Dáil Éireann Debate, Wednesday - 16 January 2013
176. Deputy Pearse Doherty asked the Minister for Finance following the announcement that negotiations to sell Bank of Ireland Contingent Capital Notes had concluded, if he will confirm the way he ensured that all potential buyers of the CCNs had equal access to all information required to make an investment decision. [1726/13]
View answer177. Deputy Pearse Doherty asked the Minister for Finance following the announcement of his Department on 9 January 2013 that negotiations to sell €500 million to €1 billion of Bank of Ireland Contingent Capital Notes has concluded, if he will confirm if the sale had been discussed by the Board of Bank of Ireland; the date or dates on which it was discussed and if he had been lobbied or received requests from other investors in Bank of Ireland or their representatives urging a disposal of the CCNs. [1727/13]
View answer208. Deputy Kevin Humphreys asked the Minister for Finance if, in respect of the sale of the €1 billion note of contingent capital in Bank of Ireland, the sale was handled by the National Treasury Management Agency or his Department; if the sale was advertised; the way the sale will impact on the Exchequer deficit for 2013; and if he will make a statement on the matter. [1918/13]
View answerI propose to answer questions 176, 177 and 208 together.
As announced by my Department last week the State was successful in disposing of its entire €1 billion holding of Contingent Capital Notes (CCN’s) in Bank of Ireland. The transaction followed an initial approach by a number of investment banks to the Department late last year which indicated that there was sizeable investor interest in the State’s CCN instruments and particularly the holding in Bank of Ireland. The Sale was managed by officials in the Department’s Shareholder Management Unit, with many years’ experience working in financial markets and was not only timed to take advantage of the improving sentiment towards Ireland and its banks but the huge rally seen in international debt markets which has continued into 2013.
The transaction when announced saw the State presented with the opportunity to dispose of a minimum of €500 million of its position at a price of par. This stemmed from an underwrite provided by the consortium of banks – UBS, Deutsche Bank and Davy – having done a preliminary assessment of market appetite for the notes. In the end the book build process generated significant excess demand to enable the State to dispose of its entire holding in the bonds at a price of 101% of their par value plus accrued interest. This generated a profit for the State of €10 million. Taking account of the coupon paid to the State last year, the taxpayer has earned a total return of over 15% in the space of 18 months.
My officials had full visibility during the book build and pricing phases and were also provided with some valuation advice from NCB Stockbrokers which helped inform their judgement. The transaction was well received in the market and indeed the bond traded a few points higher in the after-market during its first few days of trading. This reflects a market recognition of a very successful transaction for Ireland, one in which we have exited this element of support to our banks with a profit. It points to a recognition that Ireland is successfully working to correct the very deep failings that have affected us in the past number of years. In recognising this, however, we must also acknowledge that this after market price is for a very small volume of stock compared with the €1bn size of the transaction.
The transaction was settled on Tuesday the 15th of January and the State was paid proceeds of just over €1,056 million, comprising principal of €1,000 million, interest accrued of over €46 million covering the period 29th July 2012 to date, and a profit of €10 million. As we will use the proceeds of this sale to reduce the State’s indebtedness, it will reduce the critically important debt/GDP ratio by 0.6 per cent.
The 2013 Exchequer’s position is improved by the full €1,056 million received plus an estimated additional €38 million debt service saving because of the reduction in the Exchequer Borrowing Requirement giving a gross improvement of €1,094 million. However, this will be offset by the loss of €100m interest that had been due in July 2013. This reduction in anticipated Exchequer receipts means that the net improvement in the Exchequer’s position in 2013 will be just under €1 billion. In 2014, when there will be no further capital receipts or interest income in relation to this coco, the Exchequer effect is estimated to be a reduction of €47m, which is the interest differential on €956 million of borrowings between the Exchequer borrowing rate and the Bank of Ireland interest rate.
The State’s investment in these instruments dates back to the 2011 PCAR exercise, and the successful exit from a large portion of this position represents another step along the road to normalising the State’s relationship with the banking sector. It is government policy to separate the State from its’ banks, a policy which I believe has shared support in this house. This policy will see the State this year remove the guarantee of bank deposits and liabilities which dates back to September 2008 and it also requires us to exit our bank investments over time and when conditions allow. It is true that as the CCN investments were earning the State a generous 10% return per annum, the exchequer will have to forgo this income but will also reduce its risk exposure to the banking sector. The State made this investment only out of necessity and it is pleasing that we have been able to exit this portion of our investment early and profitably.
I can further confirm that I was not lobbied nor received requests from other investors urging a disposal of the CCN’s while Bank of Ireland have informed me that as one would expect with a transaction of this nature, it was discussed and considered at appropriate levels in Bank of Ireland including at the Board. However the Bank does not provide further disclosure on such deliberations.
