tag:blogger.com,1999:blog-3063599363545760991.post8230854718174006606..comments2024-03-28T00:50:18.797-07:00Comments on Bondwatch: THE DIRTY DOZEN w/e Dec 16th 2012Diarmuid O'Flynnhttp://www.blogger.com/profile/02014427650676137740noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-3063599363545760991.post-46252804793351059702012-12-14T05:44:47.270-08:002012-12-14T05:44:47.270-08:00Many thanks for that Seamus - I think I managed to...Many thanks for that Seamus - I think I managed to follow it all!<br /><br />To sum up, in direct contradiction of what Pat Rabbitte has said, what's crystal clear is that the Promissory Note for 2012 WAS paid and that €3.06bn destroyed by our Central Bank.<br /><br />What's cloudy and confusing (probably deliberately so) is HOW the money was raised and paid. Sovereign 2025 €3.46bn bond, NAMA, BofI, then back to IBRC via repo, possible sale, possible redemption of full €3.46bn bond in 2025, interest to be paid in the meantime.<br /><br />Again though, when you follow the trail and regardless of which direction it takes, we - the Irish people - are paying for that bond. Whether it's in March 2013 after a repo or in March 2025, we'll pay. <br /><br />Perhaps what Pat Rabbitte means when he says 'We didn't pay in 2012' is 'we' the Labour and Fine Gael government, thus disassociating himself from 'we the people'.<br /><br />On your last line, you know my feelings on that already; no deal, no delay, just outright destruction of those notes most odious!Diarmuid O'Flynnhttps://www.blogger.com/profile/02014427650676137740noreply@blogger.comtag:blogger.com,1999:blog-3063599363545760991.post-53647149601820605392012-12-11T02:22:10.317-08:002012-12-11T02:22:10.317-08:00Diarmuid,
You are 100% correct that the March 201...Diarmuid,<br /><br />You are 100% correct that the March 2012 payment was made; it was <a href="http://economic-incentives.blogspot.ie/2012/03/much-ado-about-nothing.html" rel="nofollow">much ado about nothing</a>. A similar fudge in March 2013 will gain nothing and it is useful to work through some possible costs.<br /><br />The cost is not as large as you suggest though. Yes, a bond with a nominal value of €3.46 billion was issued but there will be no payment of €3.46 billion to meet the €3.06 billion due on the Promissory Notes.<br /><br />The €3.46 billion bond was given to the IBRC who (after using NAMA for two months) then sold it on to BOI for €3.06 billion. The IBRC has an obligation under the repurchase agreement to buy the bond back after one year and also for €3.06 billion. See <a href="http://www.bankofireland.com/fs/doc/publications/market-news-and-analysis/proposed-securities-repurchase-transaction-and-notice-of-egc.pdf" rel="nofollow">this notice</a> from BOI:<br /><br />"Under the terms of the Repo, IBRC will have an obligation to repurchase the Bonds from the Bank for approximately €3.06bn in cash not later than 364 days after the effective date."<br /><br />The state (i.e. the IBRC) got €3.06 billion for the bond from BOI last May and will pay €3.06 billion to get the bond back. Under the current agreement the €3.46 billion will not be paid. <br /><br />The cost will be in terms of the interest. The coupon on the bond is 5.4%. So over the year BOI will collect around €185 million of interest. BOI has to source the €3.06 billion to give to the IBRC and they estimate that:<br /><br />"it is estimated that the Bank will earn €38.7 million under the Transaction."<br /><br />It is not clear what money, if any, would be earned by the IBRC (or NAMA for that matter as they were involved for the first two months) on the transaction.<br /><br />For comparison purposes if €3.06 billion borrowed from the Troika at around 3.7% had been used to make the payment the interest cost for the year would have been around €115 million. <br /><br />The sleight of hand did cost money. At the time, the Minister <a href="http://finance.gov.ie/viewdoc.asp?DocID=7195" rel="nofollow">said</a>:<br /><br />"This will have an approximate €90m impact on the general government deficit in 2012 which is small relative to the overall benefit of the removal of the requirement for the Exchequer to settle €3.06 billion in cash."<br /><br />This is very vague. The impact is undoubtedly negative but it is not clear if any of this money will go to the IBRC and NAMA. If some of it does then although there is a cost in terms of the deficit the money is not lost by the state as it moves within institutions that are 100% state-owned. <br /><br />The cost is likely to be between the €40 million to be gained from BOI on the deal (in which we are a 15.1% shareholders) and the €90 million addition to the general government deficit. <br /><br />The benefit is that there is still €3.06 billion sitting in the Exchequer account that would otherwise have been used to make the Promissory Note payment. Of course, the IBRC has to buy the bond back for €3.06 billion from BOI so this may only be temporary.<br /><br />If, after the repurchase, the IBRC can find a voluntary private buyer for the €3.46 billion 2025 bond, then given current market prices they would be able to sell it for around €3.55 billion. Of course, then the state would have to make the 5.4% coupon payment each year and would have to repay the €3.46 billion in 2025. If such a buyer could be found it would be the equivalent of issuing a 12-year bond at a yield of around 5%.<br /><br />The key concern in all of this has got to be the rate at which the Exceptional Liquidity Assistance drawn down from the Central Bank of Ireland is paid back. This year's fudge, and something similar next year do absolutely nothing to that. As long as the Central Bank gets the €3 billion odd to burn the ECB doesn't care where the money comes from. It is this process that must be stopped or, at the very least, delayed for a very long period of time.Seamushttps://www.blogger.com/profile/15679299530222667673noreply@blogger.comtag:blogger.com,1999:blog-3063599363545760991.post-70935890447509236972012-12-10T10:32:59.218-08:002012-12-10T10:32:59.218-08:00"outright lies being told by various Minister..."outright lies being told by various Ministers go unchallenged by our mainstream media"<br /><br />As a member of the mainstream media did you attempt to challenge these lies through traditional channels?Anonymoushttps://www.blogger.com/profile/05263943191406910192noreply@blogger.com