Question No. 6 is in the name of Deputy Noonan. I understand there was some discussion this morning about allowing flexibility on this question for some probing of the matter. I propose, with the agreement of the House, to apply that flexibility.
Other Questions
I think I undertook to allow probing on all questions today.
I was referring to the time allowed.
Bank Guarantee Scheme
Michael Noonan
Question:6 Deputy Michael Noonan asked the Minister for Finance the liabilities of banks that will be covered by the extended bank guarantee; his plans to phase out the guarantee; the charges being paid by the banks which avail of the guarantee; and if he will make a statement on the matter. [33930/10]
The Deputy will be aware that a statutory instrument which extends the eligible liabilities guarantee (ELG) scheme to 31 December 2010 was approved by both Houses of the Oireachtas yesterday, having previously received EU state aid approval. The following liabilities are classified as eligible liabilities for the purposes of the ELG scheme: deposits; certificates of deposit; commercial paper; senior unsecured bonds and notes and; other senior debt specified by the Minister for Finance in accordance with EU state aid rules which are incurred in the issuance period, which runs from the date the financial institution received approval to join the scheme to 31 December 2010. The guarantee can be applied to stand-alone debt securities or to securities issued under programmes.
Term deposits with a term of five years or less which are made after the institution joined the scheme and before midnight on 31 December 2010 will be guaranteed for their term. The maximum maturity of any eligible liabilities guaranteed is five years.
My Department and the relevant state authorities along with the EU Commission will continue to monitor market developments over the coming months so as to confirm that the guarantee continues to underpin the core principles of financial stability and funding access for the financial institutions. Progress in relation to the phasing out of the guarantee will be achieved over time consistent with any requirement for continued support of the funding conditions of the banks and the maintenance of financial stability overall. As at end August, €730 million in respect of the CIFS scheme and €295 million in respect of the ELG scheme has been collected in fees from the institutions.
The Deputy may also wish to note that the pricing of the guarantee has increased for new liabilities issued after 1 July in line with the pricing structure outlined in the European Commission's latest guidance on state aid rules for Government guarantee schemes covering bank debt. The additional pricing will range between 20 and 40 basis points depending on the rating of the institution concerned. In addition, the approval granted by the European Commission on 21 September 2010 in respect of short-term liabilities and deposits under the ELG scheme places an additional fee of between 20 and 70 basis points on such short term guaranteed funds issued up to 31 December 2010.
The exact level of the charges accruing to the State will be dependent on the level of issuance by the participating institution.
Could the Minister state the total value of various financial instruments that were covered by the CIFS scheme but which are no longer covered by the scheme invoked by statutory instrument yesterday? Could he give an indication of the spread across the different paper?
I can give the Deputy figures for the total covered liabilities for each scheme, which may be of assistance to him. The total covered liabilities under the original CIFS scheme were €103 billion, of which retail and corporate deposits were €31 billion. The total covered liabilities on the ELG scheme are €153 billion, of which retail and corporate deposits are €121 billion. However, the information Deputy Noonan is seeking to elicit is the liabilities guaranteed under the original scheme which are no longer guaranteed now that the scheme has expired. Asset covered securities and dated subordinated debt are not eligible liabilities under the terms of the new scheme and are no longer guaranteed, as of today. Also, any term deposits taken or debt issued before the participating institution joined the scheme in the beginning of 2010 and which has an expiry date that falls after the 29 September 2010 is no longer guaranteed after 29 September. Undated subordinated debt was never guaranteed.
The amount of dated subordinated debt and senior debt issued before September 2008 and which will remain on the books of the six covered institutions is as follows: subordinated debt €5.3 billion; and senior debt €25.88 billion.
We were given a short briefing in the Department of Finance yesterday morning. The Minister's officials said that something like €36 billion was coming off the guarantee at midnight last night in relation to senior debt. The Minister made various statements earlier today suggesting that he had legal advice of some kind — the Attorney General, I think, was quoted — that it was not possible to negotiate with the senior bondholders.
I never said that.
