Frankfurt pushes for Central Bank bond selling

Irish bank got €25 billion portfolio in deal to scrap the Anglo promissory note scheme

European Central Bank chairman Mario Draghi: The ECB’s latest remarks on the Irish bonds came as Mr Draghi stressed the bank’s willingness to ease monetary policy again. Photograph: Antonio Cotrim/EPA

European Central Bank chairman Mario Draghi: The ECB’s latest remarks on the Irish bonds came as Mr Draghi stressed the bank’s willingness to ease monetary policy again. Photograph: Antonio Cotrim/EPA

 

The Central Bank of Ireland is facing more demands from the European Central Bank to speed up disposal of sovereign bonds its holds in the wake of the Anglo Irish Bank collapse.

The ECB’s latest remarks on the Irish bonds came as its president, Mario Draghi, stressed the bank’s willingness to ease monetary policy again.

However, other ECB figures ruled out the possibility of a “helicopter money” campaign to boost the euro zone economy.

The Central Bank of Ireland moved last year to step up sales from the €25 billion portfolio of floating rate notes it acquired in the 2013 deal to scrap the Anglo promissory note scheme and liquidate the bank. By that point Anglo had been renamed as Irish Bank Resolution Corporation.

The 2015 sale of €2 billion in bonds was in line with the Dame Street institution’s policy of selling off the debt at a quicker rate than the minimum schedule agreed with the ECB.

The expectation in financial markets is that the Central Bank will sell a further €2 billion this year, four times the €500 million annual minimum set at the outset for the 2015-2018 period.

However, the ECB has again called on Dublin to speed up the process.

After €3 billion in disposals since 2013, €22 billion of the bonds are still held by the Central Bank. This includes €1 billion on the 2041 bonds, with the remaining €21 billion maturing between 2043 and 2053.

“The reduction of IBRC-related assets by the Central Bank of Ireland during 2015, including through sales of long-duration floating rate notes, is a step in the direction of the necessary full disposal of these assets,” the ECB said in its 2015 annual report.

“However, a more ambitious sales schedule would further mitigate the persisting serious monetary financing concerns.”

Such remarks mirror almost exactly the ECB’s observations in its 2014 annual report.

The Frankfurt institution gave its implicit blessing to the promissory note deal in 2013, but it remains concerned that the arrangement came close to the financing of the State by the Central Bank.

The bank is known to have realised a capital gain of some €1 billion on the 2015 disposals, 80 per cent of which will go to the exchequer via dividend.

It also received some €669.9 million in interest income on the portfolio last year, 80 per cent of which will also go the State as dividends.

In its 2015 report, the ECB took issue with Dublin’s failure to consult it on legislation in respect of stamp duty on cash withdrawals from bank machines. This ranked among “clear and repetitive” cases of non-consultation on draft laws within the ECB’s competence, it said.

Mr Draghi said in the annual report that the ECB faces “uncertainty” about the outlook for the global economy. In Lisbon on Thursday, he said “the ECB has and will continue to do whatever is needed to comply with its mandate.”

Although some analysts believe the bank may yet have to consider “helicopter money” transfers to Europeans as a last resort to revive growth and prices, ECB vice-president Vitor Constancio said such measures were not under discussion.

“We are not considering anything of that sort. So it’s not on the table in any shape or form,” Mr Constancio said.

Separately, the release of minutes from the ECB’s last rate-setting meeting showed broad consensus on moves to step up its quantitative easing measures.

However, the minutes pointed to divisions over elements of the plan. “While, overall, members widely agreed on the need for comprehensive policy action, different views were expressed with regard to the individual components of the proposed package,” the document said .

“Members generally expressed confidence in the effectiveness of the envisaged policy package, even though nuanced views were put forward on the relative merits of the various elements of the package.”