Oireachtas Joint and Select Committees
Thursday, 24 January 2013
Joint Oireachtas Committee on Finance, Public Expenditure and Reform
Overview of Economy and Funding Requirements: Discussion with NTMA
2:10 pm
Ciarán Lynch (Cork South Central, Labour)
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We resume in public session to discuss No. 7 on the agenda, an overview of the Irish economy and its funding requirements. I welcome Mr. John Corrigan, chief executive of the NTMA, who is accompanied by Mr. Oliver Whelan, director of funding and debt management, and Mr. Brendan Murphy, director of finance. After opening remarks by Mr. Corrigan, we will have a question and answer session. I remind members, witnesses and those in the public Gallery that all mobile telephones must be switched off.
By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence you are to give this committee. If you are directed by the committee to cease giving evidence in relation to a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given and you are asked to respect the parliamentary practice to the effect that, where possible, you should not criticise nor make charges against any person(s) or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.
Mr. John Corrigan:
I am accompanied by Mr. Oliver Whelan, who is responsible for funding and debt management in the NTMA, and Mr. Brendan Murphy, who is the chief financial officer and chief risk officer. I welcome the opportunity to meet the committee. While the NTMA manages a wide range of assets and liabilities on behalf of the Government, in my opening remarks I propose to focus mainly on the area of debt management and the steps we are taking to regain full access to the markets. I will also update the committee on the measures being taken by the National Pensions Reserve Fund to invest in the domestic economy.
Before getting into these areas in detail, I would like to refer briefly to some of the current priorities in the NTMA’s other areas of activity. The National Development Finance Agency’s PPP expertise is being utilised to assist with the delivery of the Government’s infrastructure stimulus package, NewERA is leading and managing the Bord Gáis Éireann transaction on behalf of the Government, and the State Claims Agency’s remit has been extended to deal with third-party costs arising from certain tribunals of inquiry as well as providing ongoing claims and risk management services to the Government.
Ciarán Lynch (Cork South Central, Labour)
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Distortion is being picked up from Deputy Peter Mathews's phone. I ask Deputy Mathews to turn off his phone because it is interfering with the speakers.
Mr. John Corrigan:
The NTMA is also providing staff and business and support services and systems to NAMA, with almost half of its staff resources deployed in this area. From March 2010 to August 2011 the NTMA’s remit included certain banking system functions of the Minister for Finance. The delegation of banking system functions to the NTMA ceased with effect from August 2011 and the NTMA banking team was seconded to the Department of Finance. As a result, the NTMA no longer has any statutory responsibilities in the banking area. The ongoing restructuring of the banking sector remains a crucial factor in driving down yields on our bonds and regaining full market access.
We have made considerable progress in our re-engagement with the markets since my last appearance before the committee in September 2011. The NTMA’s working plan has been to return to the markets on a phased basis, both through shorter-term issuance and by taking advantage of opportunities to issue long-term debt when they arise. During 2012 and earlier this month we conducted a number of successful long-term debt market operations as well as making a return to a regular schedule of short-term treasury bill auctions.
In 2012 the NTMA's engagement with the debt markets included bond switches, the amount was €4.5 billion; the issuing of conventional bonds, the amount was €4.2 billion; and the issuing of a completely new instrument, Irish amortising bonds tailored to meet the needs of the domestic pensions industry and the amount was €1 billion. Earlier this month we raised €2.5 billion from the sale of five-year bonds at a yield of 3.32%. It was encouraging to see more than 200 institutional investors - including fund managers, pension funds, bank treasuries and insurance companies - placed orders totalling more than €7 billion, almost three times the amount sold with strong demand from the UK, mainland Europe and the US.
The combined effect of these debt market operations has been to eliminate the challenging funding cliff presented by abond repayment of almost €12 billion due in mid-January 2014, a priority for the NTMA. This substantial redemption coming so soon after the end of the EU-IMF programme was seen by investors as a major obstacle to our smooth exit from the programme. The gradual sourcing of funding in the market to meet that January 2014 repayment has been viewed positively by the investment community and has been a contributory factor to the continued fall in Irish bond yields.
Our 2012 funding included the introduction of a completely new debt instrument, Irish amortising bonds tailored to meet the needs of the domestic pension industry. Unlike standard bonds, where the annual interest payment is followed by the repayment of principal at maturity, the new amortising bonds will pay an equal amount each year over their lifetime. This reflects the preference of pension schemes and annuity providers for a steady stream of income.
The NTMA's objective is to diversify its investor base and part of that includes the provision of products that meet the needs of domestic investors. An active and stable domestic investor base is not only important in its own right, but is also an important signal of confidence to overseas investors considering investment in Irish bonds.
I would like to comment briefly on our treasury bill programme which we recommenced last July when we issued €500 million of three-month bills at an annual equivalent yield of 1.8%. Last week we held our fifth such auction, again €500 million of three-month bills but at an annual equivalent yield of 0.2%. We believe that with the success of the auctions we have regained normal market access at this short end of the curve.
Ireland has seen a significant decline in bond yields through 2012, most markedly in the shorter maturities, restoring the yield curve to a more normal upward slope compared to the inversion that marked much of 2011. For example, the yield on the 2014 bond has declined from 7.58% at the end of 2011 to 1.05% currently, while the yield on the October 2020 has declined from 8.26% at the end of 2011 to 4.11% currently.
The rally in Irish bond yields has been driven by a number of factors including: Ireland's consistent delivery on its EU-IMF programme commitments; the progressive elimination of the bond refinancing requirement in mid-January 2014; the EU leaders' supportive reference to Ireland in their statement of 29 June 2012 on the necessity to break the link between sovereign and banking debt; and the outright monetary transactions, so-called OMT, policy initiative by the European Central Bank.
In absolute terms the yields on our bonds are at low levels but the spreads against Germany remain high - currently 2.98% for the October 2020 bond. Some of this, of course, reflects differences in credit rating, Ireland being a BBB credit whereas Germany has a AAA rating, but another factor is that extremely low German yields are driven by Germany's status as a safe haven investment.
Following Ireland's entry into the EU-IMF programme at the end of 2010, our credibility among institutional investors had greatly diminished. Uncertainty remained throughout the first quarter of 2011, as investors awaited the results of Ireland's severe stress test and restructuring plan for the pillar banks. Following the publication of the PCAR results, the NTMA began the process of re-engaging with investors to rebuild damaged relationships, develop new ones and ultimately pave the way for eventual return to bond issuance.
This involved a structured programme of face-to-face meetings putting the investment case for Ireland to investors in Europe, the US, the Middle East, Asia and to the domestic market. These presentations are based on three simple principles: tell investors the facts, do not over-promise and return regularly with a progress update. It is a slow and deliberate process but one which I believe has already paid dividends and is being reflected through the rebuilding of Ireland's international reputation and, critically, investor buying of new debt issuance and falling yields on our bonds.
The following are seen as key issues from the perspective of investors and potential investors in Irish Government bonds: Ireland's ability and willingness to continue to meet the fiscal consolidation targets and the quarterly undertaking set out in the EU-IMF programme; Ireland continuing to achieve economic growth in spite of the ongoing requirement for fiscal consolidation; the risk of further recapitalisation requirements for the banks; continued progress in reducing contingent liabilities, of which NAMA's programme of asset disposals is the most important element; the regaining of trade competitiveness, highlighted by the return of large surpluses on the current account of the balance of international payments; improvement in Ireland's sovereign credit ratings; and the eventual resolution of the wider eurozone sovereign debt and banking crisis.
There have been a number of positive developments in these areas over the past year. Investors see the economy stabilising and are giving Ireland credit for being well ahead of other troubled European countries in implementing its adjustment process. Of course it is likely that much of this good news is priced into Ireland's reduced bond yields. In particular, the market has priced in, to a greater or lesser extent, relief on the promissory notes and other bank related debt. Indeed, notwithstanding all the steps that Ireland has taken and continues to take to address its domestic issues, wider eurozone uncertainty remains a risk to achieving sustainable market re-entry.
Ireland retains investment grade status with Standard & Poor's and Fitch, which have both set a rating of BBB+, which is three notches above sub-investment grade. Moody's downgraded Ireland to sub-investment grade in July 2011, which was the last downgrade by any of the major ratings agencies. As Ireland's average rating across the three main agencies is still investment grade, Irish Government bonds remain in the main bond indices.
In early 2012, each of the three main ratings agencies downgraded a number of eurozone countries in response to the sovereign debt and banking crisis. Ireland avoided a downgrade during that round of rating actions and has maintained its current rating, thanks to progress made in restoring our creditworthiness. Indeed the announcement by Fitch ratings last November that it was revising Ireland's outlook from negative to stable was the first positive action by a ratings agency on Ireland since the start of the financial crisis.
On a very general level, I note the ratings agencies are satisfied with the progress made by Ireland as reflected in the quarterly positive reports from the troika but the scope for ratings upgrades is constrained by the agencies' concerns about global economic growth on which Ireland is seen as dependent, the wider eurozone issues and the need to make progress towards a banking union in order to secure a delinking of sovereign from banks. It is instructive to note that NAMA is not a headline issue for the ratings agencies.
The reason that our sovereign ratings are so important, apart from somewhat limiting the market for the buyers of Ireland's sovereign debt, is the fact they represent a ceiling for the ratings of other Irish entities and are a key driver of the funding costs of the banking sector.
As I noted to the committee in 2011, in order to stabilise our debt to GDP ratio, Ireland needs to get back to running a primary budget surplus, that is the budget balance, excluding interest payments, as soon as possible. In the context of debt sustainability, this metric is far more important than the absolute level of debt per se. I note that the projections published by the Department of Finance in budget 2013 are for the general Government debt to GDP ratio to peak at around 120% of GDP in 2013 and to start to decline thereafter when the Government will once again be running primary budget surpluses.
