IBRC Liquidation and Promissory Notes – What is going On ?

We will try and give a quick dummies guide to what the heck is hapening with all the stuff about the ECB , IBRC and the promissory notes.

It’s all getting very  complicated and most people are just wondering how it will affect their jobs, taxes ,bills and public services.

What were these Promissory Notes Anyway ?

Well – back in Sept 2008 when the Irish banks were in big trouble – the government gave a blanket guarantee to cover all the deposits in Irish banks.

But by March 2010 the government was struggling to support the banks because of the massive interest rates they were getting charged on the bond market to borrow money.

The ECB agreed that the government could give ” IOUs” to Anglo Irish Bank and Irish Nationwide Building Society instead of real money. These IOUs or so called “promissory notes” were used by the 2 banks as security to borrow money to avoid insolvency. Money was borrowed from the ECB via the Irish Central Bank’s Emergency Liquidity Assistance (ELA) facility.

How Much did the Government promise to pay ?

These promissory notes were for €30.6bn . Payments of €3.1bn were due on March 31 every year for the next 12 years. Lower repayments were due from 2024 until 2031. WIth interest – the total cost for
the Irish state would have been €47bn.

Every year the interest charges are added to the county’s deficit, resulting in some of the tax increases and spending cuts we have all seen in the last few Budgets.

Anglo Irish Bank was nationalised in January 2009 and its name was changed to Anglo Irish Bank Corporation Limited. The business of Irish Nationwide Building Society (INBS) was transferred to the
Bank in July 2011 and the business was renamed Irish Bank Resolution Corporation (IBRC) in September 2011. IBRC was trying to sort out all the Bank’s loans by 2020 through restructuring loans selling them etc.

The liquidation of IBRC has resulted in the outstanding debt being converted into a new long-term bonds that spread the repayment over a longer period of time . The average maturity of the promissory notes was less than 8 years, while the average maturity of the new bonds is more than 34 years.

According to Enda Kenny payments will be reduced to €2 billion a year, compared with the current €3.1 billion.

But the repayments on the debt are now going to be interest-only and the outstanding principal will only be repaid when the bonds reach maturity. And with repayments going on for an extra 26 years – that’s a lot of extra billions of interest payments ! Then we still have the original balance outstanding.

They are just hoping that by spreading the repayments out over such a long time that in 25 years these billions won’t sound as much due to inflation.

The Dept of Finance actually state that a key benefit of this transaction is that replacing the short term but gradually reducing debt of the Promissory Notes with longer term non reducing govt bonds “will have significant benefits from a market perspective as it ensures the liability to repay is beyond most credit investors’ time horizon”

In other words – it’s to far in the future to worry about for now !!

One other figure which looks scary – is the circa €1billion that will be paid out by the state to IBRC depositors under the Eligible Liabilities Guarantee in 2013 . This basically cancels out most of the gains in 2013 .

See more details here :    http://finance.gov.ie/documents/publications/presentation/2013/newjmpres.pdf