I propose to take Questions Nos. 24, 35 and 36 together.
As I stated after my meeting with ECB President Trichet and Commissioner Rehn last month, our European partners expressed strong reservations about burden sharing with senior bond holders in Anglo Irish Bank, now known as IBRC. Mr. Trichet voiced his opinion that he is against such actions for two reasons:
Firstly private sector involvement carries very significant contagion risk and may be inconsistent with encouraging private investors to return to markets.
Secondly, he said Ireland had done particularly well over the summer. He mentioned the narrowing of bond spreads and he said that he felt that anything to do with senior debt burden sharing might knock the confidence of the market in the absolute commitment of the government to take once again its place in normally functioning markets; bond yields spreads wider again and we lose the ground we had gained.
Mr. Trichet's views were echoed by Commissioner Rehn. The positive international commentary on Ireland has been created by the Government's successful renegotiation of the Memorandum of Understanding, the introduction of the Jobs Initiative, the sizeable reduction of the interest rate on the EU IMF Programme and the reduction in the cost of the banks to the taxpayer.
The value of support, present and future, we receive from our European partners far outweighs any short term gain from imposing burden sharing on these bonds in the face of European opposition to such a move.
However, we still have unfinished business with our partners to find the most cost effective way of resolving IBRC over the long term. Technical discussions between officials are underway at present in relation to the IBRC promissory notes.
For these reasons I have decided not to take unilateral action in relation to burden sharing. IBRC is therefore repaying, today, senior debt of USD1 billion (circa €0.7 billion). This was a publically traded senior liability that the Bank was contractually obliged to repay on its maturity date.
I am advised that the process of issuing new bonds is normally through underwriting, where one or more securities firms or banks form a syndicate buying the entire bond issue from the issuer and then re-selling to investors. Primary issuance is arranged by these syndicates who contact potential investors and advise the bond issuer in terms of timing, tenor and pricing of the bond issue. The bond issuer will likely have little knowledge of the original owners of the bonds; also these initial investors may over time sell the bonds to other investors.
Bonds are usually issued in bearer form which means that the purchasers of the bonds are unknown, with the bonds usually held by a securities depository company (e.g. Euroclear and Clearstream). When paying interest and principal the bond issuer will transfer the required funds to the securities depository company who in turn will pay the funds through to the bondholders.
The function of the securities depository company is to receive the appropriate interest or principal payment for the entire bond issue from the issuer and to distribute the required amounts to the individual bondholders. This is a standard process for all such issuances. Therefore throughout this entire process the bond issuer is unaware of the individual bondholders' details.
IBRC has announced the sale of their $9.2 billion loan book has begun and approximately $3.5bn of gross loans has transferred to buyers. The net proceeds from the sale will allow the Bank to repay these unguaranteed bonds and will also allow the Bank to reduce their borrowings, including Emergency Liquidity Assistance (ELA) from the Irish Central Bank.
It is important to state that the redemption of the bond will be made by IBRC. It will not be funded by the Exchequer.