The NTMA's focus in 2013 will be on stepping up its re-engagement with the markets so that Ireland is positioned to successfully exit the EU-IMF programme. To achieve this the NTMA plans to raise in the region of €10 billion during the year, subject to market conditions. With the €2.5 billion issue earlier this month, we are already a quarter of the way towards achieving this target. Raising the €10 billion this year, will give the NTMA and the investors the comfort of having a full year's advance funding in place. Such funding visibility is vital if Ireland is to successfully exit the programme at the end of the year.
Continuing access to the markets remains critically dependent on a number of external factors, particularly developments at a wider eurozone level. We are in something of an investment "sweet spot" in which we are benefiting not only from more positive sentiment towards Ireland, an issue to which I alluded, but also from greater risk appetite among investors generally. While I am encouraged by the positive start to the year, it would be unwise to be complacent. Markets do not necessarily move in a straight line and investor sentiment can be fickle. We are likely to proceed with a syndicated issue of a longer term bond prior to resuming regular scheduled bond auctions, although we will remain adaptable in the light of circumstances.
Before concluding, I will briefly address the National Pensions Reserve Fund and the work being done in refocusing its investments towards commercial investment in Ireland. As members may be aware, earlier this month the NPRF announced investment commitments to three new long-term funds that will provide €850 million of equity, credit and restructuring-recovery investment for Irish small and medium-sized businesses and mid-sized corporates. The NPRF played a significant role in the development of the funds and will be a cornerstone investor in each, alongside additional investment from third party investors. I have circulated for the information of members the press release issued by the National Pensions Reserve Fund Commission announcing these investments. I look forward to members' questions.
2:25 pm
Ciarán Lynch (Cork South Central, Labour)
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I thank Mr. Corrigan. I propose that we have two question and answer sessions, one of 12 minutes and a second of eight minutes. Is that agreed? Agreed.
The headline issue today is the €10 billion in bonds Mr. Corrigan has indicated will be raised this year. What yield or interest rate is being paid on the €2.5 billion that has been raised thus far?
Ciarán Lynch (Cork South Central, Labour)
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Reports at the time indicated that the bond issue was oversubscribed, with demand for the bonds exceeding supply. Is that correct?
Ciarán Lynch (Cork South Central, Labour)
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Given that demand could not be met, could an interest rate lower than 3.3% have been achieved?
Mr. John Corrigan:
That is a good question. If one looks at the after-market and how the yield on that issue performed immediately after issue, it moved down slightly by about 10% and has moved down a little since. This suggests there was not much scope for issuing at a lower rate. In our signalling to the market as part of the sales process we indicated we would be fairly restricted in the amount we would supply. Apart from natural demand, this would have resulted in some exaggerated demand. When one looks at all these factors combined, the most important of which is the movement of the yield after the transaction closed, it suggests we got it about right. One likes to leave a little on the table for investors. If the yield had moved down sharply below 3% in the after-market, which did not occur, it would have suggested we could have issued the bond cheaper.
Ciarán Lynch (Cork South Central, Labour)
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The yield is somewhere between the yields available to France and Italy.
Ciarán Lynch (Cork South Central, Labour)
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On the basis of Mr. Corrigan's comments, I assume there will be three further bond issues during the year. Will the sums involved be different or will each issue be for €2.5 billion?
Mr. John Corrigan:
It is not possible to be prescriptive at this stage. As I stated, the markets are fairly fickle. The main area we will target is to have a new ten year issue because we do not have an issue in ten years. The ten year space is the key benchmark in the sovereign bond markets. We have a 2020 issue, which started as a ten year issue but is obviously no longer a ten year issue, and a 2025 issue. Ideally, we would like to bring a new ten year issue to the market.
Ciarán Lynch (Cork South Central, Labour)
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The plan is to raise €10 billion in 2013. Is that correct?
Ciarán Lynch (Cork South Central, Labour)
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There will be a series of issues and the sums involved may vary. Given that an interest rate of less than 3.5% was achieved in the previous issue, has the NTMA set a target of achieving an interest rate of below 3.5% in the next bond issue?
Ciarán Lynch (Cork South Central, Labour)
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Is there an expectation or hope the next issue will achieve an interest rate of less than 3.5%?
Ciarán Lynch (Cork South Central, Labour)
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Reading over the submission, I note the National Treasury Management Agency has its fingers in many pies, as it were. It is involved in the NewERA project and the National Pensions Reserve Fund. According to recent media reports, it is starting a business venture, BlueBay Asset Management. A host of other operations also come within its remit, either directly or indirectly. What is the organisation's total cashflow and what is the approximate total cost of all its operations?
Mr. John Corrigan:
To give an idea of the scale, if one were to add the total assets and liabilities under management - an accountant would probably be appalled by adding assets and liabilities - one would arrive at a sum of approximately €200 billion. The annual throughput of cash, as represented by cashflow through the agency, is running at about €1 trillion. Those are the two metrics I believe the Chairman's sought.
Ciarán Lynch (Cork South Central, Labour)
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The first figure refers to assets to hand, liabilities and everything else.
Mr. John Corrigan:
Yes. In addition, the cashflow is approximately €1 trillion. The administrative budget is about €42 million net. In other words, we cover the National Asset Management Agency, but it repays us from its operating revenues to meet its overheads and the net charge to the State is €42 million.
Ciarán Lynch (Cork South Central, Labour)
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That leads me to my next question. How much of the substantial amount of money that moves between the NTMA and NAMA makes its way into the real economy?
Mr. John Corrigan:
To take the various businesses, primarily the funding of debt management activities, to the extent that around 80% of our bonds are held by overseas investors, the linkage with the local financial sector is clearly limited. The National Development Finance Agency which is promoting the public private partnerships, is clearly a direct linkage with the local economy. For example, the schools building projects under way within its remit employ a couple of hundred people, although I do not have a precise figure to hand. Equally, the State Claims Agency is engaged in local activity. Deputies will also be familiar with the National Asset Management Agency.
The National Pensions Reserve Fund, NPRF, which will be legislated for later this year, is reorienting its policy towards investment in Ireland. There is €6 billion of discretionary funds left in the NPRF after the investment in the banks and currently about €900 million of that is committed locally. The intention is to recommit the balance over the coming years.
2:35 pm
Ciarán Lynch (Cork South Central, Labour)
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Does the NTMA have a target each year? A trillion euros, even in today's terms, is quite a significant sum of money. Does the NTMA keep a measuring eye on how much of that money is actually going into the real economy?
Mr. John Corrigan:
It does, and it a varies from business to business. Each business has discrete business objectives. As I said, the NPRF is the pot of capital which, under the old pension fund arrangement, was diversified globally, as would have been the case with any normal pension fund. The requirement now is to refocus that entirely on Ireland. We would hope that the full €6 billion of the remaining balance in the fund will be fully invested in commercially viable projects in Ireland in the coming years.
Ciarán Lynch (Cork South Central, Labour)
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I wish to move on to the issue of Irish Water, which is set out in the programme for Government and was mentioned by Mr. Corrigan in the context of NewERA. I understand there will be a bond issue for the establishment of Irish Water. What target has been set and how much does the NTMA expect to raise to fund Irish Water?
Mr. John Corrigan:
I cannot give an answer to that because, frankly, I do not know. We will have to wait until we see the shape of the legislation and the corporate structure of Irish Water, which is being worked on at the moment. The NewERA team within the NTMA is closely involved in the discussions on that. The Irish Water mandate, as members will be aware, has been given to Bord Gáis. The intention would be to ring fence Irish Water activities so that any credit issuance which might be done on account of Irish Water would be free standing in its own right. That policy decision has been made already.
Ciarán Lynch (Cork South Central, Labour)
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Mr. Corrigan hit the nail on the head when he said that the corporate structure of Irish Water is the main factor that will determine how the bonds will be raised. One of the proposals for Irish Water is that a free allowance will be issued to households and then people will be charged for water after that allowance is used. In terms of setting up a non-profit company, one provides households with water, charges them per litre and operates a cost model which ensures the lowest cost to the customer. However, if the company is issuing a free allowance of 100 litres per week, or per day, for example, that could cause a difficulty. I will use the example of going to a pub to illustrate my point. Let us say we decide to go for a drink after this meeting and I tell you that I know of a pub where every second pint is free, but we have to pay €10 each for the first one. In the same way, if Irish Water provides a free allowance of 100 litres, it may have to charge a high price for every litre after that. Has the NTMA discussed the issue of the free allowance and its possible impact on the costing model within Irish Water with the Department of the Environment, Community and Local Government, Irish Water or Bord Gáis?
Mr. John Corrigan:
While I am not familiar with the intimate details of the discussions, our advice is that the Irish Water entity, while it may be part of the wider Bord Gáis structure, must operate on the basis that it can be self-sufficient in terms of any bond issues that it would be required to do. Obviously, the balance between any free allowance and the tariffs is very important, to the extent that there would have to be a regulator overseeing it. My understanding is that the Irish Water entity will be a regulated entity. Obviously, as in the case of telecommunications and energy, the regulator-----
Ciarán Lynch (Cork South Central, Labour)
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To go back to the question again, is the issue of the free allowance something that the NTMA has become cognisant of and has it been discussed with Bord Gáis and the Department of the Environment, Community and Local Government?
Ciarán Lynch (Cork South Central, Labour)
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I have raised the issue now and wish to know if Mr. Corrigan agrees that there is a difficulty with a pricing model that incorporates a free allowance but which, in the interests of running a business, then requires that the charge for any additional water is very high. Would the company not be better off simply charging an appropriate price for each litre used?
Mr. John Corrigan:
The only comment I would make is that the pricing model must be commercially sensible. That should be the basis for any model and our input to all such issues is to examine them from a commercial perspective. The pricing model must be commercially sensible so that when a company goes into the borrowing market, people are prepared to lend to it on the basis of a projected income stream.