I ask the Minister to bear with me. The figures we were advised of by the Minister's officials at the briefing yesterday were somewhat higher than the €26 billion he has just mentioned. Why is there any real impediment to negotiating with bondholders who have come off guarantee? What impediment can there possibly be to that? When businesses fail and go into receivership, creditors, which is what bondholders are, make schemes of arrangement and sacrifices because they hope to do business again in the future. Why have we turned our face against that in respect of what——
The Deputy's question is clear.
——occurred with regard to the guarantee last night, the cost in respect of which — leaving aside the subordinated debt — will be €36 billion.
I am somewhat alarmed that the Deputy has introduced the figure of €36 billion to the discussion. That amount relates to senior debt in all of the covered institutions — including Bank of Ireland and Allied Irish Banks, and not just those which are distressed, such as Anglo Irish Bank and Irish Nationwide.
I know that.
I take it the Deputy is not suggesting that bondholders with these institutions should be informed by the management thereof that they should now face a haircut.
No. I want the Minister to explain his thinking.
I want to be clear about the matter.
This is a fundamental issue.
That much is clear. The Deputy should allow the Minister to reply.
I am trying to assist the Deputy who, I take it, is referring to senior bondholders in distressed institutions such as Anglo Irish Bank and Irish Nationwide where the total amount is substantially less than the figure to which the Deputy refers.
I do not act on the basis of my own legal views, I act on the advice of the Attorney General who is the legal adviser to the Government.
What is the nature of that advice?
The Attorney General provided advice with regard to legislative arrangements in respect of the treatment of bondholders in resolution law. His advice is that in the context of such resolution regimes, it is possible — in appropriately drawn circumstances — to give priority to the investment of taxpayers over subordinated debt in a distressed institution. In the case of senior bondholders, however, it is not possible to give such a priority because, in our legal tradition and that of the United Kingdom, the holders of these instruments rank equally with deposit holders. In other words, they rank as general creditors. I do not want to use the Latin word lawyers always use in this context. I prefer to say that they rank equally or rateably with each other.
Pari passu.
As the Deputy states, "pari passu” is the expression used by lawyers. That is the position.
The relevant EU directive on the reorganisation of financial institutions makes clear that in reorganising such institutions one cannot differentiate or create an inequality between creditors. There are serious European and constitutional obstacles in the context of using legislation to effect that purpose.
A number of Deputies are offering and I want to allow them to contribute. I call Deputy Morgan.
Deputy Burton raised the matter of negotiation. Of course it is open to any financial institution to negotiate. I was not suggesting anything different. We must be careful with regard to how we use the word "negotiation". When Lehman Brothers collapsed, bondholders were invited to take part in negotiations. It is possible for senior bondholders to enter into discussions or negotiations with financial institutions in order to ascertain whether they wish to restructure their debt. However, I am anxious to avoid any suggestion that the Government and I are proposing that there be coercion in respect of the holders of such instruments.
That is quite a change.
Is the Minister aware that the terms of certain securities allow for the possibility of non-repayment in the event of a bank becoming insolvent? The Minister is nodding. In such circumstances, will he state whether the Attorney General addressed that issue in specific terms and whether he indicated that the relevant provision exists? I share Deputy Burton's view that it would be brilliant if the Minister shared the Attorney General's advice with us.
Reference is made to capitalism. I was involved in capitalism before I entered these Houses. I bought products, processed them and then sold them on. I was often caught out in respect of bad debts and neither the Minister nor his predecessors were there to support me. I was obliged to pick myself up and carry on.
Will the Deputy put a question to the Minister?
Given that the Minister is aware that there is a provision relating to non-repayment of certain securities in the event of insolvency, will he inform us as to why it does not apply in this instance?
I operated a one-man business for a substantial period of my existence so I am familiar with the factors to which the Deputy refers. Subordinated debt clearly ranks behind that relating to other creditors in an insolvency. That has always been recognised. The terms of these instruments often define their precise priority in the event of insolvency. That is the whole point. The Attorney General's advice is grounded in a recognition of that.
Apart altogether from the legal considerations, there are also policy considerations that come into play in respect of why the State should not and cannot countenance any suggestion of coercion or default with regard to senior debt.
