State seeks to avoid Anglo payout


The Government is in negotiations with the EU authorities to avoid a €3.1 billion cash payment due on March 31st on the State’s bill for Anglo Irish Bank and Irish Nationwide, Minister for Finance Michael Noonan said last night.

Mr Noonan told the Dáil the Government was principally in talks with the European Central Bank about settling the cash payment instead with a long-term government bond. Under the plan the long-term bond would not be payable until 2025.

“The details of the arrangement have still to be worked out but are being worked out,” he said.

The governor of the Central Bank, Patrick Honohan, is discussing the matter at the meeting of the ECB’s governing council, which took place yesterday.

The ECB must approve the deal, as the payment of €3.1 billion in cash by the Government to Irish Bank Resolution Corporation, formerly Anglo, would be used to reduce emergency loans from the Irish Central Bank.

The ECB today declined to comment on the outcome of the governing council meeting. The bank would only say that the technical discussions on restructuring the promissory notes were ongoing.

The €3.1 billion cash payment is due under the promissory notes, the State IOUs provided to Anglo and Irish Nationwide under which the Government promised to provide €31 billion of their €35 billion bailout spread out over time.

A deferral of the payment would buy time for the Government and the troika of the ECB, the EU Commission and the International Monetary Fund to devise a long-term deal to reduce the cost to the State of Anglo and Irish Nationwide.

Settling the €3.1 billion payment due this month with a long-term bond avoids a default by the State on the Anglo and Irish Nationwide notes and means there is no reduction of the cash in the State’s coffers.

The bond can be used instead by IBRC to borrow from the ECB.

The Government authorities and troika have been involved in discussions for several months to find a way to cut the annual cost to the State of the Anglo/Irish Nationwide bailout.

Mr Noonan said the discussions on reducing the burden of the bank debt on the State, in particular on the promissory notes, were continuing.

The promissory notes are used as collateral by IBRC to draw emergency loans from the Irish Central Bank. These loans stood at €42 billion at the end of last year.

Like a long-term mortgage, the promissory notes are structured to push out the cost of Anglo/Irish Nationwide through annual repayments running until the year 2031.

For the notes to be valued at €31 billion to IBRC, the Government must pay interest on the IOUs totalling €17 billion over the life of the annual repayments. The EU bailout funds may be used to fund a deal to reduce the bill for the failed lenders.

Restructuring the notes could help cut the Government’s deficit every year and improve the State’s chances of borrowing in the markets, said analysts in Goodbody Stockbrokers.