State losing ‘hundreds of millions’ on IBRC-linked bond sales

Fianna Fáil finance spokesman Michael McGrath has warned that the accelerated pace at which the Central Bank is selling bonds linked to a 2013 refinancing of Anglo Irish Bank's bailout has the potential to cost taxpayers "hundreds of millions" of euro.

It comes on the week of the 10th anniversary of the start of the global financial crisis, which led to the State guaranteeing Ireland’s banks a little over a year later and, ultimately, a gross €64 billion bailout of the State’s financial system.

The Central Bank received €25 billion of Government bonds in February 2013 under a complex restructuring of promissory notes used during the financial crisis to rescue Anglo Irish, which was subsequently renamed Irish Bank Resolution Corporation (IBRC).

IBRC had been using the promissory notes as collateral for emergency funding with the Central Bank. When the failed lender was put into liquidation 4½ years ago, the State replaced those notes with bonds with maturities ranging from 25 year to 40 years.

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The Central Bank has since sold €8 billion of the bonds to the National Treasury Management Agency (NTMA), at a rate of up to eight times faster than the minimum agreed sale schedule. The European Central Bank has repeatedly pressed the Irish Central Bank to sell the bonds at pace to ease concerns that the whole programme amounts to monetary financing, which is prohibited in the euro zone.

Concerns

The ECB said in its latest annual report that the Central Bank’s step-up last year of IBRC-linked bond sales was “a step in the right direction... However, a more ambitious sales schedule would further mitigate the persistent serious monetary financing concerns.”

For as long as the bonds remain in the Central Bank, most of the State’s interest payments on the notes circle back to the exchequer by way of dividends from the regulatory institution’s profits. However, as the NTMA buys the bonds from the Central Bank and cancels them, it has to use money raised in the markets to fund the transactions.

"This is not an academic discussion," said Mr McGrath. "It has a significant economic impact on Ireland. The faster the bonds are sold, the more interest we end up paying annually to third parties through the NTMA and the smaller the annual dividend the Central Bank can pay to the exchequer."

Mr McGrath said rate at which the bonds are being sold “indicates that Ireland is losing the battle with the ECB”.