I am not suggesting that anyone be coerced.
When one states that one is inviting somebody to enter into negotiations, the outcome depends on how big a gun one is wielding.
It is not a case of wielding a gun, it is called business.
That is the reality. If one invites somebody to enter into negotiations and one states that one will not pay, an element of coercion creeps into the equation.
It is business.
I used the word "discussion" in substitution for that of "negotiation", which Deputy Burton used. It is clear that discussions take place and arrangements which may be of mutual advantage can be arrived at between financial institutions and senior bondholders. For example, a bondholder might——
I am anxious to involve Deputy O'Donnell in the discussion.
——agree to a longer term by way of guaranteed deposit.
We must make progress.
Does the Minister anticipate that the ELG scheme will be extended to 31 March 2011? Does he further anticipate that the recover element of Anglo Irish Bank will be involved in discussions with the senior bondholders in the context of a mutually beneficial arrangement with regard to the €4 billion in senior debt that was not guaranteed?
Two distinct issues arise. First, in the context of the current guarantee scheme, which, as a result of the House's decision last evening, provides for a comprehensive guarantee for all deposits, I accept that the end date of 31 December is awkward. That view is shared by the Commission. However, we must monitor market developments. It is clearly important for the State that we establish an exit route from the guarantee system. Even if the exit has to begin at a very high level, we must demonstrate that we have embarked on our pathway of exit from the guarantee system. On the Deputy's question regarding discussions between bondholders in any particular institution and the management of that institution, such discussions can take place with a view to the mutual advantage of both parties.
That is a change in policy.
It is not a change in policy.
It is a change.
In respect of the charge of there being a change of policy, which the Deputy has repeated and which Deputy Burton made earlier——
Perhaps the Minister might hold off answering on that until Deputy English puts the final question in respect of this matter.
I can deal with it now.
We are running out of time. I ask Deputy English to put his question.
Should we make plans for New Year's Eve or should we hold off on doing so in case our presence is required in the House? Is the Minister in a position to outline the net loss or cost relating to the various bank guarantees? I accept that there are charges involved but there have been losses and gains. What is the net figure? What is the Department's estimate for the overall annual cost to the taxpayer of the various bank bailouts, including NAMA? How must extra per year are we going to be obliged to pay out? I accept that the cost with regard to opportunity is massive but I wish to concentrate on the direct costs involved. I am sure the Minister is in possession of some figures in this regard. I am of the view that some profits will accrue but in the main there will only be major losses.
Does the Minister stand over the statement that NAMA will wash its own face and make a profit? He indicated that today's events will bring closure in respect of the process of determining the level of State support required. That is not really the case. I imagine the markets are going to be monitoring matters to discover what will be the end result with regard to NAMA. The position in respect of Anglo Irish Bank has still not been really resolved. We have been informed that the cost is €29 billion with the possibility that a few billion more might be required. In his speech in the debate earlier today, the Minister said he wanted us to "have for the future a banking system that is firmly focused on meeting the needs of the real economy, sustainable employment creation and the savings, investment and credit needs of ordinary individuals, households and businesses". What does he mean by the future? When will that banking process provide credit to businesses? When the head of the Credit Review Office appeared before a committee last week, he agreed with me that even at this stage we should be considering a State recovery bank to get money to small businesses.
A number of questions are involved there.
It is a very big number of questions. On the suggestion that there is a change of policy, there is no change of policy. It is always open to senior bondholders and bank management to discuss arrangements of mutual advantage.
That was all we were proposing.
A suggestion of an invitation to negotiation under a threat is not in the same equation.
That was never the case.
Please allow the Minister to continue.
Deputy English asked about the cost of the guarantee. Taking the guarantee in isolation, clearly the State earned €1.025 billion in total fees under the two guarantee schemes to date.
Is that profit?
It is pure profit because there was not cost for the guarantee.
The Minister is not a businessman if he calls that profit.
Allow the Minister to proceed.