Ciarán Lynch (Cork South Central, Labour)
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I thank Mr. Corrigan and invite Deputy McGrath to speak now. However, I ask that Mr. Corrigan would return later to the issue of the NPRF and SMEs, about which I would like to hear more.
Michael McGrath (Cork South Central, Fianna Fail)
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I welcome Mr. Corrigan, Mr. Whelan and Mr. Murphy and thank Mr. Corrigan for his opening statement, which was very balanced. He highlighted many of the positives as well as some of the key risks facing the country at present. In the short time afforded to me, I will endeavour to stick to questioning and would appreciate if we could keep our discussion as interactive as possible.
In his opening remarks, Mr. Corrigan fell short of expressing confidence or saying that Ireland is on course to exit the troika programme. Does Mr. Corrigan believe we are on course, all things being equal, under current circumstances, to exit the programme towards the end of this year without having to rely on any backstop of official funding or any precautionary line of funding from the ESM? What is his judgment of how likely we are to have a successful exit?
Mr. John Corrigan:
The Government has met all its milestones under the programme and, subject to the risks which the Deputy has acknowledged that I identified in my opening remarks, I do not see any reason that we should not exit the programme on schedule. However, to take the Deputy up on one particular point regarding support, it would not be unusual for a country exiting a programme to have credit lines available to it. One would expect not to use those credit lines but the fact that they are available would be a valuable addition to have and, provided the conditionality attaching to them is not too onerous, that should result in a lower cost of funding than would be the case if those credit lines were not available.
Michael McGrath (Cork South Central, Fianna Fail)
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Are those potential credit lines being explored at this point in time, whether they be through the ESM, outright monetary transactions with the ECB or through the IMF? Are those possible credit lines being actively explored as a backstop for when we exit the programme? Is that work actively under way?
Michael McGrath (Cork South Central, Fianna Fail)
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Can Mr. Corrigan give any further details as to what those credit lines may be? I have mentioned some options already but-----
Mr. John Corrigan:
The Minister for Finance indicated in December that he had asked the troika to prepare a paper for consideration by the Irish authorities on the question of contingent credit lines. We have received a draft of that paper and it will be the subject of discussions in the coming weeks. It is too early to say because we have literally just received that draft.
Michael McGrath (Cork South Central, Fianna Fail)
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I understand but does Mr. Corrigan believe that such contingent credit lines are a necessary condition of Ireland successfully exiting the programme? Are they an integral part of the exit strategy? Is it essential that they are in place?
Mr. John Corrigan:
I am not sure that they are a necessary condition to exit from the programme but they would be a valuable facility to have. While we would be the first developed country to exit from an EU-IMF programme, in the context of countries exiting from IMF programmes, which operate in slightly different circumstances, it would be a standard feature of exit arrangements that contingent credit lines facilities would apply.
2:45 pm
Michael McGrath (Cork South Central, Fianna Fail)
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At this point is there a troika paper setting out the possible contingent sources of funding for the country?
Michael McGrath (Cork South Central, Fianna Fail)
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I presume it is with the National Treasury Management Agency and the Department of Finance. Is that correct?
Michael McGrath (Cork South Central, Fianna Fail)
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Mr. Corrigan said in his opening remarks that the markets have priced in, to a greater or lesser extent, relief on the promissory notes and other bank-related debt. How important is it for the country that we get a good deal on the promissory notes by the end of March and that there is a roadmap to the European Stability Mechanism lifting some of the burden, ideally all of the burden, of the investment that we made in the surviving banks?
Mr. John Corrigan:
In my earlier remarks I outlined in some detail the various meetings we have had with investors. In those meetings we did not lean to any extent on a deal on the promissory notes or a deal with the ESM. Given that we are in the process of rebuilding confidence with investors, the general approach we have taken is to hopefully under-promise and hopefully over-deliver. Some investors have priced in relief on the promissory notes but I imagine this has happened to a lesser extent on the ESM. It would be a disappointment - I will choose my words carefully - if there were no deal.
Michael McGrath (Cork South Central, Fianna Fail)
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How much cash does the country have on hand at present?
Michael McGrath (Cork South Central, Fianna Fail)
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Mr. Corrigan stated earlier that the plan is to raise a further €7.5 billion between now and the end of the current year. He said in his opening remarks that we would then be funded for one full year in advance. Essentially, the projection is that by the end of this year if we raise an additional €7.5 billion we will be funded through to the end of 2014. Is that the position?
Mr. John Corrigan:
Absolutely. Our working plan is to target €10 billion. Clearly, there are a number of factors that will affect this as time progresses. Let us consider the contingent credit arrangements again. If they were to be particularly strong, to use that term, then it might be the position that the need to go for a full €10 billion would be reduced. There are several moving targets, but to give a figure, the working plan is €10 billion. I do not anticipate that it would be more than that, but it could conceivably be somewhat less.
Michael McGrath (Cork South Central, Fianna Fail)
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Let us consider this in simple terms. The current programme ends at the end of 2013. If the NTMA is successful in its plans to raise an additional €7.5 billion between now and then, Ireland will be funded through to the end of 2014 in that scenario. Is that correct?
Michael McGrath (Cork South Central, Fianna Fail)
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Then surely we are well on track to exit the programme, barring some negative or unforeseen event that may occur. Staying out of a programme and staying off any future official funding may be a different matter. Is it possible for Mr. Corrigan to go any further than he did at the beginning when he said he saw no reason we would not exit? That is not quite a statement of overwhelming confidence. However, if that is what Mr. Corrigan believes, can he go further than that? Based on the plans and projections as they stand, we are well on track to exit the programme.
Michael McGrath (Cork South Central, Fianna Fail)
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There were meetings earlier this week of the Eurogroup and ECOFIN. The key outcome for Ireland was the possibility of extending the maturity of the money we have drawn down so far, under both of those streams of funding, over a longer term. The maturity was not set but presumably it will apply over a 30 year term or possibly longer. Has the NTMA calculated the potential savings for Ireland if all of that funding was extended to a maturity of 30 years or more at this stage?
Mr. John Corrigan:
The precise saving will depend on a number of factors. First is the quantum that is extended. Second is the period for which it would be extended. Third is the rates at which it would be extended. Any savings at that stage would be by reference to what we would borrow at that point. To use an expression I used earlier, there are several moving parts. Certainly, it would be positive. It would reduce the amount of paper we would have to issue in the commercial markets. I note that we have a European financial stabilisation mechanism facility maturing in 2015 in an amount of €5 billion. For openers, if we got an extension of that, it would reduce what we would have to come to the market for by €5 billion. Intuitively, we expect that the EFSM could borrow at lower rates than we could. There would be savings but the savings would depend on the period for which the facility is extended. I understand that proposal is going into an officials group for discussion in Brussels.
Michael McGrath (Cork South Central, Fianna Fail)
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Based on reasonable assumptions with regard to the issues to which Mr. Corrigan has referred, will there be potential savings of billions of euro or hundreds of millions? Surely there has been some preliminary analysis.
Michael McGrath (Cork South Central, Fianna Fail)
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It was based on certain assumptions. Is that the position?
Michael McGrath (Cork South Central, Fianna Fail)
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The NTMA made changes to several State savings products before Christmas. At short notice - in fact, overnight - the NTMA significantly reduced some of the interest rates being paid on many of the products offered by the NTMA through An Post. This will have a major impact for many savers. No doubt the NTMA will point out that they are still competitive and I believe the rates are still competitive. Anyway, how did the NTMA arrive at that decision? Was there any lobbying or consultation with the Department of Finance or the banks in advance of the NTMA decision to reduce the interest rate being paid on the portfolio of State savings products?
Mr. Oliver Whelan:
The reductions in the rates in the middle of December were done with the approval of the Minister for Finance. He approves all of those rates under our programme. We would have discussed the reduction in the rates with the Department of Finance because the Minister must approve it.
Michael McGrath (Cork South Central, Fianna Fail)
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Did the Department seek a reduction?
Michael McGrath (Cork South Central, Fianna Fail)
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My final question relates to senior executives employed by the NTMA, perhaps in some cases seconded to the Department of Finance, moving on to senior positions in banks without any cooling-off period. This issue was brought into focus recently with the case of Mr. Michael Torpey, who moved from the Department of Finance to a senior position in the Bank of Ireland. I presume he was still under the employment of the NTMA. His unit in the Department was advising the State on the divesting of approximately €1 billion in Bank of Ireland bonds. Within a matter of weeks he will be on the executive committee of Bank of Ireland. Is there any issue of concern for Mr. Corrigan with regard to people transferring so quickly from the public sector to the private sector? Such people would have been advising policymakers on the one hand but then proceed to move directly across to the companies which would have been the subject of that advice.
Mr. John Corrigan:
It is a good question, if I may say so. Mobility with the private sector is a critical component of the NTMA model.
We are a skills-based organisation. We recruit specific skills for particular purposes. If that model is to be successful we have to accept that it is a two-way street. In the main our employees would have come from college or would have joined us mid-stream. NAMA is a case in point: we had to set up an organisation from a standing start. The notice periods in the NTMA vary from one month to three months, and six months in my own case. I accept the Deputy's point and it is something-----
2:55 pm
Michael McGrath (Cork South Central, Fianna Fail)
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The issue of the need for a cooling-off period needs to be reviewed.
Mr. John Corrigan:
It needs to be reviewed, obviously, given the discussion about the particular incident to which the Deputy refers. It is difficult to develop a one-size-fits-all policy. We do not want to pay all and sundry big amounts of money for gardening leave just because they happen to be working in the NTMA. I agree it probably needs to be finessed a little bit. Moving the banking unit to the Department of Finance has brought us into an area of policy. In the past we would not have operated in a policy area; our advice and our actions were transaction-orientated. I accept that it raises an issue that needs to be examined.
