Promissory Notes deal with ECB will require "special financial legislation"

Scofflaw

Sand wrote: »

Interesting that despite the claims of an imminent deal with the ECB last night, the ECB have now apparently pulled back and now need more time to consider their options. The Irish have been played.



The CBI is not a government vehicle. It is a component part of the ECB so its not one government vehicle owing another.

NAMA already holds a loan and portfolio assets that the IRBC did not - you could previously liquidate the IRBC and leave all legal/political issues localized in the ruins of a dead bank. Which is what the government have just done by overruling peoples property rights, sacking all the employees without notice and preventing any creditor from taking a case. I think NAMA was a disastrous idea (and I remember the usual suspects being as puzzled then as they are now) but NAMA is practically running the country - it cant be parceled away like the IRBC could.

NAMA bonds are not promissory notes

@Scofflaw


So what? The government has just passed legislation overruling property rights "for the common good" and preventing creditors - including the employees sacked with no notice - from making their own application to wind up the IRBC. The government owed the promissory notes to the IRBC. The ELA liability is the IRBCs problem. It would be the IRBC defaulting on the ELA and the CBI would simply have to accept the loss. Politically and legally difficult, sure but not impossible.

Still can't see that - the CBI held the notes a collateral from IBRC in exchange for the ELA. Collapse IBRC and the CBI owns the notes, leaving the government owing the CBI directly anyway. No difference either way.

Also, Reuters claiming a deal has been done:

The European Central Bank and Ireland have reached a compromise on a long-standing dispute over the cost of servicing money borrowed for a failed bank, a source involved in the discussions told Reuters on Thursday.

"A deal is done," the source said, declining to give details. ECB President Mario Draghi was due to comment on the deal during a news conference at 1330 GMT.

http://www.reuters.com/article/2013/02/07/us-ireland-ecb-deal-idUSBRE9160HQ20130207

Other sources do continue saying that the deal is being studied by the other Central Banks that make up the ECB, but, again, either way I can't see how this is all supposed to have given the ECB some kind of advantage, other than by reflexively assuming that in absolutely everything the Irish government will always have done badly and the ECB will always have shafted them (or simply that the Irish government will always have been shafted, and that therefore whoever they're dealing with will have shafted them).

cordially,
Scofflaw

4.legs.good

antoobrien wrote: »

Yesterday morning: IBRC owe CBI €32bn paid for via promissory notes.
Last night: IBRC liquidated, asset management to be done by NAMA
This morning: NAMA owe CBI value of PNs to be paid via bonds.

Change: none - one government vehicle (NAMA) still owes another government vehicle (CBI, which is a member of the ECB) €32bn.

Thru'out this whole political pantomine, one question is still unanswered

why the sudden rush?

IMHO promissory notes were about to be ruled illegal, or the government (or someone in Europe pulling the strings of our elected puppets) got a whiff there is a high risk that this would happen, so erm this issue required to be dealt with quickly by converting the notes into something else.


Anyways a precedent has now been set, if they can so quickly fastrack a law especially one that affects existing contracts, then why cant they deal with the upwards rent issue or Croke Park...

p.s: anyone else have a bad feeling about this, the whole circus smells like the night of the now infamous guarantee.

Sand

Scofflaw wrote: »

Still can't see that - the CBI held the notes a collateral from IBRC in exchange for the ELA. Collapse IBRC and the CBI owns the notes, leaving the government owing the CBI directly anyway. No difference either way.

The IRBC would only collapse because the CBI would be holding defaulted-on promissory notes. I.E. valueless collateral. To maintain the conditions of ELA the CBI would go to the IRBC for replacement collateral. The IRBC wouldn't have any replacement collateral which would then collapse the IRBC. The IRBC collapsing wouldn't magically make the promissory notes valuable again.

I can't see how this is all supposed to have given the ECB some kind of advantage, other than by reflexively assuming that in absolutely everything the Irish government will always have done badly and the ECB will always have shafted them (or simply that the Irish government will always have been shafted, and that therefore whoever they're dealing with will have shafted them).

cordially,
Scofflaw

There's two barriers to a deal of benefit to the Irish people here: no monetary financing, no pooling of debt with the rest of the Eurozone. The ECB will not allow monetary financing, so any "deal" will be us getting shafted.

Thrill

ECB offers Ireland deal on Anglo promissory notes

Ministers will need to agree the terms of the proposal that has now been approved by the ECB.


