Leo Varadkar
Question:41 Deputy Leo Varadkar asked the Minister for Finance if his estimates for interest payments on public debt in 2009 has been revised; and if he will make a statement on the matter. [6260/09]
Other Questions.
Fiscal Policy.
The National Treasury Management Agency has advised that Ireland has a net financing need of €24.5 billion in 2009. This is based on the forecast Exchequer borrowing requirement of €18 billion set out in the addendum to the stability programme update, the refinancing of a €5 billion bond that matures in April and a sum of €1.4 billion in respect of the frontloading of the Exchequer contribution for 2010 for the National Pensions Reserve Fund relating to the bank recapitalisation programme. The NTMA estimates that the associated debt servicing cost in 2009 will be €4.5 billion and has advised that it considers the revisions to the debt service estimate included in the addendum are adequate in the context of the current market conditions.
The NTMA has also advised that the main reasons for the increase in the forecast cost of servicing the national debt for 2009 over previous years are the increase in the Exchequer borrowing requirement and the higher interest rates prevailing on government bonds. While the increase in borrowing is the major factor, the current elevated yields on government bonds also contribute to increased debt service costs. Many factors underlie these yields, including global factors, which are affecting all euro sovereign borrowers benchmarked to the German bond, and national specific factors.
The NTMA intends to raise funds on the long-term government bond market through a combination of auctions and syndicated loans. It successfully raised a 5-year €6 billion bond at a coupon of 4% in early January. Ireland is rated as AAA by the credit rating agencies. In addition, we have a relatively low debt level. The general government debt to GDP ratio was 41% at the end of 2008, which is well below the EU average of 60%. At the end of 2008, when account was taken of the cash balances held by the NTMA and the value of the NPRF and other funds managed by the agency, the debt to GDP ratio was reduced to approximately 20% of GDP.
Our favourable debt level will remain below the EU and euro area averages over the coming years. While our debt level will increase in the coming years, our low starting point gives us the leeway to target a restoration of balance to the public finances in the next year. In this way, we can avoid placing too great a shock upon the system as we restore order to the public finances and reposition our economy.
I thank the Minister for his reply. It is alarming that the new debt servicing cost of €4.5 billion is almost three times the amount in 2008 and it is 33% higher than the Minister's forecast last October for 2009. This reflects the rapid deterioration both in the public finances and in the funding markets. What premium over long-term German bonds was estimated by the NTMA when it reached this figure? Ireland currently pays 2.8% more for ten-year German bonds. Is the agency basing its figure on that or is it more optimistic?
When will the agency have to go to the markets again with a funding offer? It raised funds in January but I understand Irish institutions were very much at the core of subscribing to the offer and they may not be available again. What is the next test of our ability to raise funds?
There was no preponderance of Irish institutions in the bond issue in January. There was considerable international interest in it. One of the unfortunate features of the bond issue while it was being completed was the appearance of an entirely inaccurate story by the national broadcaster about the IMF. Happily, the story did not affect its completion.
The yield on Ireland's ten-year government bonds is approximately 275 basis points over the German equivalent. This spread over Germany is due to a number of factors and it is impossible to quantify the impact of each. These include global factors, which are affecting all euro sovereign borrowers benchmarked to the German bond, and national specific factors. Earlier this year, Germany had considerable difficulty issuing bonds at the stated levels. The NTMA offered 4% on its bond issue on the basis it was confident market expectations would be met, which was the case.
I agree with the Deputy regarding the worrying trend that our gross borrowing requirements this year are far in excess of last year and that is why the Government has brought forward measures to stabilise the public finances. It is essential we do so.
The Minister said the cost of servicing the national debt is estimated at €4.5 billion, which is almost 100% more than in 2008, when it cost €2.4 billion. In reply to an earlier question, the Minister suggested the taxpayer had not to pay anything to bail out the banks. However, he also said one of the reasons for the significant increase in the cost of servicing the national debt was the higher interest rates being charged on government bonds, which has almost entirely been caused by our banking crisis and the fact that our reputation has been shredded internationally. Is it true that the additional financing cost attributable so far to bailing out the banks is approximately €544 million and, by the end of the year, it will be a considerable part of the additional €2.5 billion needed to service our national debt?
