Noonan in denial over €75 billion Anglo Irish promissory note – Doherty

Sinn Féin finance spokesperson Pearse Doherty has today accused the Minister for Finance of being in denial over the total cost to the State of the Anglo Irish Bank Promissory Note.

Deputy Doherty’s comments were made after an exchange today with the Finance Minister during question time in the Oireachtas at which the Minister was asked to confirm that the total cost of the Promissory note would amount to €74.63 billion

Deputy Doherty said:

“It is deeply regrettable that the Minister for Finance refuses to come clean on the total cost to the State of the Anglo Irish Promissory Note. On the basis of his response to me today he is in denial.

“New figures provided to me from the Minister for Finance show that the cost of the Promissory note will ultimately be €74.63 billion by the time it is paid off in 2031. This includes the capital repayments, the interest payments to Anglo and the cost of servicing the state’s debt in borrowing this sum.

“This is a staggering amount of money, equating to almost half the total government debt this year and over a third of government debt when we reach our peak debt to GDP ratio over the next number of years.

“It is beyond comprehension that while talks are afoot in Europe about what a Greek default would look like, how European banks can be protected, and how Greece can be kept in the Euro and helped to recover, that our government would consider paying out on these Anglo Promissory notes.

“This state cannot afford these sums. It throws into question our ability to manage the rest of our debt. It’s time for the government to get off their hands and announce categorically that it is neither willing nor able to pay out on the Anglo-Promissory note. The government must begin immediate negotiations with the ECB to achieve this end.”

The table below is based on the data provided by the minister in PQ No 120 which outlines the cost of the capital repayments and the interest. The table also includes a  cost of borrowing column which was not included as a column in the PQ response however the cost was provided in the text. The original Note from the Department “Technical Note on Accounting Treatment of Promissory Note 4th November 2010” included a cost of borrowing column.
For years 2011 -2013 the interest on borrowing is 115 million as per the minister’s response.
For years 2014 -2031 the assumed interest rate is 4.7%. This was the average cost of funds raised by the NTMA in the bond market in 2009 and 2010, and is a conservative assumption for the early post EU/ IMF programme years.

€bn Total Interest Repayments Total Capital Reduction Incremental Annual Debt interest cost on Payments          (Cash borrowing) Cumulative      Debt interest cost on Payments   (Cash borrowing)
31/03/2011 0.6 3.1 2.5 0.115
31/03/2012 3.1 3.1 0.115 0.23
31/03/2013 0.5 3.1 2.6 0.115 0.345
31/03/2014 1.8 3.1 1.2 0.15 0.495
31/03/2015 1.7 3.1 1.3 0.15 0.645
31/03/2016 1.7 3.1 1.4 0.15 0.795
31/03/2017 1.5 3.1 1.5 0.15 0.945
31/03/2018 1.4 3.1 1.6 0.15 1.095
31/03/2019 1.3 3.1 1.7 0.15 1.245
31/03/2020 1.2 3.1 1.9 0.15 1.395
31/03/2021 1.1 3.1 2 0.15 1.545
31/03/2022 0.9 3.1 2.2 0.15 1.695
31/03/2023 0.7 3.1 2.3 0.15 1.845
31/03/2024 0.6 2.1 1.5 0.1 1.945
31/03/2025 0.4 0.9 0.5 0.04 1.985
31/03/2026 0.4 0.9 0.5 0.04 2.025
31/03/2027 0.3 0.9 0.6 0.04 2.065
31/03/2028 0.3 0.9 0.6 0.04 2.105
31/03/2029 0.2 0.9 0.7 0.04 2.145
31/03/2030 0.1 0.9 0.8 0.04 2.185
31/03/2031 0 0.1 0
Total 16.8 47.9 30.6 26.73
Total Cost €74.63bn
Cost of Borrowing assuming a 4.7% rate from 2014 onwards (post EU/IMF Programme)
4.7% was the average cost of funds raised by the NTMA in the bond market in 2009 and 2010.

DÁIL QUESTION
NO  120

To ask the Minister for Finance the total cost to the State of the Anglo Irish Bank and Irish Nationwide Building Society promissory notes including broken down by the interest payable on the promissory notes, the interest on borrowing to service the note and the capital payments; if he will detail the payment schedule and the date when the full debt including interest will be paid in full; and if he will make a statement on the matter.
– Pearse Doherty.
*    For WRITTEN answer on Tuesday, 27th September, 2011.
Ref No: 26029/11
REPLY
Minister for Finance ( Mr Noonan ):
The promissory notes were issued in various tranches with different interest rates (four tranches for Anglo and 2 tranches for INBS. The total interest cost for the State for all tranches of the Anglo and Irish Nationwide promissory notes is circa €17 billion with annual repayments of €3.1 billion per annum. These annual repayments reduce over time as the various tranches of the promissory note are repaid. The final payment on the promissory note of circa €0.1billion will be made on 31 March 2031. Set out below is a detailed aggregated schedule of capital repayments and interest on the promissory notes.

€bn Total Interest Repayments Total Capital Reduction
31/3/2011 0.6 3.1 2.5
31/3/2012 3.1 3.1
31/3/2013 0.5 3.1 2.6
31/3/2014 1.8 3.1 1.2
31/3/2015 1.7 3.1 1.3
31/3/2016 1.7 3.1 1.4
31/3/2017 1.5 3.1 1.5
31/3/2018 1.4 3.1 1.6
31/3/2019 1.3 3.1 1.7
31/3/2020 1.2 3.1 1.9
31/3/2021 1.1 3.1 2.0
31/3/2022 0.9 3.1 2.2
31/3/2023 0.7 3.1 2.3
31/3/2024 0.6 2.1 1.5
31/3/2025 0.4 0.9 0.5
31/3/2026 0.4 0.9 0.5
31/3/2027 0.3 0.9 0.6
31/3/2028 0.3 0.9 0.6
31/3/2029 0.2 0.9 0.7
31/3/2030 0.1 0.9 0.8
31/3/2031 0.0 0.1 0.0
16.8 47.9 30.6

The Deputy should be aware that the funds which become available to the State as a result of borrowing undertaken by the Exchequer are not generally assigned to one particular area of expenditure. Rather they are available, along with the funds sourced from revenues such as tax revenue, non-tax revenue and capital receipts, to fund overall expenditure. Accordingly, there was no one tranche of borrowing that was undertaken solely for the purpose of funding the Promissory Note payments to Anglo Irish Bank and Irish Nationwide Building Society. The draw downs of funds so far under the Joint EU/IMF Programme of Financial Support have been used for a range of different purposes including of course the general running of the day-to-day operations of the State. It is difficult therefore to isolate precisely the exact cost of the interest payments on the borrowing undertaken to fund the Promissory Note payments. However, for illustrative purposes, on the basis of the original 5.8% blended average interest rate which applied to borrowing under the Programme, the interest costs on borrowing of €3,060 million would be just under €180 million per annum. In light of the recently agreed reduction in interest rates on funding available under the Joint EU/IMF Programme of Financial Support however, the estimated interest cost on such borrowing reduces to approximately €115 million per annum.

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