Sources say the deal will involve the State issuing tranches of new bonds with varying maturity dates.
There is some speculation the average maturity rate may be 35 years.

http://www.rte.ie/news/2013/0207/366574-ibrc-ecb-promissory-note/

PopeBuckfastXVI

Sand wrote: »

The IRBC would only collapse because the CBI would be holding defaulted-on promissory notes. I.E. valueless collateral. To maintain the conditions of ELA the CBI would go to the IRBC for replacement collateral. The IRBC wouldn't have any replacement collateral which would then collapse the IRBC. The IRBC collapsing wouldn't magically make the promissory notes valuable again.




There's two barriers to a deal of benefit to the Irish people here: no monetary financing, no pooling of debt with the rest of the Eurozone. The ECB will not allow monetary financing, so any "deal" will be us getting shafted.

So you can just default on a promissory note, that the CBI is holding (and now own due to your IBRC defaulting on their payments to them)? And that's it, they just hold their hands up: 'you got us!'? They have no legal route of enforcing that note? The 'Promissory' part of Promissory Note is actually meaningless? The Irish government can direct the ICB to print money at will?

Sure that's genius, you should have gone into one of Michael Noonans constituency clinics to let him know, I suppose you can still let him know that we can print money all we like.

This bust is about to get boomy!

Sand

The promissory note isn't a bond. It isn't a promise to pay the holder of the note. Its a promise to pay the IRBC and if ever the ELA was paid off (i.e. the IRBC didnt need something acceptable as collateral), the IRBC and the government could rip up the promissory note or change its conditions, schedule or payments as they mutually determine.

Thats the advantage to the ECB of getting NAMA bonds. Because NAMA bonds are actual bonds. Not a somewhat dubious promise to pay a dead bank. The ECB is then on much firmer ground in terms of being able to go after the Irish government.

And of course it would be politically and legally difficult. I've said that three times now in the last three posts so I don't know how you imagine I'm saying "Oh lets just do this and everything will be fine".

Bits_n_Bobs

Is 'took note' Draghi speak for 'no deal'? And i thought the CBI was basically part of the ECB????

Sand

Per Draghi, the "deal" is that the ECB "took note" of the Irish action. That's it.

EDIT - Yeah Draghi is just slapping down confused Irish media wondering about what the hell is going on. Draghi is trying to find a polite way of laughing at the little pixie heads. Looks like a re-run of the March 2012 deal where Ireland re-arranges the deck chairs, and ECB gets paid.

EDIT2 - the guy from RTE was lost when questioning Draghi: "Uh, were the public pronouncements from the Irish ministers and politicians over the past 2 or 3 months useful in arriving at the ..... uh, I'm not quite sure what we arrived at today?!?!"

https://twitter.com/rtenews

Official sources have told #rtenews that the words "take note" used by Mario Draghi means that the #promnote deal has been agreed.

Free and independent media!

Peace in our time!

I hope ye`all take note! YEE HAW!

View

Sand wrote: »

The promissory note isn't a bond. It isn't a promise to pay the holder of the note. Its a promise to pay the IRBC and if ever the ELA was paid off (i.e. the IRBC didnt need something acceptable as collateral), the IRBC and the government could rip up the promissory note or change its conditions, schedule or payments as they mutually determine.

The monies owed via the Promissory Note are monies owed ultimately to the CBI.

If those aren't paid to the CBI (by whatever mechanism), the CBI has a "hole" in its balance sheet. It would therefore be insolvent. At that point, either:
a) Ireland (i.e. the tax-payer) bails it out, or,
b) the CBI gets liquidated - a prospect that isn't even remotely on the political cards.

Sand

View wrote: »

The monies owed via the Promissory Note are monies owed ultimately to the CBI.

If those aren't paid to the CBI (by whatever mechanism), the CBI has a "hole" in its balance sheet. It would therefore be insolvent. At that point, either:
a) Ireland (i.e. the tax-payer) bails it out, or,
b) the CBI gets liquidated - a prospect that isn't even remotely on thempolitical cards.

The ELA is the money owed to the CBI.

The Promissory Note is the money promised to the IRBC.

The IRBC offered the Promissory Note as reassurance for the CBI granting it ELA. Thats it.

Central banks can only go insolvent if they choose to do so - the ELA and its conditions are set by the CBI, the ECB is only consulted though it can interfere by stopping the ELA (which would be meaningless given the IRBC was dead). And the ECB would not benefit from trying to force one of its NCBs to become insolvent, particularly because the ECB is a tenuous organisation which is based more on co-operation and consensus than anything else.

I have to say though - the ECB and the Eurozone seem to have done a good job intimidating Ireland. People seem utterly convinced the ECB and our Eurozone partners are so crazy that they would damage themselves just for the satisfaction of hurting us slightly more. Really good negotiating stance when you've convinced the other side your crazy enough to do something dangerous. Ireland could have employed some of that back a few years ago.

View

Sand wrote: »

The ELA is the money owed to the CBI.