First, substantial sums have been already received by the State on foot of the guarantee. Second, the best market advice I can obtain is that the major difficulty with increasing the spreads lies with apprehensions about Ireland's economic position and our anticipated economic performance given the substantial declines in growth rates that are anticipated and the fear in markets that the Government will not control the public finances. Happily, the Government is determined to control the finances as the Government is determined to secure the stability of the banking system. The steps we have taken in recent weeks regarding the public service pensions levy will assure markets that the Government is determined to address the imbalances in the public finances.
Where will the Minister find this €4.5 billion accruing from the additional costs of his debt? Can he give us an absolute assurance that he will not return to mug people in the public sector again?
The Government is attempting to manage the economy in a way that ensures any burdens that need to be borne are done so equally, fairly and equitably throughout the community.
Financial Institutions Support Scheme.
John Perry
Question:42 Deputy John Perry asked the Minister for Finance the receipts to date from the guarantee provided on covered bank liabilities in each of the six institutions; and if he plans changes to any element of the scheme. [6281/09]
Seven institutions are covered by the Government guarantee. I referred to six in an earlier reply. I should have said that Postbank is also a guaranteed institution. The covered institutions are AIB, Bank of Ireland, EBS, Irish Life & Permanent, Irish Nationwide Building Society, Anglo Irish Bank and Postbank, their branches and certain named subsidiaries.
Under the terms of the guarantee each covered institution pays the charge quarterly, in advance, payable no later than five working days after the beginning of each quarter, during the period in which the covered institution avails of the guarantee. The charge is calculated by reference to the composition of the covered institution's average month-end covered liabilities during the preceding quarter. Payment in respect of the first quarter was payable at the end of that quarter. That payment was in respect of a covered institution's outstanding covered liabilities as at 30 September 2008. We have received payments from all the institutions for two quarters to date. As of 4 February, €225,709,643.86 is in the mandated account which is held in the Central Bank.
With regard to any planned changes, there is provision in the Act for amendments to certain elements in the scheme, including the charge to the covered institutions. For example, I am empowered to review the application of the guarantee charging model every six months and to make such adjustments as I deem necessary to ensure the recovery of the aggregate cost to be borne by the State as a consequence of the provision of the guarantee, and that the overall objectives of the Act are achieved.
In the context of the six-month review of the guarantee scheme to be completed by mid-April 2009, we will examine how the scheme can be revised subject to European Commission approval and consistent with EU state aid requirements, in ways which include supporting longer-term bond issuance by the covered institutions. This would be in line with international and EU trends where the average term of state cover for bond issues extends beyond 2010.
The Minister mentioned €225 million. I would have thought that after two quarters €250 million should have been raised at this stage, which indicates a shortage of €25 million. Which of the banks has not provided that €25 million? The Minister also spoke about extending the scheme. What period of extension does he have in mind? Given that he can review the charges in the terms of the scheme within a six-month period, and given the increased borrowing cost to the State involved, will the Minister be making such an increase in the charge under the guarantee scheme to the banks? What increase does he intend to make?
The purpose of the charge is to cover the long-term cost of borrowing to the Exchequer that arises out of the provision of the guarantee. These additional costs were initially reckoned to be approximately €1 billion. The charging model was based on covered liabilities of approximately €450 billion. As I have pointed out previously, approximately €90 billion of this is covered by the enhanced deposit protection scheme. The covered institutions do not pay the quarterly charge on liabilities covered by the scheme. The total of covered liabilities will naturally adjust over time as bank balance sheets change in the normal course of business. It is fully within my powers to amend the charge to reflect changing events and economic realities. There is provision in paragraph 19 of the scheme to revise the charge if the long-term cost to the Exchequer funding proves higher than initially estimated.
In the first five months of the operation of the charge, it is important that we consider the matter in the context of the review. I did not believe it appropriate to vary the charge to date.
The Minister spoke about the moneys received to date being lodged with the Central Bank and also indicated that one of the banks may be in arrears. From the figures he gave, it appears that he is still due approximately €25 million on one of the quarterly payments. What does the Minister intend to do with this money? We have a situation in the public finances particularly regarding people who are unemployed. We also know that small and medium-sized businesses desperately need access to credit. Does the Minister plan on simply holding the money in the Central Bank until the end of the guarantee period — probably at around the time of a general election — at which point a large amount of money would become freely available for the Government? The Minister said he would put it back in some way into the national debt. However, that could mean anything. I would hate to think it could possibly become some kind of slush fund particularly when at the moment we need dedicated funds available to get credit flowing to small and medium businesses to keep jobs alive.