Kieran O'Donnell (Limerick City, Fine Gael)
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I welcome Mr. Corrigan, Mr. Whelan and Mr. Murphy. I refer to the issue of the fiscal cliff. The three components of debt sustainability are the level of the debt, the interest rate and the repayment terms. I will take up the point made by Deputy McGrath about the fiscal cliff. The requirement is to have six months' funding on hand at all times. If €7.5 billion were to be raised by the end of the year, this would equate to having a year's funding in hand for 2014. I ask Mr. Corrigan to give an indication as to the situation for 2015 and 2016, considering the level of repayments currently in place. I want to see the profile of the types of repayment the NTMA is required to make for 2014, 2015 and 2016 and the benefit to be had from extending the repayment terms.
Kieran O'Donnell (Limerick City, Fine Gael)
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Is it €5.3 billion?
Kieran O'Donnell (Limerick City, Fine Gael)
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What is the situation for 2017?
Kieran O'Donnell (Limerick City, Fine Gael)
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What is the situation for 2018?
Kieran O'Donnell (Limerick City, Fine Gael)
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What would have been the typical profile for the period from 2002 to 2008? What was the normal profile of the NTMA's financing requirements?
Kieran O'Donnell (Limerick City, Fine Gael)
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There was a mention of a requirement of €12 billion at the start of 2014. How does that relate to the €7.7 billion in 2014? I think I am correct in saying that there is a €12 billion fiscal cliff in January 2014.
Kieran O'Donnell (Limerick City, Fine Gael)
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Is that the total repayment in 2014 - €12 billion plus €7 billion?
Mr. John Corrigan:
No. I am probably confusing the Deputy. The 2014 issue was €11.9 billion. We reduced that through our switching activities - in other words, we invited bondholders in the 2014 issue to switch out into a longer maturity. A total of €4.3 billion worth of bonds was switched, which leaves the €7.6 billion to which I refer. That is the maths.
Kieran O'Donnell (Limerick City, Fine Gael)
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The profile for the years 2014 and 2015 shows us reducing the budget deficit. There are issues with regard to 2016 and, in particular, 2018. Those two years stand out. Is it correct to say that the NTMA has reasonably heavy financial requirements for 2014 to 2018?
Kieran O'Donnell (Limerick City, Fine Gael)
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The question of extending the repayment terms is quite significant. I ask Mr. Corrigan to expand on his reply to Deputy McGrath's question. What parameters were considered by the NTMA in making the judgment about the billions of euro in savings?
Mr. John Corrigan:
We looked at the quantum - the amounts we have discussed. We looked at a minimum extension period in calculating the illustration of, say, ten years. This period has to be studied by a working group but one has to write down some numbers on the page. We would have assumed a difference of perhaps 1% to 1.5% for illustrative purposes, because this depends, as I explained to Deputy McGrath, on where we can borrow at that point in time. That then compounds up into billions of euro rather than millions.
Kieran O'Donnell (Limerick City, Fine Gael)
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If I may expand on that point, what is the current yield on ten-year Irish bonds?
Kieran O'Donnell (Limerick City, Fine Gael)
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What is the average rate of return on the funds? What is the approximate blended rate?
Kieran O'Donnell (Limerick City, Fine Gael)
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Our spread with Germany is about 2.98%, based on Mr. Corrigan's information.
Kieran O'Donnell (Limerick City, Fine Gael)
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What would the NTMA be looking for in terms of ten-year bond yields, the long-term yield in Irish Government bonds? I ask him to factor in that calculation in his discussion. How important are credit rating agencies when it comes to attracting investors? I ask Mr. Corrigan to provide us with an understanding of the NTMA's task at hand.
Mr. John Corrigan:
The NTMA is consistent in not giving any expected rate in public. The NTMA is a commercial enterprise. One does not tell the guy to whom one hopes to sell the stuff its original purchasing price. Our bonds represent about 1% of the bond indices.
Someone who operates a fund which holds global bonds in direct proportion to their weighting in the indices would only have to hold 1% in Irish bonds. It is no big deal to a bondholder whether he or she holds Irish bonds. The world does not owe us a living and does not have to hold our bonds. Therefore, we must sell them. Our credit rating is poor. We are rated BBB+ which is a couple of notches above the sub-investment grade, otherwise known as junk grade. Our task has been to sell our story to investors, rather than simply to sit in Treasury Building.
3:05 pm
Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Corrigan has made this point previously, but it is not really reflective of the situation in Ireland. What does he believe it will take for the credit rating agencies to move Ireland up the ladder? Fitch recently raised our rating to stable. Will Mr. Corrigan refer to the promissory note and set out what it will take to ensure the price of Irish bonds reflects the reality on the ground?
Kieran O'Donnell (Limerick City, Fine Gael)
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I want to get Mr. Corrigan's honest view.
Mr. John Corrigan:
It is a fact that the agencies followed markets on the way down and, equally, in my humble opinion, they will follow them on the way up. They will revise their ratings when we get there, which means the ratings will be revised when we are out of the troika programme. Our approach to investor relations and selling is to focus on the bigger investment houses which do not rely slavishly on credit rating agencies' rankings. There are major investment houses which have their own teams of credit analysts and which are not constrained. We have made considerable progress on that front, as evidenced by the recent bond issue.
Kieran O'Donnell (Limerick City, Fine Gael)
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Does Mr. Corrigan anticipate that Irish bond yields will continue to reduce in the next six months?
Mr. John Corrigan:
In absolute terms, German rates are at an historically low level and represent Germany's position as a safe haven in the context of current uncertainty in the eurozone. In absolute terms and despite its poor credit rating and the elevated spreads or differences between Irish and German yields, Ireland is borrowing at rates it would have been challenged to secure when we had a triple A rating. The question on rates is whether as things normalise we will move down to meet the German rates or whether the German rates will move up to meet ours.
Kieran O'Donnell (Limerick City, Fine Gael)
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That has been lost in the discussion. This is about the absolute rate. While the spread would be very important if German rates were reasonably high and ours were higher again, it is not the key measure in circumstances in which German rates are virtually zero.
Mr. John Corrigan:
I agree with the Deputy completely. The position he outlined is the reason there are very modest issues in our treasury bill programme which involves floating rates. It makes sense to lock as much of our issue into fixed rates, despite the elevated spreads, which represent relatively good value in absolute terms.
Kieran O'Donnell (Limerick City, Fine Gael)
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I turn to the promissory note and the spreading of repayment terms and a bullet payment at the end. There will be an extended repayment period and a reduction in interest rates. In the context of the budget, we have of the order of €1.9 billion in promissory note interest charges. While that figure will go down slightly in the next two years, one is still talking about €5.5 billion in the next three years, making up about 20% of our interest charges alone. Does Mr. Corrigan believe the markets are factoring into their pricing the extended period with a bullet payment and a reduction in interest payments?
Pearse Doherty (Donegal South West, Sinn Fein)
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I welcome the delegates. The most recent European Commission report on Ireland, which has appeared on thestory.ie, states the Government is in negotiations on OMT and other options to provide assistance for the State to access the markets into the future. Will Mr. Corrigan set out details on how outright monetary transactions would evolve for the State and set out the conditions which would be imposed for Ireland to secure OMT? What does the NTMA consider to be the pros and cons of involving the State in OMT?
Mr. John Corrigan:
It is a difficult question to answer because the European Central Bank has not spelled out in detail the conditions to quality for OMT. Nobody has benefited directly from OMT yet. That said, we have benefited indirectly. In talking to investors about the five-year bond we issued at the beneficial rate of 3.32% we certainly benefited from the gravitational pull of OMT. The terms under which OMT would be triggered for a particular country have not been spelled out.
Pearse Doherty (Donegal South West, Sinn Fein)
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I presume OMT is listed on the options paper the NTMA has received.
Pearse Doherty (Donegal South West, Sinn Fein)
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There is a division because one is a credit line which is contingent and available, if required. OMT will be a separate beast. How would potential investors view Ireland securing OMT involvement? Would they consider it to be an indication that it had not exited the programme as planned and required additional assistance? Would OMT be positive or negative in that regard? While the conditions have not been spelled out, are there potential conditions which would be worrying if they were imposed on the State?
Mr. John Corrigan:
The ECB has indicated in broad terms what the conditions might be. My understanding is that the conditions relate to normal access to markets. If we were explicitly stated to have access to OMT, it would be positive in the way access to contingent lines of credit made available jointly by the ESM and IMF would be positive.
3:15 pm
Pearse Doherty (Donegal South West, Sinn Fein)
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Mr. Corrigan referred to what investors are factoring in, namely, an extension of payments relating to the promissory bond. Is that what all investors are expecting or is Mr. Corrigan referring to only a portion of them? Is there an expectation that a move will be made in respect of some of the money we have invested in the pillar banks?
Mr. John Corrigan:
Investors do not take us into their confidence to such a degree that they show us their credit analyses. It is a very general discussion which takes place in the context of what are their expectations. We are the ones who are selling and they see themselves as doing us a favour by meeting us in the first instance. As already stated, they do not owe Ireland a living and we constitute only a small proportion of the investable universe. It is our judgment that those who have invested in Ireland have, to a greater or lesser extent, priced in something regarding the promissory notes. A number of them will have priced in something for an ESM deal on the banks. In general, however, they would see that as being slightly more longer term because a great deal more ground work must be done institutionally to get the ESM into that space.
Pearse Doherty (Donegal South West, Sinn Fein)
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Last week, I raised with the Minister for Finance the issue of employees of the NTMA who have moved into the private sector. Three senior employees who were seconded by the NTMA from the Department of Finance have resigned their positions and moved into the private sector. Mr. Michael Torpey was the member of staff who left most recently. I am not commenting on the individuals involved but the fact that this is happening should sound alarm bells for everyone. The revolving door between the Department of Finance and the banks was part of the reason we ended up in the terrible situation in which we find ourselves. I find it baffling that the head of the shareholding management unit of the Department of Finance could leave and within eight weeks become an executive in a bank that is subject to the policy decisions he was discussing with his former team. I also find it baffling that two other former senior staff of the NTMA have ended up in senior positions in other banks.
