Talks ongoing on how to cut Anglo wind-up cost

TECHNICAL discussions are ongoing with the European Commission and the European Central Bank to explore ways of reducing the cost of winding up Anglo Irish Bank.

Spokespersons for the European Commission and the Department of Finance confirmed that talks were ongoing at a technical level on the subject. It is estimated that it will cost Irish taxpayers at least €47bn over the next 10 years.

While the bank is now defunct and the country has undertaken to repay unsecured, unguaranteed bondholders, the system of promissory notes established to recapitalise the bank is proving to be very complex. Much of the bonds are now owned by the European Central Bank that is currently providing unlimited liquidity to Irish banks although they have refused to commit to doing this on a long-term basis.

The very high interest rate of 8.2% agreed to be paid to Anglo is also a bone of contention but again, because of the complexity of the deal, reducing it could produce very limited savings.

The issue was raised by Finance Minister Michael Noonan with European Economic Affairs Commissioner Olli Rehn in September on the margins of the informal finance ministers’ meeting in Poland.

The response from the Commission and the ECB has been less than enthusiastic as they view the need to honour the promissory notes as part of the effort to build credibility for Ireland and the euro in the markets.

However, with negotiations ongoing on haircutting private sector involvement in Greek debt by 50%, the issue has again come into the spotlight. But EU and IMF debt will not be haircut under these arrangements, thus limiting the extent to which savings can be made on the Anglo IOUs.

Mr Noonan is hoping that, with changes to the EU’s loan fund, the European Financial Stability Facility (EFSF) that allows it to lend for bank recapitalisation, they will find some leeway to help cut Ireland’s debt.

The Government was also anxious to raise the prospect of cutting this massive debt last week when there was much public disquiet over paying out €700m to unguaranteed, unsecured bondholders in Anglo, many of whom had bought the bonds on the secondary market at close to half price and for which the payment was a sizeable windfall.