During 2009 it was determined that Anglo and INBS required additional capital. A commitment was provided by the then Minister to Anglo and separately to INBS to provide capital of €8.3 billion and €2.7 billion, respectively. This capital was provided on 31 March 2010. In relation to Anglo, this €8.3 billion of capital was injected by way of a capital contribution. This capital contribution is treated as equity capital for regulatory capital purposes. In relation to INBS, a special investment share was acquired for €100 million in cash and a further €2.6 billion was subsequently injected by way of a capital contribution.
The Government did not pay for these capital contributions in Anglo and INBS with cash. The Government effectively issued an IOU, in the form of promissory notes, to Anglo and INBS for €8.3 billion and €2.6 billion, respectively. As the State had a debt to the institutions, it also had an associated interest charge. This interest charge was set by reference to Government yields at the date of issue on 31 March 2010.
Subsequently, it was determined that Anglo and INBS needed additional capital, which was again provided by increasing the 31 March 2010 promissory notes. The final promissory note increase was on 31 December 2010 bringing the total promissory notes in Anglo and INBS to €30.6 billion. See table below for the increases:
|
€ billion
|
Anglo
|
INBS
|
Total (IBRC)
|
|
31 March 2010
|
8.30
|
2.60
|
10.90
|
|
28 May 2010
|
2.00
|
—
|
2.00
|
|
23 August 2010
|
8.58
|
—
|
8.58
|
|
31 December 2010
|
6.42
|
2.70
|
9.12
|
|
25.30
|
5.30
|
30.60
|
When the final capital contribution was made on 31 December 2011 an interest holiday was inserted into each of the promissory notes which meant that between 1 January 2011 and 31 December 2012 no interest was payable. Absent the interest holiday the weighted average interest rate on these promissory notes would have been 5.8%. However, as a result of the insertion of the interest holiday the weighted average interest rate from 1 January 2013 is 8.2%.
While there was an interest holiday this does not affect the promissory note repayments of the principal amount. The cash flows on the promissory notes are 10% (€3.06billion) of the original amount per annum until the full amount is repaid. Set out below is a detailed aggregated schedule of capital repayments and interest payments on the promissory notes:
Promissory Note Schedule — Anglo and INBS*
|
€bn
|
Total Interest Paid: A
|
Total Capital Reduction: B
|
Repayments: A + B
|
|
31/03/2011
|
0.55
|
2.51
|
3.06
|
|
31/03/2012
|
—
|
3.06
|
3.06
|
|
31/03/2013
|
0.49
|
2.57
|
3.06
|
|
31/03/2014
|
1.84
|
1.22
|
3.06
|
|
31/03/2015
|
1.75
|
1.31
|
3.06
|
|
31/03/2016
|
1.65
|
1.41
|
3.06
|
|
31/03/2017
|
1.55
|
1.51
|
3.06
|
|
31/03/2018
|
1.44
|
1.62
|
3.06
|
|
31/03/2019
|
1.32
|
1.74
|
3.06
|
|
31/03/2020
|
1.19
|
1.87
|
3.06
|
|
31/03/2021
|
1.06
|
2.00
|
3.06
|
|
31/03/2022
|
0.91
|
2.15
|
3.06
|
|
31/03/2023
|
0.75
|
2.31
|
3.06
|
|
31/03/2024
|
0.57
|
1.52
|
2.09
|
|
31/03/2025
|
0.45
|
0.47
|
0.91
|
|
31/03/2026
|
0.39
|
0.52
|
0.91
|
|
31/03/2027
|
0.33
|
0.58
|
0.91
|
|
31/03/2028
|
0.26
|
0.65
|
0.91
|
|
31/03/2029
|
0.19
|
0.73
|
0.91
|
|
31/03/2030
|
0.10
|
0.81
|
0.91
|
|
31/03/2031
|
0.01
|
0.05
|
0.05
|
|
16.8
|
30.6
|
47.4
|
* These numbers may not tot exactly as a result of rounding
As set out above, the total interest cost for the State for all tranches of the Anglo and Irish Nationwide promissory notes is €16.8 billion with annual repayments of €3.06 billion per annum until 2023, reducing thereafter until 2031 when the final repayment is made. These annual repayments reduce over time as the various tranches of the promissory notes are repaid. The final payment on the promissory notes of circa €0.1 billion will be made on 31 March 2031. The total cost of the promissory notes including the principal amount and interest will be €47.4 billion over the life of the promissory notes.
The Promissory Note acts as collateral under emergency liquidity assistance (ELA) loan (repo) agreements with the Central bank of Ireland (CBI). The promissory note is, therefore funded by ELA, provided by the Central Bank of Ireland (CBI). This ELA is itself funded by the CBI through Intra-Eurosystem liabilities and any repayments of ELA are used to reduce this liability on the Central Bank's balance sheet. Other than that there is no link between the Promissory Note and ELA.
As the repayment of the capital amount of the Promissory Note and the interest payments fall due the payments will provide cash to IBRC and thereby reduce the bank's requirement for ELA. It is these repayments from the Government's Promissory Note IOU and flows from IBRC's banking assets that will repay ELA over time.
As the Deputy is aware the Government is currently engaged in a process with our Troika partners with a view to re-engineering of the capital commitment to IBRC. This review of the promissory note will consider a range of possible options to reduce the burden on the State including a reduction in the interest rate and consideration as to other possible sources of funding etc.
I expect that the report of the technical group charged with looking at options will, in the first instance, form the basis of discussion with the Troika at senior level and from there will be considered by the Commission and the ECB in consultation with us. If the discussions are successful, it could result in the replacement of these notes with an alternative instrument and a change in the repayment profile of the associated funding. The government's approach in this matter is to vigorously pursue a resolution that is in Ireland's interests but to do so with the agreement of the ECB, the IMF and EC.
