Micheál Martin (Cork South Central, Fianna Fail)
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202. To ask the Minister for Finance his views on the Government decision announced in Dáil Éireann on 31 March 2011 in relation to bondholders; and if he will make a statement on the matter. [32843/15]

Michael Noonan (Limerick City, Fine Gael)
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As I outlined in my evidence to the Oireachtas Banking Inquiry the issue of burden-sharing with senior bondholders in IBRC was seriously considered in advance of my statement on banking matters on 31 March 2011. There was €3.7 billion of unsecured unguaranteed senior debt remaining in Anglo and INBS at that time and the Government strongly pushed for appropriate burden-sharing for these bondholders, conditional on the support of the ECB.

In advance of my statement on banking matters on 31 March 2011, I had explicitly sought ECB support for this proposal and despite our best efforts it was made clear to us that the ECB would not support any attempt to burden-share with senior bondholders in those institutions. Weighing up the potential savings of €3.7 billion that would potentially accrue to IBRC against the immediate and devastating impact of withdrawal of ECB support on Ireland, the Government took the decision not to proceed with the burden-sharing with senior bondholders at that time.

Micheál Martin (Cork South Central, Fianna Fail)
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203. To ask the Minister for Finance his views regarding the telephone call he received from the President of the European Central Bank, Mr Jean Claude Trichet, in relation to burning the senior bondholders, when he stated that a bomb would go off if that announcement was made; and if he will make a statement on the matter. [32844/15]

Michael Noonan (Limerick City, Fine Gael)
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As the Deputy may be aware, I have previously addressed this issue comprehensively during my appearance before the Joint Oireachtas Committee of Inquiry into the Banking Crisis ( the Inquiry).

My position on burden sharing with senior bondholders is consistent. I thought that we should burden share with senior bondholders of Anglo and INBS, but that we should do so only with the consent of the European Central Bank (ECB). That position was set out in the programme for Government.

The decision to recapitalise and nationalise Anglo Irish Bank and Irish Nationwide was taken by the previous Government and €34.7 billion had been injected into these banks in 2009 and 2010. These entities were merged in July 2011 to become the Irish Bank Resolution Corporation (IBRC) but I will refer to them as IBRC for convenience.  IBRC was at that time reliant on some €41 billion in emergency liquidity assistance, known as ELA, from the Central Bank and a revised restructuring plan for IBRC submitted by the previous Government in January 2011 assumed a funding strategy of €50 billion. In the absence of any alternative funding model from the ECB it was essential that the merged institutions retained its banking licence and access to ELA. As such, maintaining Central Bank funding to support the wind-down of IBRC was the most prudent approach to protect the taxpayer. Various alternative sources of long term funding were explored but did not prove possible. It was only when a long-term viable solution for the promissory notes was found and the system more generally had stabilised, that we decided to liquidate the bank.

In line with Government policy the issue of burden sharing with IBRC was considered after we took office in March 2011. There was €3.7 billion of unsecured unguaranteed senior debt in Anglo and INBC in early 2011. As IBRC was different from the other banks, the Government pushed for burden sharing for these bondholders, conditional on the support of the ECB.

At the Government meeting of 29 March 2011, the Government agreed to proposals I presented in relation to bank restructuring. I was given the authority to consult with the European authorities, and particularly with the ECB to see if I could get their consent for the restructuring plan and for burden sharing in particular. This decision has already been read into the record of the Inquiry, and included as point 4 and point 5 the following:

 "(4) agree that measures should be taken in agreement with the EU-IMF-ECB to mitigate the costs of further recapitalisation of the banks and this should be announced. Such measures would include burden sharing, private investment and asset sales and would have regard to the particular position of each institution and, therefore, the mix and measures available will vary between institutions.

"(5) agree that discussions will be required at a senior level with the external authorities, with a view to securing agreement to this approach, and in particular that the timing of any recapitalisation would allow for arrangements to be made in this regard. Indicatively at least, some recapitalisation measures may be required to be delayed until June".

I announced the measures taken on foot of this Government decision in an address to the Dáil on the 31st of March 2011.

The calls that your question refers to took place earlier on the day of that announcement, and were triggered by ECB concerns. My recollection is that there were two calls from Mr. Trichet, then president of the ECB, on this date. On one of these calls, the second to my recollection, Mr. Trichet made the statement referred to in your question, that if the proposed burden sharing was implemented that a bomb would go off, not here (Frankfurt), but in Dublin.

I informed Mr Trichet at that time, that it was indeed our intention to burden share with the  senior unguaranteed bondholders of Anglo Irish Bank and INBS. Mr Trichet expressed his concern at the proposal to burden share, pointing out that this would in effect be treated as a default by the markets. As I outlined to the Inquiry, I was concerned  because ELA can't be given to a bank that defaults and this would have resulting implications for access to Emergency Liquidity Assistance (ELA) by the Irish banks, particularly Anglo Irish Bank which was underpinned by approximately €41 billion of ELA at the time (ELA cannot be given to banks in default).

Mr. Trichet also suggested that the burning of the senior unguaranteed bondholders would have a negative impact on the financial services industry in Ireland and  that it could cause difficulty for financial services companies to finance themselves on the market if they were located in a country in default. These were significant issues. 

Weighing up the potential savings of €3.7 billion that would accrue to IBRC against the immediate and devastating impact of withdrawal of ECB support on Ireland, and the potential negative impact on the financial services sector I decided not to proceed with announcement of burden sharing with senior bondholders as  the risk was too high for the amount of gain that was involved.

However, it is not true to say that bondholders weren t discounted in the bail-in. We brought burden-sharing in for subordinate bondholders (junior bondholders) and we took over €5 billion out of that. The late Brian Lenihan had also previously bailed-in some junior debt. The total discounting from junior bondholders over the period was about €15 billion.  Junior bondholders were very heavily discounted. Senior bondholders weren t, for the reasons I have already set out.