Mr. Corrigan stated that this is an issue of concern. Does it not, however, ring alarm bells within the NTMA that a cooling-off period does not exist? If NTMA staff were classed as public sector workers, an automatic cooling-off period - which the Government believes should be two years - would apply to them if they left their positions. We are allowing senior people from the Department of Finance who are seconded to the NTMA to walk into jobs in banks within eight weeks. What needs to be done and how soon in order to bring an end to what is happening in this regard? The National Treasury Management Agency Act prohibits people from discussing or divulging information that would have come into their possession during their employment with the agency. Does this provision extend to those who have been seconded from other Departments or agencies?
Mr. John Corrigan:
The people who work for the NTMA are not civil servants. The National Treasury Management Agency Act specifically states this. The code of conduct to which the Deputy refers applies to the Civil Service; it does not apply to commercial or non-commercial State bodies. I accept what the Deputy is saying to the effect that there may be particular sensitivities around the NTMA but it is not unusual or unique in this regard. This is certainly a matter we will consider. However, we are not part of the Civil Service.
Pearse Doherty (Donegal South West, Sinn Fein)
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That is probably the problem. The staff of the NTMA have been seconded from elsewhere and some of them previously held some of the most senior positions in the Department of Finance. The latter is supposed to be turning the screw on the banks in order to ensure - in view of the their previously reckless behaviour - that they act appropriately. Those who run the banks have decided to cherry-pick staff from the NTMA and offer them jobs with their own organisations. The staff in question are officials from the Department of Finance who were seconded to the NTMA and who are in possession of all the relevant information relating to deleveraging. One of the officials who left the NTMA worked on matters relating to the former Anglo Irish Bank and possess all of the details relating to the Government's strategy and how it proposes to deal with or put the squeeze on the banks. The individuals also possess information in respect of the banks' competitors. The banks can cherry-pick them from among the ranks of the staff of the NTMA because they have been seconded from the Department of Finance and are not regarded as being public sector workers and are not, therefore, bound by the rules which apply to the latter.
The banks are able to take on the individuals in question within eight weeks of their leaving the NTMA. Questions arise with regard to whether a two-year cooling off period is sufficient but allowing someone in possession of the type of information to which I refer to walk into the executive boardroom of a major bank - a private institution - within eight weeks is just not acceptable. I am extremely disturbed by the fact that the NTMA does not appear to be alarmed about this matter. In my view, there is potential for the State to be compromised by virtue of the fact that we have not put in place robust mechanisms to bring an end to this revolving-door scenario.
Mr. John Corrigan:
I have already said that there is a need to consider this matter and that if there are rules to be applied, then they must be applied universally to all commercial and non-commercial State bodies. That is a matter of policy and it is not something in which we have a direct involvement. In so far as NTMA employees are the subject of concern - I understand the concerns that have been expressed - as I informed Deputy Michael McGrath, my senior management team and I will be reviewing the position in respect of them. I honestly cannot go any further than that.
Pearse Doherty (Donegal South West, Sinn Fein)
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When did Mr. Torpey notify the NTMA that he was terminating his contract?
Pearse Doherty (Donegal South West, Sinn Fein)
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So that would have been after the unit he previously managed sold €1 billion of assets or contingent liabilities held by the bank which he will join as an executive director in a number of weeks.
Mr. John Corrigan:
He was out of the loop. The Minister for Finance has already answered questions on this in the Dáil. Mr. Torpey was reporting to the Department of Finance. I certainly was not involved in it but the Minister has stated that he was out of the loop since 14 December. That seems to be the appropriate date from which to assess whether he was or was not in the loop.
Pearse Doherty (Donegal South West, Sinn Fein)
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Is Mr. Corrigan satisfied that the work and discussions relating to the sale of this €1 billion in assets - the largest sale of State assets last year - only began after 14 December last when Mr. Torpey went on holiday?
Pearse Doherty (Donegal South West, Sinn Fein)
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Mr. Corrigan mentioned that the staff of the NTMA are not public servants. Do those who run the agency ever engage in discussions on adhering to the public sector pay cap that has been set by the Government? I understand that 11 members of the staff of the NTMA each earn over €250,000 per annum in salaries. Is it ever suggested that the public sector pay cap should apply to them? In 2011, the agency paid bonuses amounting to €62,000 to five individuals. Did it pay out any pay-related performance bonuses in 2012 and, if so, what was the total amount of these?
State Street defrauded the NTMA of €3.2 billion. I welcome the fact that the agency has recovered that money. Mr. Corrigan has previously stated that there is unfinished business in this regard. Last year, State Street managed €900 million of the State's money. Is this still the case? In light of the fraud which occurred, what will be the relationship with State Street in the future?
Mr. John Corrigan:
I will deal with the issue of pay first. The NTMA was established outside the Civil Service in order that it might recruit those who possess the necessary skills and bring professionalism to the market-facing activities in which the State must necessarily be involved.
It has operated on that basis since its inception in 1990. As we are acutely conscious of the financial difficulties facing the State, particularly given our role in the frontline of selling debt to pay bills and meet debt redemptions, there has not been a general pay increase in the NTMA since 2009. The bonuses to which the Deputy referred are incentive payments made earlier this year in respect of 2011. As I recall them they were for amounts of approximately €60,000 and were paid to five individuals. More than 500 people work in the NTMA. In regard to the banking unit, notwithstanding what the Deputy said, we have lost five of the nine people who originally went to the Department of Finance on secondment. NAMA, which is competing with both State-owned and non-State owned enterprises for staff, has lost 34 people.
I am not putting on the poor mouth when I say we have not received a general pay increase because it is right that we should not have a pay increase but the question arises of our business model and whether we want the State to have the professionalism required to operate successfully in capital markets or want to push this function back into the Civil Service. That is a policy issue. I think the agency has done a good job and successive Governments have added new and demanding functions, some of which I referred to in my opening remarks. The senior management group and those earning more than €200,000 took a pay reduction of 15% last year. Again I am stating that as a fact and I not seeking sympathy or congratulations. I am currently polling staff members in order to renew the gifting procedures with Revenue for the current year and I am hopeful they will continue to do that. The question of pay is related to skills and outputs. The generalists in the Civil Service would not be able to do many of the tasks entrusted to the NTMA.
3:25 pm
Pearse Doherty (Donegal South West, Sinn Fein)
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My specific question was whether bonuses will be paid for 2012.
Ciarán Lynch (Cork South Central, Labour)
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If the Deputy has questions I ask him to prioritise them. If the question is important to him it should be raised at the beginning of his contribution.
Kevin Humphreys (Dublin South East, Labour)
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I acknowledge the work that the NTMA has done in recent months in returning to the market and raising billions of euro at competitive rates. It was a difficult job but it was done well. Does the NTMA monitor the sale of Irish bonds to determine their value on the secondary market?
Mr. John Corrigan:
Yes, there is a reasonably high degree of transparency in the secondary market. The various trading and electronic reporting systems, such as Bloomberg and Reuters, carry prices on their screens which reflect the prices at which relatively small amounts change hands. They typically reflect the price of a transaction of the order of €1 million or €5 million.
Kevin Humphreys (Dublin South East, Labour)
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The ECB used the security marketing programme for purchasing approximately €20 billion in bonds in 2010 and 2011. Am I correct to suggest that the ECB is looking at a profit margin of between €3 billion and €5 billion on the maturity of these Irish bonds? I recognise they were purchased over a period of time but I have suggested this figure on several occasions and it has been neither contradicted nor confirmed.
Mr. John Corrigan:
We do not have that information because all we see on our screens are the prices at which the paper is traded. The screen-based system does not report the identity of the buyers or sellers. However, it is likely that the profit made by the Central Bank is in the order of billions rather than millions of euro. We are not privy to the precise holdings of the ECB nor do we know precisely when it bought and the price it paid. We have a general idea of when it was in the market and the prices that prevailed at the time. I do not have the profit figure.
Kevin Humphreys (Dublin South East, Labour)
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I am not trying to put Mr. Corrigan in an awkward position.
Kevin Humphreys (Dublin South East, Labour)
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I thank him for that. Would he say I am far off in my estimate? Based on the trading prices that obtained when the ECB was in the market in 2011, it has largely confirmed the figure of €19 billion or €20 billion. The profit would not be far off €5 billion.
Mr. John Corrigan:
I do not dispute that the figure is probably in the billions rather than the millions of euro. I noted that the Governor of the Central Bank did not demur when the Deputy mentioned the figure of €19 billion to him. We can only guess because central banks are notoriously secretive, even with agencies such as ours.
Kevin Humphreys (Dublin South East, Labour)
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It may be a good tactic to sell back the bonds at face value in order to reduce our borrowings. We would make a significant impact on our debts with €5 billion.
Mr. Corrigan indicated in response to an earlier question from Deputy Michael McGrath that we held approximately €19 billion in cash in December and are planning to go to the market for a further €7.5 billion. Am I correct to assume that the intention is to hold approximately one year's worth of funding in advance?
Mr. John Corrigan:
I said we were targeting raising €10 billion this year which, other things being equal, would give us one year's worth of funding going into 2014. I noted that the figure of €10 billion could be a moveable feast, depending for example on what contingent credit lines were available. There could be scope for reducing it but that is the working plan. We need to have a figure and people ask us what it is. It could be less than that but I do not see us holding materially more than €20 billion or €19 billion in cash, which is what we had at the beginning of the year.
3:35 pm
Kevin Humphreys (Dublin South East, Labour)
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Was the NTMA looking at holding approximately €20 billion provided it would get the credit lines accessibility on a rolling basis?
Kevin Humphreys (Dublin South East, Labour)
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Yes, for the purpose of discussion. The €20 billion is held at various rates. How much does it cost in interest to hold the €20 billion for a year’s funding in advance? I accept that Mr. Corrigan cannot give an exact figure because the money is borrowed at numerous different rates at various times. Approximately how much does it cost us to hold the €20 billion in advance?
