Getting us back on our own two feet
THIS was a week that the Taoiseach Enda Kenny may want to forget: a payment of €1.25 billion to those much despised Anglo Irish Bank bondholders followed by that supposed gaffe at Davos, yet it was also one which brought important news on the fundraising front.
The National Treasury Management Agency was able to announce that it had extended the maturity profile of just over €3.5bn in Irish debt falling due in Jan 2014 up until Feb 2015. This effectively eases the funding position for 2014, when Ireland supposedly will be in a position to stand on its own two feet at the end of the EU/IMF bailout programme.
Of course, many still believe that a second bailout will be inevitable given the ongoing eurozone crisis. Nevertheless, the NTMA’s successful bond swap will have done the country’s image no harm at a time when Ireland is clawing its way back to a form of respectability.
Davy Stockbrokers talked up the whole exercise: “The offer marked the Irish sovereign’s first engagement with the bond markets since the EU/IMF package was agreed.”
Others have reacted more cautiously as the release of a low interest, three-year €500bn by the ECB benefited most sovereigns.
Alan McQuaid of Bloxham Stockbrokers said:
“The successful bond switch provides a crumb of comfort for a Government facing scathing criticism for paying further senior debt at Anglo. The move by the NTMA was very positive in that it creates a viable route for the agency to regain market access.
“The only disappointing aspect was the amount of foreign demand. To secure a really successful Irish return to the bond market, the international investor has to be more involved.”
However, McQuaid praises the NTMA’s boss John Corrigan and Oliver Whelan, the man in charge of bond auctions, for being prepared to be audacious in taking advantage of the credit Ireland has recently earned in the markets.
McQuaid expects that the agency will be back in the market before long, seeking to shift out repayments on loans into 2015 and beyond.
Corrigan will no doubt take some quiet satisfaction from the move, but he will have little time to dwell on this success.
When originally established back in 1990, the NTMA’s role was to manage efficiently the country’s debt pile, operating with a commercial remit.
It was set up so as to ensure that public service pay restrictions were bypassed, allowing the State to hire in top financier talent.
Most agree that it has delivered on its original mandate and, over time, the Government has awarded it with an ever increasing range of responsibilities.
Several other states have established similar agencies.
It has arguably saved the state many hundreds of millions, if not billions, in interest costs.
The NTMA now operates as a holding company in charge of an empire that includes the National Pensions Reserve Fund, the National Development Finance Agency, the State Claims Agency and now, NAMA, the asset management agency.
From 1990 until 2009, the NTMA was run by Michael Somers, a powerful and independent-minded public servant, who didn’t bother to disguise his views on the performance of the government. For much of this period, the emphasis was on new functions such as the financing of infrastructure development through public-private partnerships and the management of surplus assets. Memories of the 1980s and early 1990s began to fade. Almost from the start, Corrigan operated as the right hand man to Somers, having spent much of his early career in the Department of Finance before moving to AIB Investment Management. Insiders say that Somers tended to listen politely to advice and then do what he originally planned to do, whereas Corrigan, who succeeded Somers in 2009, may actually change his mind.
Corrigan is more than happy to vigorously defend his organisation against attacks from those who suggest that NTMA executives are overpaid. Corrigan revealed that he was paid almost €500,000 in salary in 2010. His predecessor took home almost €1m. The agency has been accused of putting forward the ‘L’Oréal defence — “because we’re worth it.”
Corrigan points to the ongoing need to attract and retain skilled people. In recent months, it has suffered the loss of several young experts to the City of London.
He highlights the strong performance of the now sadly diminished National Pension Reserve Fund (drained of its assets in order to replenish the banks).
The NPRF earned an annual compounded return of 3.2% between 2001 and 2011, when investment in the Irish banks is excluded. This compares with a return of just 0.6% a year over the same period by private pension funds. The fund is run by a tight team of just 13.
Corrigan also cites the decision to take out portfolio insurance which preserved fund assets when the market was hammered last year. Increasingly, the emphasis is on debt rather than asset management as the national debt bomb ticks up ever higher.
Whatever his private thoughts on the subject, Corrigan adheres to the official position that there will be no need for a second bailout. This requires the putting in place of funding well ahead of the late 2013 deadline (when the EU/IMF bailout is due to run its course). Expect further well-timed swoops on the market.
The last thing the NTMA would want is to try and raise funds close to the Jan 2014 deadline, when around €9bn — after the bond swap — still remains to be refinanced. To wait until then would be to leave the country hostage to the markets and forced to pay way over the odds.
Corrigan has other big fish to fry. Nama is now tightening the screw on some very big name developers, the latest being Treasury Holdings. The appointment of receivers to Treasury properties is being fiercely resisted. Corrigan knows that Nama’s performance is under the microscope as never before.
Nama secured a big victory in persuading the Coalition to abandon its plans to retrospectively alter upwards-only tenant agreements. This week, Corrigan returned a favour to the Government, at least in part.
The NTMA head is only too aware that international developments could upset his carefully constructed apple cart. In 2010, the agency met all its fundraising targets, and still Ireland ended up toppling into a bailout as the financial markets lost faith in the ability of the Irish government to deliver.
Now, the crisis is a European one and all bets are off as far as 2012 is concerned.
All Corrigan and his team can do is keep selling the Irish story, keep meeting with the institutions — three hundred in the past six months — and try and keep the faith.
* Worked for several years in the Department of Finance before joining AIB Investment Managers as chief investment officer.
* 1991: Joined the NTMA, soon after its establishment. He was initially responsible for managing the domestic component of Ireland’s national debt. * 2001: Involved in the establishment of the National Pensions Reserve Fund at the behest of the then finance minister Charlie McCreevy. * 2001-2009: Investment director NPRF. * 2009 to date: NTMA chief executive; director of NAMA.
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