The Promissory Note is the money promised to the IRBC.

The IRBC offered the Promissory Note as reassurance for the CBI granting it ELA. Thats it.

In others words, as I said in my previous post:

The monies owed via the Promissory Note are monies owed ultimately to the CBI.

Sand wrote: »

Central banks can only go insolvent if they choose to do so -

Insolvency is a technical term. Either you meet the conditions for it or you don't, you don't get to choose whether you are or not.

Not many companies or people will choose to deal with an insolvent central bank. Hence, that insolvency issue will have to be dealt with one way or another.

Sand

View wrote: »

In others words, as I said in my previous post:

The monies owed via the Promissory Note are monies owed ultimately to the CBI.

No, not really in other words. You're saying something that isn't true and trying to support it because a different statement that sounds similar is true.

Insolvency is a technical term. Either you meet the conditions for it or you don't, you don't get to choose whether you are or not.

Not many companies or people will choose to deal with an insolvent central bank. Hence, that insolvency issue will have to be dealt with one way or another.

You do if you're a central bank. And its not a question of people *choosing* to deal with an insolvent central bank - its not a free market. It has a monopoly on monetary/regulatory operations.

antoobrien

View wrote: »

The monies owed via the Promissory Note are monies owed ultimately to the CBI.

No, that's a bit like claiming that money owed to a golf club is ultimately owed to the GUI.

The ECB set the rules & policies for the 17 member central banks, it doesn't fund them.

leedsunitied1

This is a farce! The wrapping up of Anglo seems to have paved the way for this settlement? It may have kicked the "can down the road" but does anyone really believe that this will prove a pivotal moment in Ireland's history?

Sponge Bob

The first rule of ELA is you don’t talk about ELA.

There was about €150bn of ELA in the EZ last May and we then accounted for €41bn or so. Overall ELA is now €127bn and we still account for €41bn, its been €41bn ish , Q on Q, for around a year and a half. It was much higher some years ago,

Perhaps someone can kindly Smaghi Add Up how we are carrying €41bn of ELA on the CBI books where the sum total outstanding on ELA for Promissory Notes yesterday was €31bn

ELA €10bn is greater than the promissory notes. Seemingly we deploy €10bn of it elsewhere....but where????

http://www.bloomberg.com/news/2012-05-24/frozen-europe-means-ecb-must-resort-to-ela-as-finance-lights-dim.html

The European Central Bank is trying to limit the flow of information about so-called Emergency Liquidity Assistance,
ECB Approval

Each ELA loan requires the assent of the ECB’s 23-member Governing Council and carries a penalty interest rate, though the terms are never made public. Owen estimates that euro-area central banks are currently on the hook for about 150 billion euros ($189 billion) of ELA loans.

More on it here where Stephen Donnelly got some answers from Mll Noonan in February 2012

http://www.irishtimes.com/newspaper/breaking/2013/0206/breaking56.html

PopeBuckfastXVI

antoobrien wrote: »

No, that's a bit like claiming that money owed to a golf club is ultimately owed to the GUI.

The ECB set the rules & policies for the 17 member central banks, it doesn't fund them.

Here's my analogy, it's like someones parents co-signing a mortgage with their kid. They give a contract that promises to pay the bearer the amount of the mortgage every month, they give this to the kid who puts it up as security.

The parents then don't give the kid the money to pay the mortgage, the kid defaults, the bank takes possession of the 'contract' for payments, they are now the 'bearer' of the contract and they come after the parents.

Scofflaw

Sand wrote: »

The IRBC would only collapse because the CBI would be holding defaulted-on promissory notes. I.E. valueless collateral. To maintain the conditions of ELA the CBI would go to the IRBC for replacement collateral. The IRBC wouldn't have any replacement collateral which would then collapse the IRBC. The IRBC collapsing wouldn't magically make the promissory notes valuable again.

Er, no. Defaulting on the notes doesn't render them worthless, or legally void them, any more than failing to pay my mortgage clears me of any obligation to pay it. That's an extremely poor piece of logic.

There's two barriers to a deal of benefit to the Irish people here: no monetary financing, no pooling of debt with the rest of the Eurozone. The ECB will not allow monetary financing, so any "deal" will be us getting shafted.

OK - getting shafted has been redefined just as "worthless" has to mean " not getting what we want". Well, I suppose by that definition it probably becomes tautologically ineluctable.

cordially,
Scofflaw

Psychedelic

Trying to get my head round this from reading various tweets, comments etc it appears that:

Before this legislation: Ireland pays €3.1bn every March until 2023 which works out at 11 x €3.1bn = €34.1bn

After this legislation: Ireland pays €1bn in interest payments every year until 2038 which works out at 36 x €1bn = €36bn. PLUS in 2038 we still have to pay back another €30bn - WTF? Are we effectively doubling the amount we owe?

