Mechanism. He accepted that Iceland, which recently agreed a loan with the UK and the Netherlands, to compensate people who lost deposits in Landsbanki’s Icesave online accounts, received a lower interest rate: “[That was] substantially lower because, frankly, needs must: I am seeking to recover money from Iceland.
“I am dealing with a situation that I have inherited – obviously the Iceland loan relates to events that happened under the previous government – and I need the support of the Icelandic parliament.”
He went on: “We have sought to repair broken bridges. The terms of the loan that we have come to with Iceland mean that this country will get its money back.
“My judgment was that other terms might have meant our not getting our money back at all and that would not have been very sensible.”