ECB Dashes Irish Hopes of Quick Decision on Bank Plan
European Central Bank policy makers sought more time to weigh a proposal presented by Ireland yesterday to restructure the cost of bailing out former Anglo Irish Bank Corp., prolonging a saga that began four years ago with the near-collapse of the lender.
The ECB governing council is unlikely to make a decision at a governing council meeting today, as some members want to discuss it with their own central banks first, according to people familiar with the situation, who asked not to be identified as the negotiations are private. Brian Hayes, a junior Irish finance minister, said he is confident of a deal, according to an interview with state-owned RTE Radio today.
“While the Irish government is in a very tricky situation, the ECB is too and anything that looks questionable on their part would have ramifications far beyond the immediate Irish debt issue,” said Austin Hughes, chief economist at KBC Bank Ireland Plc in Dublin. “All the parties to this particular deal have a great deal to lose by getting it wrong.”
Irish officials are trying to find agreement with the ECB over an issue that has dogged the country’s attempts to work its way out of an international bailout agreed to in 2010. Eamon Gilmore, now deputy prime minister, has called the ill-fated lender the worst bank in the world as loan losses led to a 30 billion-euro ($40.6 billion) bailout.
Some policy makers are concerned that the Irish proposal could set a precedent in the euro area, as officials grapple with banking crises in other countries such as Spain, the person said.
A spokeswoman for the ECB in Frankfurt said that the talks are ongoing, and declined to comment further. Irish Finance Minister Michael Noonan said in a midnight session of parliament that he “understands” the ECB will continue to consider the government’s proposal today, as he introduced emergency legislation to start the process with the liquidation of the failed lender.
The broader plan, which needs ECB approval, will see the state swap so-called promissory notes used to rescue Anglo Irish for long-term sovereign bonds, according to people with knowledge of the matter.
The Irish state nationalized Anglo Irish in 2009 after a real-estate bust, and issued 30 billion euros of promissory notes, a form of IOU, to the lender a year later to avoid having to raise the money in the capital markets as its borrowing costs soared.
With the imprimatur of the ECB, the Irish central bank currently holds the promissory notes in exchange for funding Anglo Irish through emergency lending. Under the current contract, the government is due to give Anglo Irish 3.1 billion euros ($4.2 billion) a year for at least the next decade to pay down the central bank loan.
Closing the bank and replacing the promissory note with a long-term bond would help the state sidestep those payments. That would lower Ireland’s financing needs as it seeks to exit its international bailout, though it wouldn’t make a big dent in the nation’s debt levels.
“Anything that would alleviate the government’s near-term funding requirement would be viewed as being very positive,” said Philip O’Sullivan, an economist at NCB Stockbrokers, with an accord “giving more comfort to the markets.
Yields on the country’s benchmark October 2020 bond were unchanged at 4.11 percent, down from 7.4 percent at the start of June and from as high as 14 percent in July 2011.
Nicola Faulkner, a spokeswoman for the Irish central bank, declined to comment on the plan.
Anglo Irish was merged with Irish Nationwide Building Society and renamed Irish Bank Resolution Corp. in 2011, and ordered to wind down by the end of the decade.
Lawmakers passed laws in the early hours of this morning to liquidate IBRC as a first step of the broader blueprint. The liquidators, from KPMG in Dublin, will initially transfer IBRC’s assets to the National Asset Management Agency, the state’s so- called bad bank, according to Noonan. NAMA will also buy IBRC’s net debt to the Irish central bank under the transaction, using government-backed bonds as payment.
‘‘I would have preferred to be introducing this bill in tandem with a finalized agreement with the European Central Bank,” Noonan said. “However, I understand that the ECB will continue to consider the proposals made by the Irish government” today.
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