Mr. John Corrigan:
It is not a question of holding it or not holding it; we have to hold it. For example, if we did not pre-fund the funding cliff in 2014, I could say with a reasonable degree of certainty that yields would not be as low as they are today. There is a trade-off between holding substantial amounts of cash and prudent debt management. My colleague, Mr. Oliver Whelan and I meet with other debt managers from around the world once a year. It is a fact that in normal times some smaller countries that have a strong credit rating hold up to 18 months in cash. The cash balances are not unusual. It is regarded as a matter of prudent management to have sufficient cash at one’s back.
The world is an uncertain place, particularly at the moment. Markets do not go in a straight line. We are in a particularly sweet spot at the moment, as reflected in the previous discussion on the absolute level of yields. It behoves us to hold such levels of balances. Some of them are held in the Central Bank and some are out in the market, but we have to look at the counter-party credit risk in putting money out in the market. Very few, if any, banks today have AAA ratings and I do not think the committee or the Committee of Public Accounts would thank us if the balances were to go up in smoke because of the risk taken on some credit counter-party in order to gain an extra few bob on the interest rate. It is something we must do.
Kevin Humphreys (Dublin South East, Labour)
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Yes, I understand that, but that was not the question I asked. I asked approximately how much it costs to hold the €20 billion on a rolling basis. I accept all those factors must be taken into consideration.
Peter Mathews (Dublin South, Fine Gael)
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What is the average yield?
Kevin Humphreys (Dublin South East, Labour)
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Yes.
Mr. John Corrigan:
I will have to come back on that because it is not a simple calculation. I know parliamentary questions have been asked of the Minister for Finance on the matter. Other moneys flow through the bank account as well as our borrowings. There is all the State’s tax revenues. It is all fungible. It is difficult to try to distinguish how much is due to borrowing and how much represents the tax revenues of the State. If the Chair permits, I will make a stab at answering the question and come back to the committee with the information.
Kevin Humphreys (Dublin South East, Labour)
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I would have thought it would be a key question when a risk analysis is carried out. I accept what was said. Mr. Corrigan met with Mr. Whelan and examined and assessed the situation. Surely, the amount would have been apparent at that stage?
Kevin Humphreys (Dublin South East, Labour)
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I want to move on to something else. I accept Mr. Corrigan will come back to the committee with the information.
To return to what was said by Deputy Michael McGrath on the Minister’s reference to a possible deal and that the amount would be in billions rather than millions, does Mr. Corrigan agree with the Minister?
Kevin Humphreys (Dublin South East, Labour)
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Did Mr. Corrigan take into consideration the knowns and unknowns in order to come up with a conclusion that the savings would be in billions rather than millions? Did he have such information when he compiled information for the Minister?
Mr. John Corrigan:
It is somewhat of a stab in the dark. It depends on the absolute amount of funds that are covered. We made an assumption on that. It would depend on how long the maturity is extended for. For the purposes of arriving at the figure of billions we assumed that it would be extended for ten years. It depends on the difference in the interest rate at which they would be extended compared to the interest rate that we would have to pay if we went out onto the market. They are the main three constituents that came into the calculations.
Kevin Humphreys (Dublin South East, Labour)
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In order to come up with an assumption that the savings would be in billions, Mr. Corrigan speculated that the term would be greater than ten years.
Kevin Humphreys (Dublin South East, Labour)
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What was the rate for the purpose of the illustration?
Mr. John Corrigan:
We assumed that the rate would be less than the rate at which we can borrow, but for the reasons already stated I am not prepared to speculate publicly on the rate at which we might borrow because it would be unhelpful to our borrowing operations on the market. I cannot say what I would expect to pay for ten year paper. That is an important component of the calculation.
Kevin Humphreys (Dublin South East, Labour)
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I had a primary school teacher who always used to say that to assume makes an ass of you and me. I am trying to get down to the detail. As a practising politician I am trying to dig down to find out how Mr. Corrigan came up with savings of billions.
Mr. John Corrigan:
As soon as I assume publicly, the market will say that is the rate at which expect to borrow and that is not a wise speculation for us to do. I am sorry but certain issues are commercially sensitive and it would be unwise to speculate on them because I am giving hostages to fortune.
Kevin Humphreys (Dublin South East, Labour)
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Mr. Corrigan can see why most members are concerned about digging down to get the statistics.
Kevin Humphreys (Dublin South East, Labour)
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I will. If the ten years were to be extended, would it change the picture?
Kevin Humphreys (Dublin South East, Labour)
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I note that the Chair is pulling me up. Am I getting less than 12 minutes?
Ciarán Lynch (Cork South Central, Labour)
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Deputy Humphreys has spoken for 14 minutes. I will allow him to speak again later.
Kevin Humphreys (Dublin South East, Labour)
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I do not wish to be awkward but it is important to try to get the figures to understand the information we have been given. If we got the hard figures we would have a better chance of understanding. It is difficult to understand the subject. With no disrespect to Mr. Corrigan, I find it unbelievable that we cannot get an accurate figure on the bonds that were purchased through the security marketing programme. Nobody disagrees with the figures I set out but neither can I get anyone to confirm them either.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I thank the National Treasury Management Agency for attending before the committee. As we speak, the headlines are already appearing that the NTMA is saying we are going back to the bond markets. That is symptomatic of the superficiality of much of the media coverage of the debt crisis. It is assumed that it is a great step and that it should be our high aspiration and a cause for celebration that we would get back to the private debt markets. In an attempt to burst the bubble, could I put it to Mr. Corrigan that it is not a wonderful aspiration for the State? It would be far better if we did not have to borrow to the great extent to which we do. The reason we have difficulty in borrowing is precisely because of the level of debt we have. In other words, the bigger the debt, the more difficult it is to convince anyone to buy it.
The problem is that we have this enormous debt and I do not believe anybody has any reason to slap themselves on the back about the way we are managing that because as far as I can see we are managing a debt that is not ours and are putting ourselves into an unsustainable situation where we are prey to the whim of these financial markets. That is the way I see it but it is not just me. The European Union Commission stated that if growth does not materialise and unemployment continues to stay high our debt is likely to be unsustainable. Is there not a better option from the point of view of managing our debt, namely, to repudiate the debt and say it is not our debt and we are not paying it?
Mr. Corrigan pointed to the fact that the key balance is the primary balance. Could he confirm that our primary balance position is not disastrous? If we exclude the debt interest we will pay back next year, which is €9.1 billion, our primary balance is manageable but our problem is that we are borrowing to pay back the lenders. That is the problem we must deal with and we are sinking ourselves in a hole by trying to continue to pay back this unsustainable debt.
3:45 pm
Mr. John Corrigan:
As I mentioned in my opening remarks, the debt which is projected to max at 120% or 121% of GDP is a very big debt burden. The fact that it is so big causes problems in accessing the capital markets or in borrowing and clearly affects the spread, namely, the difference between Irish and German rates. The view of the troika is that it is sustainable based on certain assumptions. Sustainability means that it will peak in the foreseeable future at a known date, which is this year, and will decline thereafter.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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It is its hope, and it also indicates down-side risks.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I know what the troika thinks and hopes but I am asking Mr. Corrigan what he thinks. Would it not be a better option for us at this stage not to pay €9.1 billion in interest and just deal with our primary deficit, which is €6 billion? Would it not put us in a far better position if we said we are not paying this, our economy has been beggared, our citizens are being devastated and we need that money to invest in jobs and growth? If we told the troika that we could manage a primary deficit of €6 billion, would that not be a better management of our situation?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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That is exactly what I am talking about. It is somebody's debt, not our debt.
Mr. John Corrigan:
It is on the debt that Ireland as a country has contracted for and given my position that is something I could countenance. That is a matter for the politicians to debate but if we look at countries which have defaulted on their debt, they have not ended up in particularly happy places.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I want to ask Mr. Corrigan about the relationship between him and the Government. I do not want to personalise this but Mr. Corrigan is paid twice as much as the Taoiseach, and there are 47 people in the National Treasury Management Agency earning over €150,000 a year, in other words, more than most Ministers are earning. I wonder about the nature of this relationship. Who is advising who what to do and how to manage this situation? In terms of the various companies the NTMA has enlisted to run the small and medium enterprise, SME, funds, I know that previously it took advice from the Rothschild Group. I would be interested to know if it is still getting advice on the management of our debt crisis from the Rothschild Group, who are bondholders, or from the Carlyle Group, which is managing the SME fund. These are global asset managers. Are they advising the NTMA? Is that they circle in which NAMA moves? Obviously, those people would have the view that it would be unthinkable that we would repudiate the debt because they take the hit but our responsibility is to the citizens of this country. It is clear when we consider what is happening at the moment that the bond markets are happy with Ireland because the Government, the NTMA or both is telling them that we will pay them back every cent and will enforce whatever level of austerity and cuts on the citizens of Ireland that are necessary to pay them back. The bond markets express delight and buy Irish bonds because they know Ireland will do anything to give them back their money and make them a profit regardless of the cost to the Irish citizenry.
Mr. John Corrigan:
To answer the Deputy's question on the relationship between the NTMA and the Government, the NTMA is an agent of the Minister for Finance. We report to the Minister for Finance. I report directly to the Minister for Finance. Government makes policy. We provide certain input into that in the limited area of debt management and we execute government policy. As I referred to earlier, we are not policy makers in the main; we are policy takers.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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The people in the NTMA are the experts. Do they not advise the Government on how to deal with these matters?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I have one more question but Mr. Corrigan might answer the question I asked about the Rothschild Group and other consultants and asset management companies the NTMA might be paying or enlisting for advice, support or assistance in the management of our debt, funds and so on.
