Is this the final act in the story of the world’s worst bank Anglo Irish?

7th February 2013

The Irish Government has passed emergency legislation in the small hours of this morning to wind up the Irish Bank Resolution Corporation, the successor ‘bad bank’ to Anglo-Irish Bank and Irish Nationwide as the Irish Times reports.

KPMG went into the offices of the IBRC to commence the wind-up following reports about the Government's plans on several newswires earlier this week. It was feared that the news could have seen the value of some of the bank's assets deteriorate further.

Crucially, the European Central Bank has still to agree to the wind up because it would also see Ireland lessening the burden of payments on promissory notes to the ECB worth €28 billion connected to the failed bank by replacing them with longer term bonds. The note also included the debts of the defunct Irish Nationwide (not connected to the UK building society) which was also hugely involved in the property boom and subsequent crash.

The difficulty is that it might mean the European Central Bank effectively extending direct help to the Irish Government, something it is not allowed to do or at least not in theory.

Anglo-Irish has proved to be one of the most controversial bailouts in the world. The bank managed to break itself through what might be called extravagant lending to individuals and property developers involved in Ireland's property boom, though there also many loans for developments elsewhere in the world including Dubai. But because it did not have an extensive depositor base, or much other activity outside of property, many commentators have questioned the decision by the previous Fianna Fail government to include the bank when Ireland stood behind all its failing financial institutions back in 2008. This decision subsequently forced Ireland to seek European Union help.

The promissory note has become incredibly controversial in Ireland with calls just this week by Irish journalist , author and Irish Times columnist Fintan O'Toole for a petition of Irish citizens calling for the Government to stop paying it. The petition hasn't actually been made live yet, but O'Toole had given his readers a preview.

“As citizens of Ireland, we believe that the payment of €3.1 billion a year, every year until 2023, for Anglo Irish Bank and Irish Nationwide is reckless, immoral and unjust. These ‘promissory notes’ have imposed the debts of now-defunct private institutions on Irish citizens as a whole. These are debts which we cannot, should not and will not pay.

“We therefore instruct our Government: (a) to declare by March 17th, 2013, that it will not make the payment of €3.1 billion due on March 31st, 2013, and to inform the European Central Bank that it will no longer co-operate with this unjust imposition of private debts on the Irish people.

“(b) not to enter into any arrangement with the European Central Bank that involves any acceptance of a duty to pay these debts and/or any substantial payment of Irish public money on foot of the promissory notes.

“We further declare that unless the Government makes this declaration by March 17th, 2013, we will engage in peaceful and dignified mass protest in a form to be decided by ourselves collectively.”

Obviously Mr O’Toole and his supporters will be scrutinising the terms of the 'conversion'. It appears to meet at least some of their demands though perhaps not all.

But of course, it is not just Mr O’Toole and his supporters whom the Irish Government must convince. It is also the ECB. The Wall Street Journal sets out the issues involved, the biggest being whether the creation of the bond represents state help. It also unclear whether the conversion could have any implications for the bad banks' creditors – including many German banks. No doubt, any potential losers will be making themselves heard in the next few days. 

The final question must be whether the ECB will then come under pressure to ease terms for other bailout recipients or will this be seen like Anglo-Irish itself as a special case?  

 

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