View

Sand wrote: »

No, not really in other words. You're saying something that isn't true and trying to support it because a different statement that sounds similar is true.

If you insist on being pedantic, fair enough. In reality - as opposed to in pedantry - what matters is that the "hole" in the CBI's balance sheet is fixed. That is what the tax-payer will ultimately have to cover by one mechanism or another.

Sand wrote: »

You do if you're a central bank. And its not a question of people *choosing* to deal with an insolvent central bank - its not a free market. It has a monopoly on monetary/regulatory operations.

Really?

So, the office supply company is forced to supply stationary to an insolvent central bank, are they? The coffee company to supply them with coffee? The phone company to provide them with telecom services?

More importantly, what non-Irish body is forced to deal with them?

Do you really think the IMF, never mind the EFSF or the ESM, are going to vote to dispense the next tranche of loans to the state if we have an insolvent central bank?

Chips Lovell

Psychedelic wrote: »

Trying to get my head round this from reading various tweets, comments etc it appears that:

Before this legislation: Ireland pays €3.1bn every March until 2023 which works out at 11 x €3.1bn = €34.1bn

After this legislation: Ireland pays €1bn in interest payments every year until 2038 which works out at 36 x €1bn = €36bn. PLUS in 2038 we still have to pay back another €30bn - WTF? Are we effectively doubling the amount we owe?

We are of course increasing the total amount we have to repay, but that wasn't the priority. The goal here was that cut of €1 billion in annual repayments.

everdead.ie

Psychedelic wrote: »

Trying to get my head round this from reading various tweets, comments etc it appears that:

Before this legislation: Ireland pays €3.1bn every March until 2023 which works out at 11 x €3.1bn = €34.1bn

After this legislation: Ireland pays €1bn in interest payments every year until 2038 which works out at 36 x €1bn = €36bn. PLUS in 2038 we still have to pay back another €30bn - WTF? Are we effectively doubling the amount we owe?

Yes we are increasing the total owed massively but the hope is that this will become more manageable through both improved economic circumstances and inflation.

For instance £1 in 1988 by 2011 had the relative purchasing power of between £2-3(depends on which calculator you use and I'm using pounds as the Euro doesn't go back that far)

So it would be the equivalent in 25 years of 15 billion or less of todays money.

Also there is only 25 years between now and 2038 so that would save about 11 billion off the figures?


Does anyone know what percentage of the coupon is passed back to the Government as profit from the central bank?

I think the cost of borrowing from the ECB is about 0.75% so whatever is on top of that should be ours right?

antoobrien

Psychedelic wrote: »

Trying to get my head round this from reading various tweets, comments etc it appears that:

Before this legislation: Ireland pays €3.1bn every March until 2023 which works out at 11 x €3.1bn = €34.1bn

After this legislation: Ireland pays €1bn in interest payments every year until 2038 which works out at 36 x €1bn = €36bn. PLUS in 2038 we still have to pay back another €30bn - WTF? Are we effectively doubling the amount we owe?

There was also several years of lower payments, bringing to total to about 48bn. It was discussed in a previous thread. Here's the highlights

Scofflaw wrote: »

The reference is to your "delay or spread the payments out", and the point is their method of doing so is to treat the promissory notes as we do the national debt.



The circular nature of the PM interest is true, and the costs of interest-bearing bonds need to be weighed against the costs of the capital repayment of the notes. Taking Karl Whelan's PM repayment table as a basis, the comparison looks something like this:

|PN Interest|Repayment|Capital Repayment|Capital Remaining|Borrowings|Bond Interest
31/03/11|0.6|3.1|2.5|28.1|2.5|0.09
31/03/12|‐|3.1|3.1|25|5.6|0.19
31/03/13|0.5|3.1|2.6|22.4|8.2|0.28
31/03/14|1.8|3.1|1.2|21.2|9.4|0.32
31/03/15|1.7|3.1|1.3|19.9|10.7|0.37
31/03/16|1.7|3.1|1.4|18.5|12.1|0.42
31/03/17|1.5|3.1|1.5|17|13.6|0.47
31/03/18|1.4|3.1|1.6|15.4|15.2|0.52
31/03/19|1.3|3.1|1.7|13.7|16.9|0.58
31/03/20|1.2|3.1|1.9|11.8|18.8|0.65
31/03/21|1.1|3.1|2|9.8|20.8|0.72
31/03/22|0.9|3.1|2.2|7.6|23|0.79
31/03/23|0.7|3.1|2.3|5.3|25.3|0.87
31/03/24|0.6|2.1|1.5|3.8|26.8|0.92
31/03/25|0.4|0.9|0.5|3.3|27.3|0.94
31/03/26|0.4|0.9|0.5|2.8|27.8|0.96
31/03/27|0.3|0.9|0.6|2.2|28.4|0.98
31/03/28|0.3|0.9|0.6|1.6|29|1
31/03/29|0.2|0.9|0.7|0.9|29.7|1.02
31/03/30|0.1|0.9|0.8|0.1|30.5|1.05
31/03/31|0|0.1|0|0|30.5|1.05
TOTALS|16.8|47.9|30.6|||14.17