I will examine any constructive suggestion made by Deputies. I can assure Deputy Burton that it is not my intention to transform it into a pre-election slush fund.
Rebalancing in Dublin West.
Deputy Burton stole the words from my mouth. I was about to ask a very similar question. The long-term objective is to cover the long-term cost to Government. However, the short-term immediate need is to free up credit for SMEs in particular to allow them to continue trading, thereby keeping people in employment. We all know businesses in our constituencies that are closing on a daily basis because they cannot get overdraft facilities or borrow from the banks. Has any analysis been done as to whether credit is now beginning to flow? There was little or no evidence of this in the first few months of the guarantee scheme or following the recapitalisation of the banks.
There appears to be €25 million of arrears. Are any of the institutions in arrears at the moment and, if so, by how much? The cost of borrowing for the State has increased significantly. Will the Minister adjust it on the six-month review to take account of this increase?
All the covered institutions have paid the charge in a prompt and timely manner and are up to date. In response to Deputy Creighton, of course the difficulty for small and medium-sized enterprises in obtaining credit is a very serious matter and is taken into the Government's consideration. We are at an advanced stage in drawing down the European investment bank facility for a number of our financial institutions.
Regarding the deposit of the money in the Central Bank, it is important that the moneys obtained on foot of the guarantee are seen by international markets to be on deposit in a secure place for any honouring of the guarantee. The credibility of the guarantee is important; partly it rests on the deposit of the funds collected in respect of it at the Central Bank. That said, as I indicated in reply to Deputy Burton, I am open to constructive suggestions about the eventual deployment of these funds on the lapse of the guarantee scheme.
Banking Sector Regulation.
Seán Barrett
Question:43 Deputy Seán Barrett asked the Minister for Finance his views on whether it is acceptable that the investigation of adequate regulation should be conducted entirely by the Irish Financial Services Regulatory Authority itself and the consultants which it has chosen; and if he will make a statement on the matter. [6207/09]
The importance of having a regulatory system that provides financial stability and fosters probity has become all the more clear to us in these times of financial turmoil. I have already indicated that it is my view that the current approach to financial regulation needs to be reformed. The Central Bank Board and the Financial Regulatory Authority have examined the approach to financial regulation in Ireland and submitted their views to me yesterday. I apologise that this information is not in the official reply which was prepared before receipt of the letter.
In addition, an independent and reputable firm of consultants has been conducting a detailed assessment of the authority's business processes and procedures. I asked the board of the Central Bank and the Financial Regulatory Authority for their views, which they submitted yesterday. I have read their views and referred them for further consideration in the Department. Relevant developments are taking place at an EU and wider international level. New regulatory proposals, including improvements to the capital requirements directive, are due for adoption in early 2009 and the Ecofin Council, incorporating work being carried out at a wider international level, is giving consideration to the role and mandates of national regulators as well as other related issues such as prudential soundness, the orderly functioning of markets and stronger European co-operation on financial stability oversight.
As the Deputy will appreciate, steps have already been taken in the Credit Institutions (Financial Support) Scheme to improve regulation and arising from this, the oversight of the covered institutions has been greatly intensified. However, these arrangements will need to be developed further in light of both national and international considerations for further regulatory reform.
As Minister for Finance, I am responsible for the legislative framework within which the Financial Regulator operates. When I have considered the issues fully, I will bring my proposals for reform to Government.
With regard to investigations of particular events in financial institutions, the legislative framework provides significant powers to the regulatory authority to pursue these matters. In addition, Deputies will be aware that matters can also be investigated and are being investigated by the Office of the Director of Corporate Enforcement.
I wish to return to this issue. There is no one looking at the way in which the regulator performed its duties. The Minister is talking about new reform and new institutions being put in place. The only one looking at how the regulator conducted its duties is itself and this is not acceptable. There has been too much gross failure. The public are appalled at the golden handshake for the former regulator and the regulatory system cannot be left to itself.
