Written Answers - Banks Recapitalisation

Thursday, 13 October 2011

Dáil Éireann Debate
Vol. 743 No. 3

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  47.  Deputy Michael McGrath  Information on Michael McGrath  Zoom on Michael McGrath   asked the Minister for Finance  Information on Michael Noonan  Zoom on Michael Noonan   if he will provide a comprehensive statement on the promissory note arrangement in place for the recapitalisation of Anglo Irish Bank and Irish Nationwide Building Society, including the total cost of the arrangement to the Exchequer; his plans to reduce this cost; and if he will make a statement on the matter. [29344/11]

Minister for Finance (Deputy Michael Noonan): Information on Michael Noonan  Zoom on Michael Noonan  During 2009 it was determined that Anglo and INBS required additional capital. A commitment was provided by the Minister to Anglo and separately to INBS to provide capital of €8.3 billion and €2.7 billion, respectively. This capital was provided on 31 March 2010. In relation to Anglo, this €8.3 billion of capital was injected by way of a capital contribution. This capital contribution is treated as equity capital for regulatory capital purposes. In relation to INBS, a special investment share was acquired for €100 million in cash and a further €2.6 billion was subsequently injected by way of a capital contribution.

[732]The Government did not pay for these capital contributions in Anglo and INBS with cash. The Government effectively issued an IOU, in the form of promissory notes, to Anglo and INBS for €8.3 billion and €2.6 billion, respectively. As the State had a debt to the institutions, it also had an associated interest charge. This interest charge was set by reference to Government yields at the date of issue on 31 March 2010. Subsequently, it was determined that Anglo and INBS needed additional capital, which was again provided by increasing the 31 March 2010 promissory notes. The final promissory note increase was on 31 December 2010 bringing the total promissory notes in Anglo and INBS to €30.6 billion. See table below for the increases:

Date Anglo INBS Total (IBRC)
€ billion € billion € billion
31 March 2010 8.30 2.60 10.90
28 May 2010 2.00 2.00
23 August 2010 8.58 8.58
31 December 2010 6.42 2.70 9.12
25.30 5.30 30.60

When the final capital contribution was made on 31 December 2011 an interest holiday was inserted into each of the promissory notes which meant that between 1 January 2011 and 31 December 2012 no interest was payable. Absent the interest holiday the weighted average interest rate on these promissory notes would have been 5.8%. However, as a result of the insertion of the interest holiday the weighted average interest rate from 1 January 2013 is 8.2%.

While there was an interest holiday this does not affect the promissory note repayments of the principal amount. The cash flows on the promissory notes are 10% (€3.06billion) of the original amount per annum until the full amount is repaid. Set out below is a detailed aggregated schedule of capital repayments and interest payments on the promissory notes:

Promissory Note Schedule — Anglo and INBS *

Date Total interest Paid: A Total Capital Reduction: B Repayments: A + B
€bn €bn €bn
31/032011 0.55 2.51 3.06
31/032012 3.06 3.06
31/032013 0.49 2.57 3.06
31/032014 1.84 1.22 3.06
31/032015 1.75 1.31 3.06
31/032016 1.65 1.41 3.06
31/032017 1.55 1.51 3.06
31/032018 1.44 1.62 3.06
31/032019 1.32 1.74 3.06
31/032020 1.19 1.87 3.06
31/032021 1.06 2.00 3.06
31/032022 0.91 2.15 3.06
31/032023 0.75 2.31 3.06
31/032024 0.57 1.52 2.09
31/032025 0.45 0.47 0.91
31/032026 0.39 0.52 0.91
31/032027 0.33 0.58 0.91
31/032028 0.26 0.65 0.91
31/032029 0.19 0.73 0.91
31/032030 0.10 0.81 0.91
31/032031 0.01 0.05 0.05
16.8 30.6 47.4

*These numbers may not tot exactly as a result of rounding

As set out above, the total interest cost for the State for all tranches of the Anglo and Irish Nationwide promissory notes is €16.8 billion with annual repayments of €3.06 billion per annum until 2023, reducing thereafter until 2031 when the final repayment is made. These annual repayments reduce over time as the various tranches of the promissory notes are repaid. The final payment on the promissory notes of circa €0.1 billion will be made on 31 March 2031. The total cost of the promissory notes including the principle amount and interest will be €47.4 billion over the life of the promissory notes.

The Deputy will be aware that the funds which become available to the State as a result of borrowing undertaken by the Exchequer are not generally assigned to one particular area of expenditure. Rather they are available, along with the funds sourced from revenues such as tax revenue, non-tax revenue and capital receipts, to fund overall expenditure. Accordingly, there was no one tranche of borrowing that was undertaken solely for the purpose of funding the Promissory Note payments to Anglo Irish Bank and Irish Nationwide Building Society.

The draw downs of funds so far under the Joint EU/IMF Programme of Financial Support have been used for a range of different purposes including of course the general running of the day-to-day operations of the State. It is difficult therefore to isolate precisely the exact cost of the interest payments on the borrowing undertaken to fund the Promissory Note payments. However, for illustrative purposes, on the basis of the original 5.8% blended average interest rate which applied to borrowing under the Programme, the interest costs on borrowing of €3,060 million would be just under €180 million per annum. In light of the recently agreed reduction in interest rates on funding available under the Joint EU/IMF Programme of Financial Support however, the estimated interest cost on such borrowing reduces to approximately €115 million per annum.

While the State has budgeted to meet both the interest and cash requirements I am eager to have the Promissory Notes examined to see if they can be re-engineered in a better way for the State, for example, by lengthening their maturity and reducing their interest rate on them. This examination, which has commenced, will have to be completed in a manner which does not impact on the capital position of Anglo. In addition to the Promissory Notes issued to Anglo and INBS a Promissory Note was also issued to EBS. For completeness, the following is the detail of this Note.

Promissory Note Schedule — EBS

Date Total interest Paid: A Total capital reduction: B Repayments: A + B
€bn €bn €bn
17/06/2011 0.014 0.011 0.025
17/06/2012 0.013 0.012 0.025
17/06/2013 0.012 0.013 0.025
17/06/2014 0.012 0.013 0.025
17/06/2015 0.011 0.014 0.025
17/06/2016 0.010 0.015 0.025
17/06/2017 0.009 0.016 0.025
17/06/2018 0.009 0.016 0.025
17/06/2019 0.008 0.017 0.025
17/06/2020 0.007 0.018 0.025
17/06/2021 0.006 0.019 0.025
17/06/2022 0.005 0.020 0.025
17/06/2023 0.004 0.021 0.025
17/06/2024 0.002 0.023 0.025
17/06/2025 0.001 0.020 0.022
0.12 0.25 0.37

The Promissory Note carries an interest rate of 5.5% with annual repayments of €25mn on 17 June. There is no interest holiday on the EBS Promissory Note.


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