So the repayment of the capital is what we're really looking at, given that the PN interest (2nd column) is circular - thus, I've only given the amounts borrowed as government bonds as equal to the capital element of the PNs. The excess borrowed as a bond to meet the interest on the PNs flows back into government coffers, so can be treated as general government borrowing. I've taken as the bond interest rate the current rate for 5-year Irish govt bonds, which is 3.439%.

The cost, then, of borrowing to meet the PN repayments is €14.17bn as opposed to €30.6bn to simply pay them down, taken over the same period. Inflation-adjusted, and assuming 2% inflation, the comparable figures are €26.44bn and €11.08bn.

So if the government can pull this off, there are considerable savings to be made in the currently applicable PN timeframe.

cordially,
Scofflaw

Sand

Scofflaw wrote: »

Er, no. Defaulting on the notes doesn't render them worthless, or legally void them, any more than failing to pay my mortgage clears me of any obligation to pay it. That's an extremely poor piece of logic.

You might present your wage slip or contract of employment to the bank when taking out a mortgage to demonstrate you can pay it. Failing to pay your mortgage doesn't then give the bank a claim on your employer.

OK - getting shafted has been redefined just as "worthless" has to mean " not getting what we want". Well, I suppose by that definition it probably becomes tautologically ineluctable.

cordially,
Scofflaw

Has it? The government has labored mightily and delivered a mouse. Having staked so much politically on securing a deal the government has been shafted as it has been left with "a deal" which didn't require ECB agreement.

Now I grant you, I think the government set itself up to get shafted but Draghi was clear - despite all the huffing and puffing there is no deal with the ECB. And it was very likely the ECB who leaked to Reuters to put an end to "negotiations". Any Irish source would have rushed to RTE, the IT or the Indo.


@View

If you insist on being pedantic, fair enough. In reality - as opposed to in pedantry - what matters is that the "hole" in the CBI's balance sheet is fixed. That is what the tax-payer will ultimately have to cover by one mechanism or another.

Really?

So, the office supply company is forced to supply stationary to an insolvent central bank, are they? The coffee company to supply them with coffee? The phone company to provide them with telecom services?

More importantly, what non-Irish body is forced to deal with them?

Do you really think the IMF, never mind the EFSF or the ESM, are going to vote to dispense the next tranche of loans to the state if we have an insolvent central bank?

I'm not being pedantic, but you're operating from the perspective that the CBI and the ECB are run like a cornershop, spending only what they can cover by revenue.

They are not - if they are ever short of revenue they simply print more. Christ they don't even print it anymore - they just type in a new balance on their accounts. A central bank can only be insolvent if it chooses to be so. The ELA and its conditions are set entirely by the CBI, with approval by the ECB - the CBI doesn't even have to "destroy" the ELA money repaid by the IRBC, it has simply chosen to do so to reassure the ECB that it wont contribute to inflation. The CBI will never choose to be insolvent because then their staff will be sacked. Even the hardline ECB started printing money like crazy once the Euro was under existential threat last summer. Turkeys don't vote for Christmas and Ireland will outlive both the CBI and the ECB if they want to play hardball.

Chips Lovell

So the deal we got is pretty much the deal we were angling for since the government took office. And by getting what we wanted, we were "shafted"?

Sand

No, the deal the government wanted was rejected last week. The deal we got is the deal we made up ourselves.

whitebriar

Vladimir Kurtains wrote: »

So the deal we got is pretty much the deal we were angling for since the government took office. And by getting what we wanted, we were "shafted"?

Agreed.
Add to that the central bank pays back its two thirds profit on the interest its paid by the govt to the govt,the effective interest rate is 1%... and noonan confirmed its a billion less cuts/taxes to be found in Octobers budget sums... its not a bad deal ( though I'm of the view we shouldn't have to be paying it at all)
And Sands spin in the other thread about the 3% interest rate cancelling out the 25 yr depreciation on the value of the principal,is now seen to be wrong given the exchequer gets 2% back via the Icb's profit going to thesstate-hence effective 1% rate.

