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Sunday 3 December 2023 Dublin: 1°C

As it happened: Michael Noonan and Brendan Howlin on promissory note deal

The two Ministers will be holding a press conference from 4pm about the promissory note agreement. Let’s see what they have to say.

SO IT’S OFFICIAL: Taoiseach Enda Kenny has told the Dáil that the annual €3.1 billion promissory note payments are no more

Under an agreement reached with the European Central Bank after some frantic legislation-passing in the Oireachtas overnight, Government bonds will replace the promissory note, which the Government had repeatedly said it would not pay back when it fell due at the end of March.

Finance Minister Michael Noonan and Minister for Public Expenditure and Reform Brendan Howlin will be holding a press conference on the arrangement in the Government Press Centre from 4pm. Let’s see what they have to say about the whole thing.

So as with pretty much everything else that’s happened over the past 24 hours, the press conference is not going to start on time. I spoke to the Department of Finance and they said Michael Noonan is giving a briefing and has been held up. Current ETA: around 4.15pm or 4.20pm.

In the meantime, my colleague Hugh O’Connell has written this useful explainer on exactly what has happened with the liquidation of IBRC and the promissory note agreement and here’s Enda Kenny’s speech to the Dáil this afternoon announcing that the promissory note payments are officially dead.

RTÉ is reporting that Central Bank head Patrick Honohan is happy with this afternoon’s events:

A few facts about the new arrangement:

  • The first payment on the new Government bonds which are replacing the promissory notes will take place in 2038. The final payment will be made in 2053.
  • The long term bonds will have maturities of up to 40 years with an average maturity of 34 years (compared to the 7 or 8 year average maturity on the promissory notes).
  • The Central Bank has taken ownership of the €3.4 billion bond used to settle the promissory note last March.
  • The average interest rate on the new bonds will start at just over 3 per cent – compared with an interest rate of more than 8 per cent on the promissory notes.
  • The promissory notes would have cost almost €48 billion in total, Enda Kenny has told the Dáil.

Here’s how Enda Kenny described it:

In effect, we have replaced a short-term, high interest rate overdraft that had to be paid down quickly through more expensive borrowings, with long-term, cheap, interest-only loans

While we wait (current start time estimate: 4.30), here’s what would have happened if #PromNight was in fact a real prom.

And here we go. Michael Noonan stands up to give his statement.

“We are very pleased with the deal,” says Noonan. He says he and Minister Howlin had always planned to make the two announcements (i.e. the liquidation of IBRC and the arrangement on the promissory note) together, but events were expedited by the news about IBRC being reported by Reuters yesterday.

Noonan says a debt write down was never the “primary objective” because the EU had already ruled out any idea of a write down. He says the situation in Greece was completely different and should never have been used as a comparison.

Noonan: A lot of vocabulary about Anglo Irish Bank has become a byword for abuse in Irish politics. Now though, he says: “We remove all that from the lexicon of politics”. On the promissory note payments he says:

There’ll be no payment this March, next March, any March.

Noonan: The effective interest rate on the bond is at a floating rate of 3 – 3.5 per cent but it will actually be closer to 1 per cent in practice because the difference will be rolled back into the Exchequer.

Brendan Howlin jokes that it may not be any easier to see him if he stands up. As a fellow short person, I feel his pain.

Howlin says that from an economic point of view the promissory notes were a very bad idea: they had an enormous impact on cash flow and on Ireland’s reputation, and it also demoralised people. “What was demonstrably a rotten bank had such a menacing effect on us,” he says.

Down to the figures: Brendan Howlin says in real terms the arrangement means Ireland will borrow €20 billion less. He says the annual benefit from next year is expected to be 0.6 per cent of GDP.

Time for questions.

What does this mean for the average person? Michael Noonan: “For the man and woman on the street, it means that they and their families won’t have to carry the burden of another €20 billion of borrowing over the next ten years” and deal with the interest on that in taxes and cuts.

Did Ireland ever ask for a write down of debt? Michael Noonan says no. “It was pointless,” he says. He points out that Greece asked and was rebuffed.

Michael Noonan says he’ll respond to Pearse Doherty’s comments about kicking the can down the road by giving two anecdotes.

Anecdote number 1:

If I offered Pearse [to] give me a thousand pounds and [said] I’d pay it back to him in 40 years, what do you think he’d say?

Anecdote number 2:

Noonan describes how he bought his house in Limerick in 1068 at a cost of £3,200. He says when the mortgage ran out 25 years later, one month’s cheque as a teacher would have paid for the whole house. He says the important issue is what inflation does to the value of money and that keeping the nominal amounts the same in terms of what we have to pay back makes it more affordable.

He [Pearse] is making a political point and fair dues to him. It’s hard to be in opposition today because you had to reply to a good news story.

Noonan said the liquidation had been in train for a while but it became clear yesterday afternoon that two international news agencies had the story and were prepared to lead with it. Noonan says the government had to act.

“It was a holding position,” he says of the decision to act. “It might have held for a day, it might have held for two days”.

Michael Noonan ends the press conference by paying tribute to the civil servants who worked around the clock on the deal over the past few months. We have to stop scapegoating people who do this work, he says, describing them as “patriotic, dedicated people” who gave “unbelievable service to this country” and points out that they would not have been paid overtime for it.

Officials from the Department of Finance are talking through the technical elements of the arrangement now.

The speaker – apologies, I didn’t catch his name – goes through some of the benefits:

  • A reduction on the deficit of about €1 billion per annum
  • Extension of the maturity of the bonds means much less of a financial obligation in the shorter term
  • The promissory notes had a weighted average year of 7 to 8 years while the bonds will be 34 years on average
  • Efficiency because all the legacy assets are now being houses in a single vehicle in NAMA

He’s going through some of the other issues which are arising out of the liquidation of IBRC now. He says there are still a “small amount” of customer deposits left in IBRC, most of which are connected with loans. Nothing has changed with these as a result of the liquidation, he says. The special liquidator will work through all these.

More importantly, he says, the deposit guarantee scheme remains in place for depositers in the IBRC entity.

He says the Department has done a quick analysis and is not anticipating that there will be a requirement to make any payments on the guarantee of derivatives but can’t be sure for definite. However the Department is expecting claims under the ELG (Eligible Liabilities Guarantee – i.e. the government guarantee on deposits of more than €10k). He says the exact amount is impossible to know but that the Department thinks it could be between €.9 billion and €1.1 billion.

“We don’t see that as the creation of a new liability for the State though,” he says. This guarantee cost is already built into the existing IBRC structure.

The speaker says that the impact of the ELG costs – the bank guarantee – have been included in the figures for the first few years of the arrangement. He says the impact will in effect “offset the gain that we would otherwise have had for the transaction”.

Argh, mobile phone feedback on the livestream. Headwreck.

Still with us? This is getting pretty technical. We’ve gotten a hold of the presentation which these Department of Finance officials are using to talk about the deal and it’s very useful – it goes through an overview of the transaction, lists the key benefits and has diagrams to document exactly where the money is going. Here it is.

Most succinct explanation of the deal so far comes from RTE business reporter Conor Brophy. On Drivetime on RTE Radio One earlier he summed it all up Father Ted-style:

This debt is large and this debt is far away

Ok folks, we’re going to leave it there for now. If you’re hungry for more on all things promissory note related you can read our full coverage here which is tracking the reaction to today’s announcement. Otherwise thanks for reading and commenting – appreciate it.

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