Is there not a question about the role played by the regulator when the Quinn shareholding was unwound? It would appear the regulator accepted legal advice without probing it. Is there not a question about the role of the regulator with regard to Irish Life & Permanent when it was in possession of that information and according to the Minister, it was allowing him to proceed to put money into Irish Life & Permanent without alerting him to the seriousness of the situation? The Minister decided on nationalisation later, but in December the regulator had been in possession of this information for months and nothing was done.
The only time we saw swift and effective action was when the Irish Life & Permanent issue came into the public domain and immediately, three executives were gone in one institution. is that not the kind of activity in which the regulator should be involved? It should not be left to the force of public opinion to effect change.
Clearly the regulator is completing the investigation into the two transactions referred to by Deputy Bruton. Some of the leaks of material about this matter may come from parties who have an interest in the outcome of the investigations being carried out by the regulator.
With regard to the Irish Life & Permanent transaction, I asked to meet the chairman and the chief executive last Thursday when the media reports appeared which suggested that the regulator had some prior knowledge or notice of the particular transaction of the back-to-back arrangement between Anglo Irish Bank and Irish Life & Permanent. When I met the chairman and the chief executive in the Department at lunchtime last Thursday after I left this House, they informed me there was no question of the regulator giving any prior approval or sanction or approbation to that transaction. The regulator is entitled to complete its investigations and bring the full facts to public light.
Who is assessing the regulator?
With regard to the Quinn transaction, Deputy Bruton suggested that the regulator relied on legal advice on the transaction furnished by the bank itself. The regulator has to be afforded an opportunity of putting the full facts on the record as to whether it obtained independent legal advice of its own. I remind Deputies that many of these reports are necessarily selective with regard to the complete picture of the transaction and the role of the regulator because there are persons at large who have a vested interest in spreading the blame for transactions in which they were involved.
When Deputy Brian Lenihan became Minister for Finance, who told him about the difficulties arising from the overhang of the Quinn shares? The Taoiseach said earlier this week that the Minister was advised after he became Minister. Was the advice given by the regulator, the Central Bank, his departmental officials or someone else? If it was not the regulator or a message conveyed from the regulator via other sources, why was it not the regulator? The Taoiseach said that the regulator had become aware and the Central Bank had advised the Taoiseach on 17 March. That date became referred to in the popular media as the St. Patrick's day massacre as a result of the plummeting in value of the Anglo Irish shares. The Taoiseach was told when he was Minister for Finance. If the Taoiseach read the newspapers he could not have missed the St. Patrick's day massacre as it was such an outstanding event.
Who told the Minister for Finance and what has been the role of the regulator? The regulator seems to have had a central role in unravelling the difficulty of the Quinn share overhang. Therefore, how can the regulator be investigating the unknown circle of ten millionaires who got loans of €30 million from Anglo Irish Bank, without recourse for the shares, to prop up the share price of the bank? This is one of the events at the heart of the international shredding of our reputation. I ask the Minister to explain this to the House so there is some clarity about what happened.
On my appointment as Minister for Finance last May, my Department advised me of the existence of the contract for difference regarding the Quinn position in Anglo Irish Bank. I was advised that the existence of this contract for difference, which Mr. Quinn had not committed himself at that stage to purchasing, was a serious threat to the stability of the bank and that the Department had been in communication with the regulator and the Central Bank to ensure that this matter was unwound as soon as practicable. Beyond that, I was not furnished with any information of a written character about this issue, other than it was a critical issue for the share price of the institution. Subsequently, I was advised in late July that a group of investors had invested in Anglo Irish Bank to resolve these problems and that legal advice obtained by the bank indicated that the transaction was compliant. This is the extent of my knowledge of these matters.
The Minister will recall I wrote to him before Christmas enclosing a copy of a letter I wrote to the regulator outlining the extent of my dissatisfaction with the regulator following my meeting with him.
Yes.
The Minister will recall I spoke to him in confidence about my concerns rather than speaking in the House because I was very concerned. I received a gobbledegook reply from the regulator but I had quite a long meeting with the regulator and his top staff. The regulator was fully aware of these situations. Was the source of the Minister's information from the regulator or from the Central Bank or from both? We deserve to be told.
No. The source of my information about this matter is my Department. In view of the concerns raised with me by Deputy Burton and because of concerns which I developed myself from media coverage, when the decision was made to capitalise Anglo Irish Bank for €1.5 billion, I specifically asked my Department, in the course of the due diligence, to examine the nature and character of the Quinn transaction.