I am. On the night the legislation was introduced in the House Deputy Burton asked about the question of capital. I replied to her by saying that it was in the first instance a matter for the institutions themselves to capitalise them and that we would go in deep to ascertain what the problems were. We have seen what the problems were.
I will not have a chance to answer Deputy English's next question on capital cost. It is easy to answer institution by institution. Clearly the State has received €500 million for its investment in preference shares in Bank of Ireland already and also has a substantial shareholding in the institution. In AIB, the payment on foot of the preference shares was suspended and the State will have a substantial equity investment in the bank in the future. The costs for Anglo Irish Bank and the Irish Nationwide Building Society have been mentioned in public discussion today.
The question was——
Allow the Minister to answer.
The core central case scenario identified by the regulator is the figure in respect of which the Government is capitalising the bank. On a cash basis, a return of capital to the Exchequer at the conclusion of the period of the existence of the institution and the heavy discounting of the subordinated debt should, if anything, reduce that figure further. It is difficult to put a figure on that.
Some €45 billion to €50 billion.
The figure for the Irish Nationwide Building Society was put this morning. I appeal to Deputies to be careful on this subject for the following reason. I say this in an entirely non-partisan way. One of the defects in the Standard & Poor's evaluation was a complete refusal to acknowledge the existence of a national reserve in the form of the National Pensions Reserve Fund. Given that such an institution is almost unique in European countries, it was not acknowledged in the rating assessment. Hence if figures are beamed abroad that the total cost of the bank investment made by the State is, for example, the €50 billion Deputy Burton mentioned, in the international assessment no account is taken of the fact that part of it was not funded from borrowed money but was funded from existing State resources. We know the policy in that regard, established by legislation, that only companies listed on the stock exchange can be invested in. The account is capital investment for GGB purposes and does not go onto the general Government balance. Clearly the National Pensions Reserve Fund could not be used in the context of Anglo Irish Bank or the Irish Nationwide Building Society. I make that point because some international reports naturally and properly try to estimate the total cost but do not take into account that fact.
We must move on.
Just to clarify my question——
We are already 15 minutes over time on this question.
If the Leas-Cheann Comhairle were here this morning, he would understand.
Please allow me to speak. Please take your seat.
Can I clarify my question?
Deputies are often frustrated by answers and after ten or 15 years I am sure the Deputy will learn to live with it.
NAMA will wash its face.
That is not the question.
We are starting a debate again.
I will give it in one sentence and the Minister can answer it then.
I need to allow Deputies who submitted other questions to have——
I will take ten seconds.
Then the Minister would need to answer on that, which would take more time. I call Question No. 7.
That is ridiculous. We got a guarantee earlier on — just as on every other thing around here.
The next two questions address it, if the Deputy let the Minister proceed.
If the Deputy read ahead, he would find a number of questions that he could——
I accept that.
The Deputy asked five questions.
I did and I——
We are over time and the Deputy did not submit a question on this matter yet.
No, because it did not happen today.
I now call Question No. 7 and the Chair will not be berated.
Sorry, a Leas-Cheann Comhairle, but I got a guarantee earlier that the question would be answered.
The Deputy will now obey the Chair.
Yes. I got a guarantee earlier that I could ask questions.
The Deputy shall have some respect for the institution of which he is a Member.
Banking Sector Regulation
Ciaran Lynch
Question:7 Deputy Ciarán Lynch asked the Minister for Finance the discussions he has had with the Department of Enterprise, Trade and Innovation in respect of the introduction of a small and medium enterprise loan guarantee scheme; if he has made provision for expenditure on any such scheme for 2010, or if he intends to make such a provision for 2011; and if he will make a statement on the matter. [34027/10]
Jan O'Sullivan
Question:23 Deputy Jan O’Sullivan asked the Minister for Finance if he will make a statement on the current small and medium enterprise lending environment; if he is considering any proposals which would ameliorate this lending environment; if he has discussed with the Department of Enterprise, Trade and Innovation, the possibility of implementing an SME working capital loan guarantee scheme; the level of funding that is to be allocated to any such scheme for 2010 and 2011; and if he will make a statement on the matter. [34035/10]
I propose to take Questions Nos. 7 and 23 together.