Aidan1

No, the deal the government wanted was rejected last week. The deal we got is the deal we made up ourselves.

Rubbish. This is the deal that the Govt wanted, and is better than most people expected.

The ECB could only ever 'note' a deal, not 'agree' a deal. In public at least.

Scofflaw

Vladimir Kurtains wrote: »

So the deal we got is pretty much the deal we were angling for since the government took office. And by getting what we wanted, we were "shafted"?

As far as I can see, pretty much - the deal we wanted last week was a 40-year bond deal, this is a 38-year bond deal, hard to see much difference. The detail of the interest rates is possibly better than I would have expected, as far as I can see yet.

As usual, there's going to be a lot of complaints from people who claimed the government would never get a deal, as if somehow this is a worse deal than no deal - but you'll have that, as they say.

cordially,
Scofflaw

Scofflaw

Sand wrote: »

You might present your wage slip or contract of employment to the bank when taking out a mortgage to demonstrate you can pay it. Failing to pay your mortgage doesn't then give the bank a claim on your employer.

Because your statement of income isn't collateral, making the comparison entirely ridiculous. If you had presented your car as collateral, the bank would clearly have a call on your car.

Has it? The government has labored mightily and delivered a mouse. Having staked so much politically on securing a deal the government has been shafted as it has been left with "a deal" which didn't require ECB agreement.

What? How do you manage to decide that such a deal doesn't need ECB agreement?

Now I grant you, I think the government set itself up to get shafted but Draghi was clear - despite all the huffing and puffing there is no deal with the ECB. And it was very likely the ECB who leaked to Reuters to put an end to "negotiations". Any Irish source would have rushed to RTE, the IT or the Indo.

This is getting kind of silly - the ECB leaked the news to stop negotiations on the deal that was clearly anticipated for some time as being delivered today, and was delivered today? I appreciate you're determined to be unhappy about this, but you're going to lengths that are swiftly becoming ridiculous.

cordially,
Scofflaw

Sponge Bob

Watching the press conference with Noonan gone and some bloke from Finance or CB or NTMA talking it seems that we have not fixed the interest rate and we will be inventing a synthetic product ( a 15 and a 25 year bond) and calculating what we _would_ pay on this fictional bond over the course of the period. By we I mean the NTMA and ECB must settle this.

They also said that ELA of €31bn was supporting the promissory notes and that ELA €10bn was 'supporting other assets'.

They are also adamant that all ELA will go in this operation, all €41bn of it.

So that means we ( NAMA/NTMA) are issuing €41bn worth of New Promissory not Promissory paper does it????

View

Sand wrote: »

I'm not being pedantic, but you're operating from the perspective that the CBI and the ECB are run like a cornershop, spending only what they can cover by revenue.

No, I am not. Were they operating "like a cornershop", they wouldn't have issued the monies to the IBRC/Anglo and we wouldn't have a PN issue at all.

Sand wrote: »

They are not - if they are ever short of revenue they simply print more. Christ they don't even print it anymore - they just type in a new balance on their accounts.

Accounting 101: Balance sheets have to balance. They can't have holes in them. If you alter one part of a balance sheet, there has to be a corresponding entry elsewhere in the balance sheet.

E.g.,

Reduction in "Monies owed by IBRC" results in "Shareholder Equity" being also reduced by the same amount, thus making the "shareholder equity" (almost certainly) negative and we have an insolvent CBI. We then need to fix hole that by pumping circa 30billion back into its balance sheet.

antoobrien

Sponge Bob wrote: »

Watching the press conference with Noonan gone and some bloke from Finance or CB or NTMA talking it seems that we have not fixed the interest rate and we will be inventing a synthetic product ( a 15 and a 25 year bond) and calculating what we _would_ pay on this fictional bond over the course of the period. By we I mean the NTMA and ECB must settle this.

Those bonds exist - the amortizing bonds that were announced last year (I think) are for various up to 40 years.

Sponge Bob wrote: »

They also said that ELA of €31bn was supporting the promissory notes and that ELA €10bn was 'supporting other assets'.

They are also adamant that all ELA will go in this operation, all €41bn of it.

So that means we ( NAMA/NTMA) are issuing €41bn worth of New Promissory not Promissory paper does it????

How are you getting the link between the PN & ELA? Please post a link with the details.

View

Sponge Bob wrote: »

So that means we ( NAMA/NTMA) are issuing €41bn worth of New Promissory not Promissory paper does it????

I think it means we are going back to plain old fashioned vanilla government debt because people couldn't get their heads around the new fangled raspberry ripple debt and kept giving the government hell over it.

