A salutary tale of two Irelands

John Corrigan addresses the Irish Association of Pension Funds' annual investment conference in Dublin this week.   Picture: Mark Harrison
John Corrigan addresses the Irish Association of Pension Funds' annual investment conference in Dublin this week. Picture: Mark Harrison

While National Treasury Management Agency chief John Corrigan hails the news that his organisation has raised €5bn of 10-year money, the austerity programme is strangling life for many Irish citizens, says Kyran Fitzgerald

IT was another upbeat week for Ireland Inc — and one more pretty lousy one as far as many of its citizens were concerned.

The National Treasury Management Agency flushed with pleasure like a pretty debutante on her first day at court, faced with an array of suitors.

Eyelids fluttering, NTMA boss John Corrigan was gasping with joy at the news that his organisation had raised €5bn of 10-year money — twice as much as expected — at an interest rate of 4.15%.

The NTMA was keen to add that it had offers for as much as €12bn, though whether all these disappointed suitors were prepared to settle for a yield of just over 4% is debatable.

Yields on Irish Government paper have been falling steadily since summer 2011, when Italy found itself being sucked into the eurozone crisis.

For quite some time, Finance Minister Michael Noonan has been signalling that the country is on course to exit the EU/IMF bailout by the year end. This week’s sale represents a larger than expected step in this direction.

The country has now raised three quarters of the funds required to keep the State going through 2014.

There has even been talk that Ireland might not use up all of its bailout money, though given that it is on offer at between 3% and 3.5%, this seems unlikely.

The ability of the country to borrow and to do so at relatively low interest rates is clearly important.

Irish utilities are much better placed to refinance at lower rates on the back of a recovering sovereign. This increases their ability to fund projects and rein in the bills which they send out to customers. The ability of Irish banks to stand on their own two feet is also boosted.

What we are beginning to see is a sequence of events feeding positively off each other.

Bank of Ireland moved in the slipstream of the 10 -year bond issue with the launch of a five-year bond aimed at raising €550m.

The semi-states have also returned to the bond markets, with over €1bn worth of issuance by the ESB and €500m by Bord Gáis Éireann. Its sale prospects, in turn, will have been boosted.

Overseas interest in investing in the country, whether in public-private partnerships, share-holdings or greenfield projects, will have been boosted. Companies are depositing more funds in Irish banks and the reliance of domestic Irish institutions on the European Central Bank for support has fallen back to levels last seen in 2008.

For all of this, the Government must take a bow, but it is precisely the austerity programme dictated both by the EU/ IMF/troika and by harsh economic reality which is strangling life on Main St, where the vast majority of the population lives.

On Thursday evening, it emerged that the country’s largest trade union, SIPTU, would be reluctantly recommending acceptance of a deal paving the way for a €1bn programme of cutbacks in the pay and pensions bill — €300m this year.

While the deal is by no means home and hosed, the union establishment and, one suspects, a significant chunk of the membership, is adopting a pragmatic attitude to what is a cleverly crafted take-it-or-leave-it deal.

Cuts to the pay of hundreds of thousands of workers will do little to promote growth at a time when property tax demands are about to plop through letter boxes and when banner headlines warn of a surge in repossessions.

In the unemotional world of the financial markets, the job of John Corrigan and his team is to sell the Irish story at road-shows in Europe, the US and Asia. It will be interesting to see if one effect of this week’s issue will be a widening in the bondholder investment support base.

Much has been made of the fact that one fund, Franklin Templeton, holds around one 10th of the paper in issue.

Questions have been raised as to what might happen if its director, Michael Hasenstab, decided to take some or all of the large profits he has made on Irish paper since 2011.

What is clear is that it is overseas investors and not domestic banks, who are scooping almost 90% of the paper, with European and American institutions to the fore and Asian investors lagging well behind.

The Asian concern centres on the eurozone and its prospects and this also helps to explain the continuing reluctance of Moody’s to abandon the junk bond rating it attaches to Ireland, despite its acceptance that the country is on the road to recovery.

It is more than a little ironic that the country’s recovery is being stalled, courtesy of a deepening recession in the eurozone.

Indeed, coverage of the Irish bond issue, a good news story, was overshadowed by a much more sluggish Italian bond issue held on the same day. The Italians are having to pay more to raise money, punished by the markets for the temerity of their voters in consigning pro-economic ‘reform’ politicians to the political wilderness.

The continuing crisis means the Irish export ‘motor’ of recovery is grinding along more slowly than expected.

John Corrigan and his colleagues have reason to be upbeat about some skilfully executed entry to the bond market, but if the euro crisis were to re- ignite and/or the current global bond bubble were to pop, they could at least rest easy in the knowledge that another €5bn is in the bag.

Ireland has had a pretty good run. Yields on benchmark 10-year money have fallen steadily from a peak of 14% in mid-2011 to just over 4% but apple-carts can overturn, investor mood can change. Better, sometimes, to bank your winnings.

The larger than expected issue can be viewed as a gesture of caution. With 30 years’ investment experience under his belt, and with memories of 2007 and 2008 no doubt still fresh, Mr Corrigan knows the benefits of caution.

All going well, the NTMA will now make regular dips into the market to raise short-term money, while keeping up its contacts with fund managers. Corrigan has indicated that another €2.5bn in longer term money will be raised by the year end, at a time of the agency’s choosing.

Corrigan as NTMA head has a number of other important irons in the fire, not least the relationship with Nama, which has just seen the size of its empire boosted by the inclusion of property previously on the books of the now liquidated IBRC.

The NTMA will be spearheading the sale of Bord Gáis on behalf of the state holding company New Era, while continuing in charge of a shrunken National Pensions Reserve Fund which has just committed €500m towards Irish SMEs.

The resumé

- Born: 1951.
- Education: University College Dublin.
- Career: 1980s, chief investment officer, AIB Investment Managers. - 1991: Joined NTMA shortly after its launch by the Haughey government.
- Initial position: Director, domestic funding-debt management.
- 2001-2009: Investment director, National Pensions Reserve Fund.
- 2009 to date: Chief executive.
- In the news: Oversaw this week’s €5bn issue of 10-year bonds, the largest such Irish state issue since the beginning of the financial crisis.

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