The Department of Enterprise, Trade and Innovation and Forfás have carried out a detailed examination of loan guarantee schemes and my Department has engaged with them. There are a number of difficulties with the design of a loan guarantee scheme including, how it fits in with the other Government initiatives to support small and medium-sized enterprises, how to ensure that the loans covered would be additional to lending which would otherwise take place in any event and the additional costs and exposures to financial institutions of such a scheme. The Credit Review Office has been set up to ensure that the banks are not refusing credit to viable businesses and it would not make sense to guarantee loans to unviable businesses. I believe Deputy O'Donnell suggested during the NAMA debate that we should have some form of direction regarding banks and lending, and that was the genesis of the Credit Review Office idea. In addition, the SME lending plans of AIB and Bank of Ireland mean that credit should be available as required by small and medium-sized enterprises. Officials from both Departments will work with John Trethowan of the Credit Review Office on options to enhance support for small and medium-sized enterprises. There is no provision in the this year's budget for such a scheme and the 2011 budget, as we know, will be announced in December.
We are trying to give people signs of hope that we can reflate the economy and get some activity going. I have been putting this proposal to the Minister for the past 18 months. There are successful SME loan guarantee schemes working, for example, in the UK, Japan and Hong Kong. As I have mentioned before, I envisage a co-guarantee risk-sharing scheme where the banks make the lending decision, consistent with the Credit Review Office, but the Government steps in to guarantee 50% to 75% of the loan. This means that the bank's exposure is somewhat less. It is a loan guarantee scheme on which, as with the one the Minister discussed earlier, fees are payable. If the Minister believes the banks are lending in any meaningful way to small and medium-sized businesses at the moment, he is not living in the same economy and talking to the same business businesspeople as I am. The work of Mr. Trethowan's group confirms that.
The Minister told us he was preparing a four-year budget plan to be published in November. This is a standard way to kick start loan capacity for small and medium-sized businesses. It is one of approximately ten different plans the Labour Party has proposed. Will the Minister give it favourable consideration?
I will certainly give it consideration and draw it to the attention of the Credit Reviewer, who is engaged in discussions with the Department of Enterprise, Trade and Innovation on this matter. Both AIB and Bank of Ireland submitted lending plans, outlining how they would lend not less than €3 billion per year in new or increased credit facilities both this year and next year. These plans were reviewed by Mr. Trethowan and my Department and were found to be credible. We receive monthly progress reports from the two banks which allow us to ensure they deliver on the strong commitments given in the plans to support viable businesses in all sectors of the economy and in every area of the country. Mr. Trethowan has reported to the Department that both AIB and Bank of Ireland are open for business and that borrowers should use the Credit Review Office if they find this is not the case.
The Credit Review Office started operations in April. The business model is designed to determine whether declined borrowers can demonstrate that their business or farm is viable as a going concern and has cash-generation capability to service the requested credit. An ancillary benefit of the office's establishment has been the setting up of a defined internal appeals system in the NAMA-participating banks. A significant number of refusals are now being overturned. Significant interest has been shown in the office in terms of inquiries, both on the web and by telephone, but this has not been translated into requests for reviews of loan applications where there is a relatively small number. I accept some customers may feel inhibited about making an appeal against an institution.
Does the Minister agree that AIB and Bank of Ireland appear to be more concerned with rebuilding their balance sheets than providing credit to the small and medium-sized enterprise, SME, sector? We hear of countless businesses having their overdraft and working capital facilities reduced. There is an old saying in business, "Cash is king". A profitable business without cash flow will easily go to the wall. A partial loan guarantee scheme will give confidence in business lending. Fine Gael's original proposal of a national recovery bank was based on the fact that the commercial banks had become risk averse. Prior to this, business lending was also very much based on security being provided by property. Does the Minister agree there is a need for a scheme to get credit flowing to the SME sector? NAMA and bank recapitalisations to date have not succeeded in getting credit flowing again. Does the Minister agree there is a need for a partial loan guarantee scheme and a national recovery bank?
