Written answers

Wednesday, 12 January 2011

Department of Finance

Banks Recapitalisation

2:30 pm

Photo of Ruairi QuinnRuairi Quinn (Dublin South East, Labour)
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Question 81: To ask the Minister for Finance if he will confirm if he injected capital of €6.4 billion and €2.7 billion into Anglo Irish Bank and Irish Nationwide respectively in the run up to end 2010; if he will further confirm the coupon rate on this latest tranche of promissory notes; if he will further confirm the blended interest rate on all outstanding promissory notes; if he will further confirm the total outstanding nominal amount of promissory notes in issue; if he will further confirm the expected cumulative cost of interest on these promissory notes over the course of their lifespan; and if he will make a statement on the matter. [1383/11]

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Question 82: To ask the Minister for Finance if he will confirm if he injected capital of €6.4 billion and €2.7 billion into Anglo Irish Bank and Irish Nationwide respectively in the run up to end 2010; if he will further confirm the coupon rate on this latest tranche of promissory notes; if he will further confirm the blended interest rate on all outstanding promissory notes; if he will further confirm the total outstanding nominal amount of promissory notes in issue; if he will further confirm the expected cumulative cost of interest on these promissory notes over the course of their lifespan; and if he will make a statement on the matter. [1403/11]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Minister, Department of Finance; Dublin West, Fianna Fail)
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I propose to take Questions Nos. 81 and 82 together.

On 31 December 2010 further capital of €6.42 billion was provided to Anglo Irish Bank and €2.7 billion to Irish Nationwide Building Society. The consideration for the further capital was provided through a final increase in the Promissory Notes in each institution.

As set out in the technical note published on my Department's website on 4 November last - which accompanied the publication of the information note on the economic and budgetary outlook for the period 2011 to 2014 - the terms of the Anglo Irish Bank and Irish Nationwide Building Society (INBS) Promissory Notes have now been adjusted to provide that no interest will be chargeable in calendar years 2011 and 2012.

The coupon on the Anglo Irish Bank and INBS Promissory Notes is now 0% for the two years to 31 December 2012. A higher rate of interest will be payable from the beginning of 2013 onwards, so that the cumulative amount of interest paid over the life of these Promissory Notes will remain at an average rate sufficient to allow the Promissory Notes to be recorded in the institutions' balance sheets at face value, notwithstanding the zero rate of interest charged in 2011 and 2012. The interest rate which will apply on the final tranche of the Anglo Irish Bank and INBS Promissory Notes from 1 January 2013 is 11.76% and is based on the long term Government bond yield appropriate to when the amounts will be paid. If interest was spread evenly over the life of the final tranche of the Promissory Notes, rather than having a two year 0% coupon period, the coupon would have been 8.6%.

The blended coupon on all of the tranches of both the Anglo Irish Bank and INBS promissory notes together is 0% in both 2011 and 2012 increasing to 8.2% thereafter.

The Promissory Note structure was designed to achieve the most efficient financing outcome for the Exchequer and to spread the repayments over an extended period of years. The final total of Promissory Notes in issue is €30.85 billion (inclusive of EBS). Under the terms of the Notes, 10% of the amount outstanding at end 2010 will be paid each year i.e. €3.085 billion per year. The amount of interest accruing on the Anglo Irish Bank and INBS Promissory Notes will be nil in 2011 and 2012, increasing to €1.8 billion in 2013. The interest charge declines annually thereafter as the balance is repaid. As a result of the extended duration i.e. towards 20 years, the total interest is considerable and is estimated at €17 billion over the life of the Promissory Notes. Discounting these interest cash flows using a government bond yield curve from 22 December 2010 for all tranches the discounted value of the interest is €9.5 billion.

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