Thirdfox

Hi all,

Can someone explain the comment about the 3% vs 1% effective interest rate? Is it that the Government/NAMA is to pay the interest payments (3%) to the Central Bank of Ireland, but that is offset by the fact that the Government is entitled to 66%(?) of the profits from the CBI, of which interest paid (by whichever party - in this case NAMA/Irish Government) forms part of that profit?

Or if I'm completely off the wall I'd be interested in hearing how this actually works.

Sponge Bob

antoobrien wrote: »

Tte link between the PN & ELA? Please post a link with the details.

The speaker after Noonan was his Departmental Secretary John Moran who said that all ELA would be 'retired' upon issuance of the new 'bonds'

ELA = €41bn
PN = €31bn

The 'rest of the ELA is currently "Supporting Other Assets" he said.

antoobrien

Thirdfox wrote: »

Hi all,

Can someone explain the comment about the 3% vs 1% effective interest rate? Is it that the Government/NAMA is to pay the interest payments (3%) to the Central Bank of Ireland, but that is offset by the fact that the Government is entitled to 66%(?) of the profits from the CBI, of which interest paid (by whichever party - in this case NAMA/Irish Government) forms part of that profit?

Or if I'm completely off the wall I'd be interested in hearing how this actually works.

NAMA/Irish government (as owner of IBRC) will issue the bonds to CBI, who will hold them for an, as yet, undetermined/unstated period of time. CBI pay a dividend (the 66% of profits) to central government.

If the interest rate is 3%, this is what CB will be regarding as profit, which will be returned to the government as profit, leaving a 1% cost to the exchequer.

whitebriar

Thirdfox wrote: »

Hi all,

Can someone explain the comment about the 3% vs 1% effective interest rate? Is it that the Government/NAMA is to pay the interest payments (3%) to the Central Bank of Ireland, but that is offset by the fact that the Government is entitled to 66%(?) of the profits from the CBI, of which interest paid (by whichever party - in this case NAMA/Irish Government) forms part of that profit?

Or if I'm completely off the wall I'd be interested in hearing how this actually works.

AFAIK,all Irish central bank profits get paid to the govt.
They got the money at 1% and own the bond as such so their profit of 2% on the 3% the govt pays is paid back to the govt.
That's where the effective 1% comes from and is good news in terms of the principal in 2038 being eroded by maybe 50% in real terms by inflation verso the promissory set up.

efb

I'm happy with the deal- it's the best we could realistically get

antoobrien

efb wrote: »

I'm happy with the deal- it's the best we could realistically get

Indeed, it's hard to see how this increases the debt burden when the interest rate is dropping from a nominal 8% under the PN to 3%-3.5% under this

jazz101

So.. is confidence increasing with our government on the back of this? More pointedly, with FG?

antoobrien

The markets seem to think this is a good idea (for now anyways) the bond yields have returned to pre-crisis levels.

The October 2020 Irish bond yield fell as low as 3.952 percent, the lowest seen in an equivalent Irish benchmark bond since early 2007, before the subprime crisis started, according to Reuters data.

Shorter-dated bond yields also fell, while the cost to insure Irish debt against default via five-year credit default swaps fell 17 basis points to 143 bps, according to data monitor Markit.

Thirdfox

antoobrien wrote: »

Indeed, it's hard to see how this increases the debt burden when the interest rate is dropping from a nominal 8% under the PN to 3%-3.5% under this

As a follow on question - was the nominal 8% interest rate also subject to CBI profit "refunds"? i.e. an effective 2.64% interest rate?

Sponge Bob

Thats pretty good news seeing as we are issuing €31-41bn of a 'transferrable' government bond to an SPV in order to retire the ELA and Promissory notes according to my understanding of what John Moran said. This ELA funding was coming in at c.3% last I heard. (page 9) which was payable to the ECB.

If the Irish Bond yields stabilse for another week or two I'd suspect we might chance weaning ourselves off the Troika funding sooner rather than later. Over to the NTMA so.

From that same link above, page 9

When the IBRC repays its ELA debts, the money that had been created is simply taken out of circulation. The only benefit to the Irish state is the reduction in interest payments on Central Bank’s intra-Eurosystem liabilities. This can boost its profits which can be returned to the Exchequer. However, the cost to the Central Bank of the intra-Eurosystem liabilities is very low, currently only 0.75 percent, and there are no requirements that the principal be repaid according to any set timeline. In contrast, the future costs of funding to the state involved in obtaining the money to repay the ELA are likely to be much higher. Effectively, repayment of ELA by the IBRC is equivalent to the state borrowing money at expensive terms to gradually repay a low-cost interest-only perpetual loan.

Sunny Disposition

It's a good deal, something I don't think many people expected until today. Am quite surprised, really didn't think the Gov would get something that'd make any real change.
Some people are knocking the deal, but realistically they knock everything. In a sense it's hard to blame them because we've had a lot of crap Governments, but sometimes things are gotten right.