I have heard anecdotally that there is some evidence of a difference between AIB and Bank of Ireland in their treatment of business customers. This morning's announcement will help enormously in that regard because it will bring capital certainty to AIB's position. The Government decided the investment in Allied Irish Banks would take the form of cash rather than relying on the accounting device of converting preference shares into ordinary shares.
What was the logic behind that decision?
It was to put the bank back into funds. This comes back to Deputy O'Donnell's point about a national recovery bank. Cash is king and generates the capacity for a bank to lend. Setting up a new bank would mean it would take an extended period to create a realistic presence in the Irish market. That is why the policy of turning around Bank of Ireland, which successfully raised funds on the market on a risk capital basis earlier this year, and Allied Irish Banks, which will be fully capitalised and have market certainty as a result, will enable these two institutions to progress. I am open to examining Deputy Burton's proposal in a constructive way.
Another point made at the committee in question was that providing professional business advice can also help businesses access credit. As many businesses find it difficult to produce, say, cashflow statements for future years, they need greater assistance from management accountants to prepare business plans before seeking loans from the banks. The State could have a role in providing such assistance, similar to the business health check scheme in the UK. Will the Minister, when in discussion with the Department of Enterprise, Trade and Innovation, see if such a scheme could be introduced in the budget through tax breaks or a voucher scheme?
That has been the experience of the Credit Review Office. In some of its appeal cases, it had to assist in the preparation of such documentation.
Does the Minister appreciate that businesses need to get their customers to pay them more promptly to generate more business? The problem is the cash cycle is frozen. The purpose of the Labour Party's proposal for an SME loan guarantee scheme is to get the cash cycle flowing again. The work done by Mr. John Trethowan is fine but Allied Irish Banks and Bank of Ireland will still want to conserve capital to get away from State ownership and dependence as quickly as possible. To achieve this, their credit lines to the SME sector will remain frozen, meaning overdraft and credit facilities will still be curtailed. I spoke to a person last week who was offered an overdraft——
Could the Deputy be brief?
——but the interest rate and facilitation fees were colossal. It was another way of saying "No". I cannot stress how important it is to unfreeze the credit cycle.
I am well aware the pattern of repayment and credit has extended during this recession. I would not say it has frozen in the payment of debtor-creditor balances in the general economy.
It is very tough all the same.
I accept there has been a big extension in the times of payment. There are different approaches to this problem, such as the loan guarantee schemes as proposed by Deputy Burton. Another approach is factoring guarantees. I will draw all these proposals to the Government's attention.
Is the Minister examining a factoring guarantee scheme?
I have been rather busy recently but I will be in contact with the Credit Review Office about this matter.
National Pensions Reserve Fund
Sean Sherlock
Question:8 Deputy Seán Sherlock asked the Minister for Finance if he has instructed the National Treasury Management Agency to prepare an exit strategy for the National Pension Reserve Fund which would see the fund liquidated at relatively short notice to ease the sovereign’s funding concerns; if his attention has been drawn to the fact that the NTMA has done so of its own accord; and if he will make a statement on the matter. [34041/10]
The Investment of the National Pensions Reserve Fund and Miscellaneous Provisions Act 2009 made the necessary legislative changes to the National Pensions Reserve Fund Act 2000 to enable the fund to be used for the purposes of bank recapitalisation. It empowered the Minister for Finance to direct the National Pensions Reserve Fund Commission to invest in listed credit institutions or to underwrite share issues by these institutions where, having consulted the Governor of the Central Bank and the Financial Regulator, the Minister decides such a direction is required, in the public interest, to remedy a serious disturbance in the economy of the State or to prevent potential serious damage to the financial system in the State and ensure the continued stability of that system.
On 30 March 2009, I directed the National Pensions Reserve Fund Commission to invest €3.5 billion in preference shares issued by Bank of Ireland and on 12 May 2009 I directed it to invest €3.5 billion in preference shares issued by Allied Irish Banks plc. On 25 April 2010, I directed it to convert part of its €3.5 billion holding of Bank of Ireland preference stock into ordinary stock as part of the capital raising exercise announced by the bank on 26 April.