There is a legislative framework in place which facilitates action by the regulator. The regulator has known about this mess going on for over a year and there has been no result. Is the regulator making interim or progress reports about these ongoing investigations to the Minister's Department? Some of us find it extraordinary that it is taking the regulator so long to get to the bottom of this.
When the PricewaterhouseCoopers report was published, how many items in that report were referred to the Financial Regulator?
I can arrange for that information to be given to the Deputy.
Is the Minister not aware?
There is no evidence regarding the Quinn transactions in the report.
They were bad debts.
Regarding other matters that may have been referred to the regulator, I will get the information required by the Deputy.
Who will repay the €300 million?
As I have often pointed out, the PricewaterhouseCoopers report was an exercise in which a large number of officials worked through the different exposures of six institutions with an accountant from that firm.
This was €30 million——
Some €300 million is a significant exposure to the banks.
May I finish my reply?
Allow the Minister to continue without interruption.
The work was work in progress and, in respect of Anglo Irish Bank, as with other banks, went through successive drafts. At the end of October, a draft report received by the Department referred to the existence of a loan by Anglo Irish Bank to Irish Life & Permanent on a back-to-back date basis without any dates annexed. The Department referred the matter to the Financial Regulator, who initiated an investigation.
On 18 November, the Governor of the Central Bank wrote to me and sent a final summary of the PricewaterhouseCoopers report, which did not refer to the Irish Life & Permanent transaction. At no stage was the transaction in respect of the Quinn Group dealt with in the report. I want the record of the House to be clear in that regard.
I find that amazing.
I wish to ask a brief supplementary question.
We have gone over time with this question. Only four minutes remain. As the next question is related, I propose to use those four minutes on this matter with the agreement of the House. Is that agreed? Agreed.
According to the regulator, the PricewaterhouseCoopers study and its various drafts were to drill deep into the balance sheets of the covered institutions. The loans total €300 million at €30 million per head among the ten individuals. Even for Anglo Irish Bank, this is a significant loan exposure in terms of individuals. How is it possible that the loans were not listed for examination or advised to the Minister as to their status, given the fact that the collateral used for them was shares?
All individuals of high net worth were considered in the PricewaterhouseCoopers exercise, but the matter in question was not disclosed in the report at any stage.
Why not? It is what the report was about.
We must await the report of the regulator. Last week when questions on the back-to-back transaction with Irish Life & Permanent were raised, I tried to be helpful to the House, somewhat to my own discredit, by putting as much of the information as possible into the public domain and outlining the nature of the transaction. It was a simple transaction and, while it remains under investigation by the regulator, its essential features could be easily disclosed. This is not the case in respect of the Quinn Group transaction, which is complex. We await the report of the regulator on it.
Are they nominees of secret, hidden accounts?
I do not know as of yet.
Why did the Minister believe that the House was not entitled to know that Anglo Irish Bank was under investigation for both the unwinding of the Quinn Group's shareholding and Irish Life & Permanent's deception concerning its deposit base when he was proposing legislation for the nationalisation of Anglo Irish Bank? Did he not believe this to be material information that would affect the opinion of the House and the shape of the legislation? One of the proposals that we sought to adopt was to the effect that any write-off of loans by the bank would be put into the public domain. It was not even reached as an issue, but knowing the ten names would have resolved some concerns.
Regarding the defence used, namely, that the investigation could have been prejudiced, all of the information is in the public domain, but no one is suggesting that the investigation is being abandoned because it has been prejudiced and cannot reach a fair conclusion.
I cannot warrant the accuracy of all of the information in the public domain, as I have yet to receive the regulator's full report on the Quinn Group issue. This is an important point.
The Minister signed off on the report in July.
The inquiries were incomplete prior to the bank's nationalisation.
We were entitled to the information.
I identified my concerns regarding issues of corporate governance, but I could not have put information that had not been finalised on the record of the House. The transactions involving the Quinn Group are complex in character and we must await the regulator's final report to deal with them.
Concerning the identification of parties who are customers of financial institutions, it would require the exercise by the Director of Corporate Enforcement of his discretion to consider invoking a High Court inspection to bring matters of that character to light.
Written Answers follow Adjournment Debate.