Predalien

I'm very confused. How was the interest rate on the promissory note 8% at any stage?

Sand

@Scofflaw

Because your statement of income isn't collateral, making the comparison entirely ridiculous. If you had presented your car as collateral, the bank would clearly have a call on your car.

That's all the promissory note is as far as the CBI or ECB is concerned. A statement of income. That's how weak the position of the CBI/ECB was with regard to the IRCB.

Now they have Irish government bonds. Nice deal for them.

Damn - I'm getting flashbacks to trying to explain to you why NAMA was a bad idea. Now NAMA is both preventing a review of upwards only rental (driving HMV out of business most recently), preventing reasonable review of Irish bankruptcy laws, trying to lend to first time buyers, and is now managing the Anglo Irish debt and promissory notes....and 3 years later you're still probably honestly puzzled as to why NAMA is a bad idea

Tell me, do you still think that any Irish government loss on NAMA will be recovered by a tariff on the Irish banks? Or does the concept of a taxpayer loss on NAMA still honestly puzzle you?

What? How do you manage to decide that such a deal doesn't need ECB agreement?

Draghi was pretty clear in disavowing any opinion on what the Irish did - let alone agreement with the plot. This plan required no more agreement than the deal last March 2012.

This is getting kind of silly - the ECB leaked the news to stop negotiations on the deal that was clearly anticipated for some time as being delivered today, and was delivered today? I appreciate you're determined to be unhappy about this, but you're going to lengths that are swiftly becoming ridiculous.

Nonsense - you are the person who have posted previously as taking a contrary position simply for the perceived kudos of going against the flow. Don't project onto me.

The only people anticipating a deal were the Irish (and yourself). The ECB didnt anticipate any deal and havent made any deal. The whole "deal on the promissory notes" is over, to the great satisfaction of the ECB an the the dawning dissatisfaction of the Irish people.

I'm recalling Lenihan's "Cheapest bailout in the world" speech when I hear Gilmore, Noonan and Kenny speak today.

@View

No, I am not. Were they operating "like a cornershop", they wouldn't have issued the monies to the IBRC/Anglo and we wouldn't have a PN issue at all.

Great - a breakthrough. You might remember that the reason the government issued a promissory note was because it had no money and couldnt borrow any money. So the CBI simply "invented" some money. They cant go bankrupt because they can just "invent" more money. That's what a central bank does.

Accounting 101: Balance sheets have to balance. They can't have holes in them. If you alter one part of a balance sheet, there has to be a corresponding entry elsewhere in the balance sheet.

E.g.,

Reduction in "Monies owed by IBRC" results in "Shareholder Equity" being also reduced by the same amount, thus making the "shareholder equity" (almost certainly) negative and we have an insolvent CBI. We then need to fix hole that by pumping circa 30billion back into its balance sheet.

Accounting was invented for corner-shops, not for Central Banks. The Central bank just prints the money. You go to a central bank to get paid....you get paid They have a money printing machine. They just print whatever it takes to pay you. I cant make it simpler for you.

Scofflaw

Promissory notes are very definitely not just a statement of income, and it hardly seems worth continuing discussion at that level of misinformation or misinterpretation. A promise to pay is not the same thing as a statement of income by any stretch.

It would be nice to have a counter-analysis of the deal, but not on the basis of quite such bizarrely incorrect claims such as that.

cordially,
Scofflaw

Sand

Scofflaw wrote: »

Promissory notes are very definitely not just a statement of income, and it hardly seems worth continuing discussion at that level of misinformation or misinterpretation. A promise to pay is not the same thing as a statement of income by any stretch.

It would be nice to have a counter-analysis of the deal, but not on the basis of quite such bizarrely incorrect claims such as that.

cordially,
Scofflaw

And they're not a sovereign government bond either. And I agree - given fundamental difference of perspective on the reality of the situation further discussion seems pointless.

NAMA I presume is still a good idea and the Irish taxpayer cant make a loss, amirite?

Scofflaw

Thirdfox wrote: »

As a follow on question - was the nominal 8% interest rate also subject to CBI profit "refunds"? i.e. an effective 2.64% interest rate?

Yes, it was, at least roughly, although the actual interest rates were conjectural - to some extent it looks as if what has been eliminated is simply the IBRC leg of the promissory note triangle.

In one sense, Sand is correct that manipulation of the promissory notes arrangement has lain in the hands of the Irish government all along, and that the ECB has not so much "given us a deal" as permitted a particular manipulation - but since that permission was required, it is no less a deal for that.

cordially,
Scofflaw