Surprise, Surprise: Anglo Is Solvent So It Simply Has to Pay Its Debts

Daily Mail (London), January 28, 2012 | Go to article overview

Surprise, Surprise: Anglo Is Solvent So It Simply Has to Pay Its Debts


Byline: CORMAC LUCEY ON POLITICS AND POWER cormac.lucey@dailymail.ie

THERE was much public discussion during the week regarding that payment to Anglo Irish bondholders. Essentially [euro]1.25billion of debts that the bank had entered into fell due for payment on Wednesday - that's [euro]1,250,000,000. Objections to this payment were raised from a broad coalition of opposition TDs ranging from Pearse Doherty of Sinn Fein to independent Shane Ross.

The main objection to paying the bond is that Anglo, or more specifically its successor organisation Irish Bank Resolution Corporation, is bust. And the bonds being repaid on Wednesday were not covered by the Government guarantee. So the bust shell of a Government-owned bank was paying out [euro]1.25billion it didn't have at a time when spending cuts and tax increases are hurting every household in the land. But is this storyline factually correct?

The key premise underlying all the objections is that IBRC is insolvent. That may have been true in the past. But, following the State's investment of [euro]29billion into Anglo, it is no longer true.

What happened during 2009 and 2010 is that the bank was facing insolvency and the State prevented this by investing [euro]29billion into Anglo. It financed most of this equity by issuing [euro]25.3billion by way of Promissory Notes - or glorified IOUs. The result of that investment is that a quick look at the most recent IBRC balance sheet, from June 30, reveals a surplus of assets over liabilities of [euro]3.4billion.

So IBRC, having had its position heavily replenished by the taxpayer, cannot simply plead 'inability to pay'.

The best time to squeeze IBRC bondholders was before the injection of the promissory notes. With those now committed, IBRC is in a poor position to plead poverty with its creditors. And if IBRC had refused to pay the bonds as they fell due, the bondholders would have been entitled to go to court and to seek to appoint a receiver to recover the monies they were lawfully owed.

It is my firm opinion that, with the State's [euro]25billion commitment in promissory notes, the train had left the station on reneging on the IBRC/Anglo bonds, even if they are unsecured and unguaranteed. The only secured and unguaranteed. The only major step left open to the Government would be to renege on the promissory notes. But doing so would mean the State reneging on debts it freely entered into. That would constitute a full default by Ireland. Is this what Pearse Doherty and Shane Ross actually want?

TILTING at the bond repayment windmills may allow us vent our anger. It may provide political opportunities for opposition parties to put the Government on the ropes.

After all, it is exactly 12 months since Tanaiste Eamon Gilmore enunciated from the opposition benches: 'If the Taoiseach's government knew Anglo Irish Bank was insolvent and he asked the Irish taxpayer to bail it out and to pay the cost we are now paying for it, that was and is economic treason.'

But criticisms of the bond repayment display a crass unwillingness to grasp the financial reality that, thanks to the taxpayer, IBRC is now in a financially healthy condition and is therefore in a poor position to renege on debts that Anglo lawfully entered into. We would better focus now on trying to get the Troika to take over the State liability to IBRC represented by those promissory notes. This is precisely what the Government is now attempting. Whether, and to what extent, it will prove successful in its endeavours remains to be seen.

The strategy is built on the assumption that the foundations of our economy are all right and that the nature of the problem facing us is capable of conventional solution. …

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