Does the NTMA have responsibility for Coillte about which negotiations are ongoing for the sale of its harvesting rights? I am opposed to the sale of Coillte. We are selling an asset that could generate revenue for the State and create employment but what does Mr. Corrigan say to the charge that the valuation by NewERA of the harvesting rights, which I understand is about €600 million - that is the valuation Mr. Corrigan has given - which works out at about €500 per acre for the 1.2 million acres under Coillte control? The Woodland League and others concerned with forestry say that is a gross undervaluation of our State forestry and that this is a give-away of one of our most important natural resources. Would Mr. Corrigan respond to that and to the assertion I and others would make that it does not make any financial sense to give away the harvesting rights to forestry when if managed and invested in properly they could generate much more revenue and employment for the State if they were retained under public ownership?
Mr. John Corrigan:
The NewERA unit within the NTMA is providing advice to the Department of Agriculture, Food and the Marine among other Departments on the possible sale of State assets and the sale of the harvesting rights in Coillte is one of those projects under consideration on foot of a Government decision. In regard to that aspect I did not come prepared today in that I do not have the figures. I do not know if they are in the public domain but coming back to my earlier comment these are policy decisions made by the Government and we either execute or advise on them. We do not wake up in the morning and decide to sell the harvesting rights of Coillte. That was a decision taken in principle by Government and the advisers in NewERA are helping the Department of Agriculture, Food and the Marine in working through that project to see whether it is worthwhile proceeding with it.
In the interests of trying to be open with members, I will happily revert to them in writing on the question of valuation. I have many figures in my head, but there is a limit to what I can carry around.
3:55 pm
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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That is fair enough. I ask Mr. Corrigan to do as proposed. NewERA has valued our forestry lands at €500 per acre. Even I, as one who does not know very much about land valuation, can work out that this is a gross undervaluation, particularly in light of the widespread geological survey demonstrating what is under the forests. We have not seen the results, but they could mean some of the land is much more valuable. In that regard, is it not the responsibility of the NTMA to furnish us with the economic justification and advise the Government on whether there is good value. NewERA is dealing with State assets generally and the NTMA is involved in their management. Could we generate more revenue for and employment in the State if we operated differently or kept the assets in public ownership? The NTMA should set out the options that would result in the best value for the State. I appeal to it to do so. What is occurring is crazy in terms of achieving good value for the State and ensuring the good management of resources within the agency's remit.
Peter Mathews (Dublin South, Fine Gael)
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I thank the gentlemen from the NTMA for attending. I would really appreciate it if they answered very quickly or said "Pass" because I have many questions to ask. Have all three delegates read Carmen Reinhart's book on debt?
Peter Mathews (Dublin South, Fine Gael)
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Has anyone read John Mauldin's work on the debt super-cycle?
Peter Mathews (Dublin South, Fine Gael)
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That is telling. I would recommend both books.
Do the delegates know that Herman Van Rompuy, President of the European Council, was not aware in May 2011 that the banking liabilities of our six little old banks - amounting to approximately €75 billion - related to the repayment of bond investors, in spite of the fact that there was at least €75 billion in losses, owing to insolvency, in these banks? Mr. Van Rompuy was not aware of it when I spoke to him. He asked whether there was a paper on the matter. I told him that if he had been aware of the minority analysis and facts, he would have known about it. It was a bad starting point that when he was visiting the Taoiseach in May 2011 he was not aware that the odious liabilities to the Central Bank of Ireland and the European Central Bank - amounting to at least €75 billion - had their origin in losses. It equated to nearly 50% of the national income of a country with 4.5 million people. That is the core of the matter. Do the delegates agree that we were strong-armed into being loaded with this bank debt by the financial establishment to which Deputy Richard Boyd Barrett referred?
Let us consider the advisers and those who helped with the issue of Government debt. We know the position on State Street, which has foot-faulted in several respects. It has not had its proudest moment in terms of proper standards and ethics. Does Goldman Sachs still advise the NTMA?
Peter Mathews (Dublin South, Fine Gael)
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Did it do any work for the NTMA in the past two years?
Peter Mathews (Dublin South, Fine Gael)
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Rothschild and Barclays did.
Peter Mathews (Dublin South, Fine Gael)
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What about BlackRock Consulting?
Peter Mathews (Dublin South, Fine Gael)
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What about Oliver Wyman?
Peter Mathews (Dublin South, Fine Gael)
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It was part of the PCAR exercise.
Peter Mathews (Dublin South, Fine Gael)
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What about Merrill Lynch? It provided advice on the bank guarantee.
Peter Mathews (Dublin South, Fine Gael)
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When it was engaged, it was already in a state of rescue involving Bank of America. It never admitted this on the papers of introduction and in the appendices to its advice to the Minister and the NTMA. This is the sort of establishment that does not inspire confidence. When we refer to confidence and PR staff whose job is to say confidence is improving, it wears thin with me.
Two weeks ago the bond issues were successful. Across the board in financial markets there is a race to the bottom regarding bond yields. The VIX index, with which the delegation will be familiar, exhibited a fortnight ago the least risky presentation since 1991. CNN's Fear & Greed Index was at the highest level. Therefore, the markets are piling in to reduce yields wherever there is cash. That is the truth on how our bonds were issued at such prices. We need to be honest about this. If we are not, we will let ourselves down in the negotiations which are running out of time and road as we approach 31 March.
I agree with Deputy Richard Boyd Barrett on the promissory note, a contrived financial instrument to validate the loans to our banks by the Central Bank of Ireland and the European Central Bank under exceptional liquidity assistance guidelines. These could not and would not have been advanced had the Government not been strong-armed into creating the promissory note. That is another point the public does not understand. The public believes the promissory note is a liability. It is not; it is a financial asset that becomes a liability as it is turned into cash to redeem exceptional liquidity assistance to the IBRC. The European Central Bank has lent money to the survivor banks. This is tantamount to capital in so far as it is plugging all the funding requirements of the banks. The return that should be received is not being received because the money is at a low cost base. The banks asset and profit generation capabilities are in bits because of the rotten loans they are still trying to collect.
The mortgage problem which is now beginning to be acknowledged must be borne in mind. The Governor, Mr. Honohan, stated some days ago that there were all sorts of interrelationships to be considered. The banks have a difficulty in dealing with household and SME loans, the legacy loans, from the bursting of the bubble. They are incapable of being repaid by the borrowers. The banks, therefore, will need more capital. The severe stress tests were not nearly severe enough. It is like attending to the boil after it has burst and must be cleaned up. The problem will need to be addressed in one year if we do not state emphatically to our colleagues in Europe that the scale is bigger than it was. They will not like hearing this because they believe they are actually carrying the load. They are not; they are lending to us. There are no free gifts. They are giving us loans that they should not have been lending. As in the case of Iceland, the investors should have taken a bath. If this had occurred, we would be back to recovery, with a primary deficit that would actually be very manageable.
As for the bridging of the gap between Government revenues and expenses, even though it was big and had a wow factor - with a lot of belt tightening, which has been done - it is manageable. The problem is the legacy financial architecture that will kill this country in the next ten years and that is not right. I am prepared to stand up anywhere in Europe, in any language they like - I will learn a language - to tell them this is the case. Ireland holds the Presidency of the European Union.
4:05 pm
Ciarán Lynch (Cork South Central, Labour)
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Please, Deputy.
Peter Mathews (Dublin South, Fine Gael)
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No, please. The Chairman will be able to say this in Paris between the 10th and 13th and I will not.
Ciarán Lynch (Cork South Central, Labour)
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Please, Deputy; you keep making the same error. You have a lot of well thought-out points-----
Peter Mathews (Dublin South, Fine Gael)
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I love my country.
Ciarán Lynch (Cork South Central, Labour)
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Yes. However-----
Peter Mathews (Dublin South, Fine Gael)
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That needs to be said.
Ciarán Lynch (Cork South Central, Labour)
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-----I could talk to the recording technicians and ask them to give the same recording of the Deputy every week. Alternatively, I could ask the witnesses to engage with the Deputy and the points he is raising. I can allow the Deputy to talk for the full 12 minutes if he wishes but if he wants Mr. Corrigan, Mr. Whelan and Mr. Murphy to engage with his expertise, he should please afford them time during the time he is allocated to talk to them. The Deputy now has three or four minutes left.
Peter Mathews (Dublin South, Fine Gael)
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They have been very good and have been here for two and a half hours.
Ciarán Lynch (Cork South Central, Labour)
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Yes, and they have listened and have engaged.
Peter Mathews (Dublin South, Fine Gael)
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It is unfair to them.
Ciarán Lynch (Cork South Central, Labour)
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If the Deputy wishes to talk to the witnesses, that is fine. However, if he wishes to engage with the witnesses on the points he is making, which I would encourage him to do, I ask him to allow them some space for responses.
Peter Mathews (Dublin South, Fine Gael)
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Okay. May I have one more minute, please? On the ECB, it was noted that central banks tend to be secretive. Were I to go up the gears and suggest they were almost sinister, would the witnesses agree? The ECB may have made €5 billion in profit on Irish bonds; we do not know. That is an awful lot of money. Moreover, it has the insider conflict of interest in actually being a counterparty to the negotiations seeking to carry out a restructuring of the debt that will emerge out of the promissory note. Again, this is unbelievable stuff. It is voodoo. It actually is complex, educated, world-establishment voodoo. A lot of these people are meeting today in Davos to continue to have this voodoo effect over the world, while 26 million people are unemployed. I am not a Communist and do not even wish to be a socialist. I want to be a fair human being in a family, the European Union, which has as its primary objective the achievement of a closer union among the members of the family on a mutual basis. My last question is whether the witnesses agree that across the eurozone banks, there may be a €3 trillion problem at a minimum, off and on-balance sheet? In order to solve it, it must be recognised, mutualised and probably perpetualised at a very low interest rate.
Mr. John Corrigan:
The Deputy has commented very extensively on the entire issue and I recognise a lot of the issues about which he has spoken. Perhaps I will pick on just two of them, one of which probably is more in my bailiwick than many of the others. The Deputy referred to the success of the bond issue two weeks ago as being as much a reflection of exuberance in the bond markets, to put it politely-----
Peter Mathews (Dublin South, Fine Gael)
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Mr. Corrigan used that word once.