In my statement on banking issued this morning, I announced, in order to afford every opportunity to AIB to raise as much as possible of its new capital requirement of €7.9 billion from the markets and to minimise further Government support, that it has been decided the bank's capital requirement will be met through placing an open offer to shareholders of AIB shares to the value of €5.4 billion. This transaction will be fully underwritten by the National Pensions Reserve Fund.
The use of the National Pensions Reserve Fund to recapitalise our main financial institutions on commercial terms is the most appropriate and prudent use of the fund to assist in meeting the financial challenges we are facing. With regard to the sovereign funding position, the NTMA has maintained cash balances of some €20 billion and the Exchequer is fully funded through the first half of 2011.
I have not instructed the NTMA to prepare an exit strategy for the National Pensions Reserve Fund or to have the fund liquidated at short notice to ease sovereign funding concerns. Neither has the NTMA drawn such a strategy to my attention.
Earlier, the Minister was complaining that the National Pensions Reserve Fund was not being taken into the calculations of our overall liabilities by the bond markets. Yesterday, the Minister appointed Professor John FitzGerald of the ESRI to the new Central Bank commission. In an article by Eamon Quinn in the Sunday Tribune on 19 September 2010 he was quoted as saying, “Announcing the sale of the unencumbered €14 billion worth of stock market investments inside the National Pensions Reserve Fund will be a key card for the government to play.” Ciarán O’Hagan of Societé Generale in Paris, a well known commentator on Irish Government bonds, said selling the pension fund would “be a very good surprise” for the bond markets, even though the Government had enough cash to see out the market crisis. Given that yesterday the Minister announced the appointment of Professor Fitzgerald to the Central Bank Commission, he must have been aware, and no doubt his officials briefed him, on this prominent statement by him on the National Pensions Reserve Fund.
The Labour Party put forward a proposal to use €2 billion for a strategic investment bank to kick-start and continue capital and other critical investment. Has the Minister had a chance to examine that?
I was pleased that Professor Fitzgerald agreed to serve as a member of the new Central Bank Commission but he did not express his opinion on the liquidation of the pension fund to me.
He did. His opinion is well known.
He did not express his opinion to me and I had not read the article to which Deputy Burton drew my attention. My officials did not draw his opinion to my attention either and the Central Bank Commission has no function in the operation of the NTMA. It is important that those we appoint to bodies have opinions of their own and it does not lessen in any way the respect I have for Professor Fitzgerald that he expressed such an opinion. That is exactly what it is — an opinion — and the views of the analysts in the article referred to by the Deputy are also opinions. That is their status. I have confirmed the official position, that there was no such instruction to the NTMA, and it has not suggested to me that any such contingency is being planned for. I can only answer from the facts at my disposal in the NTMA.
On the Labour Party proposal on the use of the pension fund, the fund's credibility in world markets depends on its commercial use. It must be demonstrated that it ensures a return to itself in terms of its use and I fear, although I am open to examining the Deputy's proposal, that the structure is one where the funds of the pension fund would be re-routed through another vehicle without any return to the pension fund.
I am prepared to examine any proposal for the constructive use of the funds at the disposal of the NPRF.
The Minister is raiding the fund for the banks.
As has been pointed out, the investment by the pension fund in the banks is restricted to banks listed on the stock exchange.
What will be final investment by the NPRF in the banks? Does the Minister anticipate the bond yields will reduce in the next month? At what point would the Minister consider going for a bond auction if yields fell below a certain level?
The sums I envisaged being invested are those invested to date, subject to the case that in AIB there is an issue about the disposal of M&T.
So there is a contingency of €7.9 billion?
Yes, but the contingency is fully within the existing cash capacity of the pension fund.
That is €15 billion in total.
I will be guided by the advice of the NTMA in the matter.
If yields were at a certain level, would the bond auction happen in October?
It is unlikely because we are funded until the middle of next year and it is important that we demonstrate not just the credibility of the banking policy, but the credibility of budgetary policy as well.
Would it not bring credibility if the Minister could go to the bonds?
Written Answers follow Adjournment Debate.