Seán Sherlock (Cork East, Labour)
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Question 8: To ask the Minister for Finance if he has instructed the National Treasury Management Agency to prepare an exit strategy for the National Pension Reserve Fund which would see the fund liquidated at relatively short notice to ease the sovereign's funding concerns; if his attention has been drawn to the fact that the NTMA has done so of its own accord; and if he will make a statement on the matter. [34041/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Investment of the National Pensions Reserve Fund and Miscellaneous Provisions Act 2009 made the necessary legislative changes to the National Pensions Reserve Fund Act 2000 to enable the fund to be used for the purposes of bank recapitalisation. It empowered the Minister for Finance to direct the National Pensions Reserve Fund Commission to invest in listed credit institutions or to underwrite share issues by these institutions where, having consulted the Governor of the Central Bank and the Financial Regulator, the Minister decides such a direction is required, in the public interest, to remedy a serious disturbance in the economy of the State or to prevent potential serious damage to the financial system in the State and ensure the continued stability of that system.

On 30 March 2009, I directed the National Pensions Reserve Fund Commission to invest €3.5 billion in preference shares issued by Bank of Ireland and on 12 May 2009 I directed it to invest €3.5 billion in preference shares issued by Allied Irish Banks plc. On 25 April 2010, I directed it to convert part of its €3.5 billion holding of Bank of Ireland preference stock into ordinary stock as part of the capital raising exercise announced by the bank on 26 April.

In my statement on banking issued this morning, I announced, in order to afford every opportunity to AIB to raise as much as possible of its new capital requirement of €7.9 billion from the markets and to minimise further Government support, that it has been decided the bank's capital requirement will be met through placing an open offer to shareholders of AIB shares to the value of €5.4 billion. This transaction will be fully underwritten by the National Pensions Reserve Fund.

The use of the National Pensions Reserve Fund to recapitalise our main financial institutions on commercial terms is the most appropriate and prudent use of the fund to assist in meeting the financial challenges we are facing. With regard to the sovereign funding position, the NTMA has maintained cash balances of some €20 billion and the Exchequer is fully funded through the first half of 2011.

I have not instructed the NTMA to prepare an exit strategy for the National Pensions Reserve Fund or to have the fund liquidated at short notice to ease sovereign funding concerns. Neither has the NTMA drawn such a strategy to my attention.

Joan Burton (Dublin West, Labour)
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Earlier, the Minister was complaining that the National Pensions Reserve Fund was not being taken into the calculations of our overall liabilities by the bond markets. Yesterday, the Minister appointed Professor John FitzGerald of the ESRI to the new Central Bank commission. In an article by Eamon Quinn in The Sunday Tribune on 19 September 2010 he was quoted as saying, "Announcing the sale of the unencumbered €14 billion worth of stock market investments inside the National Pensions Reserve Fund will be a key card for the government to play." Ciarán O'Hagan of Societé Generale in Paris, a well known commentator on Irish Government bonds, said selling the pension fund would "be a very good surprise" for the bond markets, even though the Government had enough cash to see out the market crisis. Given that yesterday the Minister announced the appointment of Professor Fitzgerald to the Central Bank Commission, he must have been aware, and no doubt his officials briefed him, on this prominent statement by him on the National Pensions Reserve Fund.

The Labour Party put forward a proposal to use €2 billion for a strategic investment bank to kick-start and continue capital and other critical investment. Has the Minister had a chance to examine that?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I was pleased that Professor Fitzgerald agreed to serve as a member of the new Central Bank Commission but he did not express his opinion on the liquidation of the pension fund to me.

Joan Burton (Dublin West, Labour)
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He did. His opinion is well known.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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He did not express his opinion to me and I had not read the article to which Deputy Burton drew my attention. My officials did not draw his opinion to my attention either and the Central Bank Commission has no function in the operation of the NTMA. It is important that those we appoint to bodies have opinions of their own and it does not lessen in any way the respect I have for Professor Fitzgerald that he expressed such an opinion. That is exactly what it is - an opinion - and the views of the analysts in the article referred to by the Deputy are also opinions. That is their status. I have confirmed the official position, that there was no such instruction to the NTMA, and it has not suggested to me that any such contingency is being planned for. I can only answer from the facts at my disposal in the NTMA.

On the Labour Party proposal on the use of the pension fund, the fund's credibility in world markets depends on its commercial use. It must be demonstrated that it ensures a return to itself in terms of its use and I fear, although I am open to examining the Deputy's proposal, that the structure is one where the funds of the pension fund would be re-routed through another vehicle without any return to the pension fund.

I am prepared to examine any proposal for the constructive use of the funds at the disposal of the NPRF.

Joan Burton (Dublin West, Labour)
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The Minister is raiding the fund for the banks.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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As has been pointed out, the investment by the pension fund in the banks is restricted to banks listed on the stock exchange.

Kieran O'Donnell (Limerick East, Fine Gael)
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What will be final investment by the NPRF in the banks? Does the Minister anticipate the bond yields will reduce in the next month? At what point would the Minister consider going for a bond auction if yields fell below a certain level?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The sums I envisaged being invested are those invested to date, subject to the case that in AIB there is an issue about the disposal of M&T.

Kieran O'Donnell (Limerick East, Fine Gael)
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So there is a contingency of €7.9 billion?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Yes, but the contingency is fully within the existing cash capacity of the pension fund.

Kieran O'Donnell (Limerick East, Fine Gael)
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That is €15 billion in total.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I will be guided by the advice of the NTMA in the matter.

Kieran O'Donnell (Limerick East, Fine Gael)
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If yields were at a certain level, would the bond auction happen in October?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It is unlikely because we are funded until the middle of next year and it is important that we demonstrate not just the credibility of the banking policy, but the credibility of budgetary policy as well.

Kieran O'Donnell (Limerick East, Fine Gael)
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Would it not bring credibility if the Minister could go to the bonds?