Mr. John Corrigan:
Exactly - as against Ireland being necessarily an attractive investment to investors. I would argue that our standing with investors certainly has improved. However, I acknowledge there is a lot in what the Deputy said, in that there is a hunt for yield and there is a question as to whether a bubble may be emerging in bond markets, to come back precisely-----
Peter Mathews (Dublin South, Fine Gael)
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And other markets.
Mr. John Corrigan:
-----to the Deputy's point, but specifically in the bond markets. I did refer to that, perhaps somewhat obliquely, when we spoke earlier about the spreads and when I was asked whether Irish yields would go lower. I stated it was a question of whether we would come down to meet the Germans or whether the Germans would come up to meet the peripherals.
Peter Mathews (Dublin South, Fine Gael)
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The figures now say that we are ten times riskier.
Mr. John Corrigan:
Consequently, it is a question of time before rates normalise and that will see German and US rates rising. On the question of the banks, which is slightly beyond my direct bailiwick but does impinge on it, to put it in more muted terms, the capitalisation position of European banks in general certainly is a huge concern among investors. It is high on their list of worries and concerns.
Peter Mathews (Dublin South, Fine Gael)
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I love my country.
Sean Barrett (Independent)
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The witnesses are welcome. While I was detained at other meetings, I meant them no discourtesy and I recognise the hour is late. The main point on which I seek their views concerns the €75 billion to which Deputy Mathews referred for the bank rescue. Do they have an idea about how much of that we will recoup within ten years, or ever?
Mr. John Corrigan:
To be clear, the cost of the banking rescue was €64 billion. Of the aforementioned €64 billion, €34.7 billion went into the Irish Bank Resolution Corporation, IBRC, and the balance of €30 billion or so went into AIB, Bank of Ireland and Irish Life & Permanent. As to how much of that we will see back, I do not know, but while I am not trying to be facetious in this regard, I am pretty sure we will not see much of the money that has gone into IBRC. That is a write-off. I do not wish to be patronising in making that observation; the Senator has asked me the question. As for AIB, Bank of Ireland and Irish Life & Permanent, there is obviously considerable value in those institutions. On a ten-year view I do not know, but we should be reasonably confident that we will see a substantial amount of that back, if not the whole lot.
Sean Barrett (Independent)
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Does "if not the whole lot" mean it could be that we get back all €30 billion?
Mr. John Corrigan:
I do not know. It is a question of the holding period and a question of how banks are valued. In better times, banks were valued at a multiple of the book value, but now they are valued at a discount to book value. These things move around the place. In looking at the €64 billion, as I indicated, we will not see the €34 billion again. There may be a small residue there when the final account is settled.
Sean Barrett (Independent)
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I thank Mr. Corrigan for saying that. There is so much pessimism abroad that when any kind of optimistic number emerges from the second element, there are sometimes cheers of a sort because we sold a bit of a bank. However, the question should be what proportion did we get of the cost to us of taking on that bank and how much more will it need. These are the questions on which the public would be most interested in Mr. Corrigan's reflections, and I thank him for them.
As it is late in the day, I have only one further question. I thank the Chairman for his forbearance. A new Freedom of Information Act is being mooted by the Minister for Public Expenditure and Reform, Deputy Howlin. Will the NTMA be part of that or has the agency applied to opt out of it?
Mr. John Corrigan:
No. It is Government policy to bring the NTMA and its constituents, including NAMA, within the scope of the Freedom of Information Act. However, I understand that in recent statements to an Oireachtas committee, the Minister recognised that certain commercial sensitivities would have to be respected. Certainly, however, the policy intention, which we fully accept, is to bring us in principle within the scope of the Freedom of Information Act.
Sean Barrett (Independent)
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I thank Mr. Corrigan. Does this apply to the Ombudsman as well? As Mr. Corrigan is aware, there has also been some recent legislation in respect of the Ombudsman. Is the NTMA subject to the scrutiny of the Ombudsman?
Mr. John Corrigan:
We are subject to scrutiny by the Ombudsman in the Ombudsman's capacity as Information Commissioner. I have not seen the legislation but, based on the normal sort of architecture, I would expect that when someone applies for disclosure but the application is refused for whatever reason, the process of appeal to the Information Commissioner, who is the Ombudsman, will be available.
4:15 pm
Sean Barrett (Independent)
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I thank Mr. Corrigan.
Ciarán Lynch (Cork South Central, Labour)
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There are a couple of matters to conclude. Deputy Pearse Doherty raised the issue of State Street and events that were reported at the Committee of Public Accounts in November last. Would Mr. Corrigan outline the current state of play and what residual matters there are from the debt management in which State Street was engaged?
Mr. John Corrigan:
As the Chairman stated, the issue of State Street's behaviour came up at the Committee of Public Accounts. On foot of the hearing of the Committee of Public Accounts and at the request of that committee, we wrote to the chairman of the Financial Services Authority in the United Kingdom, Lord Turner, forwarding him a transcript of the evidence before the Committee of Public Accounts and expressing the committee's concern that the authority had not reported. We got back a positive reply in the sense that the chairman of the authority stated that the authority was following the matter up as quickly as it could and would report on it.
As regards our relationship with State Street, State Street has successfully managed money for us over the years on behalf of the pensions fund. An indexed portfolio, it matches the return on certain stock market indices. We have taken the view commercially that it makes sense, because we do not have an issue with the management of that, to wait until we see the FSA report. We have been made good on the face losses that were incurred on the State Street transactions. We have accepted that money, but not on the basis of full and final settlement. The matter is still open in terms of seeking further remedies. We feel that it makes sense commercially to leave matters, just for the moment.
Ciarán Lynch (Cork South Central, Labour)
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It was the Comptroller and Auditor General who brought the matter to the attention of the Committee of Public Accounts. Had the NTMA identified the difficulties that existed with State Street or was it the Comptroller and Auditor General's office that identified the difficulties?
Ciarán Lynch (Cork South Central, Labour)
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Such as?
Ciarán Lynch (Cork South Central, Labour)
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Finally, on that issue, has that created a review or a change in protocols in the NTMA's dealings with agencies with similar roles to those played by State Street?
Mr. John Corrigan:
The transaction in which the irregularity was involved was a very specific transaction. I will not go into detail unless the Chairman wants me to. It was called a transition where something was being transitioned from a stock-market holding into cash. It was a sizable transaction and needed to be handled with a certain amount of expertise. Clearly, we no longer use State Street on those activities and we have gone out to tender for a new panel of transition managers.
We have no issue with the indexed funds which are managed in a separate business unit within State Street, but we would be concerned with the quality of governance within State Street and other issues. To date, we only have the company's account on which to rely and before we make any decision on the future basis of the relationship, if any, with State Street, we would wish to see the report from the regulator in the United Kingdom.
Peter Mathews (Dublin South, Fine Gael)
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I have a few small matters. Deputies O'Donnell and Kevin Humphreys discussed the fiscal cliff or re-financing with Mr. Corrigan. Basically, is it not the case that Mr. Corrigan was talking about roll-overs and maturities' management at different yields?
Peter Mathews (Dublin South, Fine Gael)
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People are getting into a bit of a twist about the matter.
Peter Mathews (Dublin South, Fine Gael)
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It is roll-overs. In fact, the more we show that we are managing the primary deficit and the correction of expenditure and the collection of revenues, the more it is not a problem. In that situation, however, a complacency can set in about the origin and provenance of the odious debt from the bank-related issues and it becomes easy to lull us into a sense that it can be done over ten or 15 years. In principle, it is wrong. It is not our debt. It should have been mutualised. It will be mutualised in the future and the ESM and all of these mechanisms are being set up to deal with these matters. It would be a very unfair situation if, for instance, Deutsche Bank decides to recognise €250 billion worth of provisions in a year's or 18 months' time and it gets the benefit of an ESM intervention and we do not, at the same time, clean up the entire household across Europe and mutualise and perpetualise it at a cheap rate? That is my point. I would ask the NTMA to use all its skills and experience, and the regard in which it is held, to use that argument. The NTMA should not be afraid and should come out from under its shell and do battle for us.
On Bank of Ireland, the three senior staff who were lost from the NTMA-Department of Finance arrangement all went to either Bank of Ireland or to other non-nationalised banks. That is telling in itself and I will not develop it any further. Also, on Bank of Ireland, I texted the Taoiseach before 31 July 2011, the capitalisation date for the banks, not to use the National Pensions Reserve Fund, carefully built up over the years, to capitalise it, and to insist at that point on creditor capitalisation for the reasons already stated. I said it should not be used the fund as it is the pension reserve fund for the State and we should not be strong-armed into raiding it. That is like taking our children's Holy Communion and Confirmation money to meet a bill. It was wrong. We should not have done it. To think that Wilbur Ross, Kennedy Wilson, Liberty, Fairfax and Carlyle got 35% of the infrastructure of a bank-----
Ciarán Lynch (Cork South Central, Labour)
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Deputy Mathews indicated he would be brief. He is going beyond being brief and I would ask him to sum up.
Peter Mathews (Dublin South, Fine Gael)
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This is my last sentence, with the Chairman's indulgence. We hold, for €5 billion plus, 15% and we are being laughed at by that bank and its management. That is a pity.
I thank Mr. Corrigan and the Chairman.
Ciarán Lynch (Cork South Central, Labour)
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I will bring this afternoon's proceedings to a conclusion. In doing so, I thank Mr. Corrigan and his colleagues, Mr. Whelan and Mr. Murphy, for engaging with the committee in what was a lively discussion. I propose that we publish on the committee's homepage the opening statement by Mr. Corrigan if that is agreeable.
Ciarán Lynch (Cork South Central, Labour)
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As there is no other business, the meeting is adjourned.