• Due to a glitch in the old vBulletin software, some users were "banned" when they tried to change their passwords at the end of February. This does not apply after the site was converted to Xenforo. If you were affected by this, please us viua the Contact us link in the footer.

Anglo's Promissory Notes


goosebump

Well-known member
Joined
May 23, 2008
Messages
4,953
Still plenty of ifs and buts in determining final cost to taxpayer - The Irish Times - Wed, Sep 01, 2010

Simon Carswell notes that €19bn of the €23bn committed to Anglo is in the form of promissory notes (IOUs) rather than cash up front. He also notes the following:

"It is also notable that Anglo used some of the €10.3 billion in promissory notes it held at the end of June as collateral to draw funding of €11.6 billion from the Central Bank on a special loan."

My read on this is that Anglo borrowed money from the Central Bank (ie the State) and used an IOU from the Government (the State) as security.

As such, if Anglo defaulted on its loan from the Central Bank (and use the money to pay off some of its debts), the Government (the State) would owe the Central Bank (the State) €10.3bn.

Given that one arm of the State is lending to t'other, why not just call it quits?

I'm guessing that the Central Bank has to meet its liabilities, but where does the Central Bank get its funds from? It doesn't have depositors, or bondholders. Did the money it gave to Anglo just come from its reserves?
 


Cassandra Syndrome

Well-known member
Joined
Aug 23, 2009
Messages
16,908
The Central Bank has cash reserves of 20 Billion Euro which are loaned to from various means. It also holds all the deposits of the registered banks.
 

EvotingMachine0197

Well-known member
Joined
Feb 17, 2006
Messages
8,641
The balance sheet has hardly changed since 2008 except for the following :

About €30 Billion in real customer deposits have fled - replaced by the €10 Bill promissory note and the Central bank deposits.

The Government is replacing 'The Bank's' liabilities with 'The Taxpayer's' liabilities.

The assets upon which these liabilities are collateralised are in bits.

That's my moronic take on it anyway.
 

Dreaded_Estate

Well-known member
Joined
Sep 5, 2007
Messages
3,719
Still plenty of ifs and buts in determining final cost to taxpayer - The Irish Times - Wed, Sep 01, 2010

Simon Carswell notes that €19bn of the €23bn committed to Anglo is in the form of promissory notes (IOUs) rather than cash up front. He also notes the following:

"It is also notable that Anglo used some of the €10.3 billion in promissory notes it held at the end of June as collateral to draw funding of €11.6 billion from the Central Bank on a special loan."

My read on this is that Anglo borrowed money from the Central Bank (ie the State) and used an IOU from the Government (the State) as security.

As such, if Anglo defaulted on its loan from the Central Bank (and use the money to pay off some of its debts), the Government (the State) would owe the Central Bank (the State) €10.3bn.

Given that one arm of the State is lending to t'other, why not just call it quits?

I'm guessing that the Central Bank has to meet its liabilities, but where does the Central Bank get its funds from? It doesn't have depositors, or bondholders. Did the money it gave to Anglo just come from its reserves?
It was just a way for Anglo to get the cash up front from the promissory note.
You can't just call it quits because Anglo needs the capital and cash.

so for all the talk of spreading the cash payments over 10 years we have effectively given the cash to Anglo already
 

goosebump

Well-known member
Joined
May 23, 2008
Messages
4,953
It was just a way for Anglo to get the cash up front from the promissory note.
You can't just call it quits because Anglo needs the capital and cash.
Well yes, that would be somewhat optimistic.

I'm more curious about where the Central Bank is getting this money to lend to Anglo.

From what I can see, its coming from their reserves, or from deposits that are placed with the Central Bank by the registered banks.

I guess what I'm gunning at is why the Central Bank can't 'chip in' re. the Anglo debt.

Does it have a balance sheet in the same way as a normal bank?

Who are its creditors? Presumably the State is its largest creditor.
 

goosebump

Well-known member
Joined
May 23, 2008
Messages
4,953
The Central Bank has cash reserves of 20 Billion Euro which are loaned to from various means. It also holds all the deposits of the registered banks.
So the CB has loaned out over 50% of its reserves to Anglo?
 

jacko

Well-known member
Joined
Mar 6, 2009
Messages
2,668
remember - if the european commission blocks the restructuring then the govt will have to withdraw the promissory notes and take back any cash that it has given to Anglo
 

goosebump

Well-known member
Joined
May 23, 2008
Messages
4,953
remember - if the european commission blocks the restructuring then the govt will have to withdraw the promissory notes and take back any cash that it has given to Anglo
Are you sure about that?

Is it not that they will prevent further issuance?

The other thing that puzzles me is why the Central Bank needs reserves. It doesn't support a currency any more, or lend money.

Why is the Central Banks sitting on billions of unused Euro while we are borrowing at 5.7% to fund recapitalisation projects?
 

Cassandra Syndrome

Well-known member
Joined
Aug 23, 2009
Messages
16,908
So the CB has loaned out over 50% of its reserves to Anglo?
For some reason the Central bank has stopped showing its Balance sheet since May of this year. Its monthly report used to be 26 pages. Now its just a 6 page executive summary. In the appendix are spreadsheet links to tables, but none of them show th complete balance sheet.

The government would have excess cash on deposit in the Central Bank of between 20 and 30 Billion. This cash is the proceeds of commercial papers used by the government to borrow money to run the country (€160 Billion rollover every year) and also from bonds and bills issued. The Central Bank has about 150 Billion Euro of deposits from its registered banks, which represents all the depoists of Irish residents and non financial Irish companies. It also has 50 Billion Euro in Capital and reserves, which it never illustrated what exactly that it is made up of. It only has 250 million of Gold reserves and a further 1 Billion of Foreign Exchange Reserves.

There is enough in there for the government to tap into to lend to Anglo.

The states actual savings body is the National Pension Reserve Fund. It has about 15 Billion Euro net of bank recaps lent.

The NPRF is a very good idea and few Western countries have a separate institute dedicated to savings.
 

jacko

Well-known member
Joined
Mar 6, 2009
Messages
2,668
Are you sure about that?

Is it not that they will prevent further issuance?

The other thing that puzzles me is why the Central Bank needs reserves. It doesn't support a currency any more, or lend money.

Why is the Central Banks sitting on billions of unused Euro while we are borrowing at 5.7% to fund recapitalisation projects?
absolutely - the approval of ALL monies and supports to date is temporary and dependent on the full investigation - the outcome of wich is due by the end of the month - this is why the govt is begining to panic - they are picking up vibes that the Comm is going to say No
 

goosebump

Well-known member
Joined
May 23, 2008
Messages
4,953
It also has 50 Billion Euro in Capital and reserves, which it never illustrated what exactly that it is made up of.
That's staggering given our current predicament.

I wonder if there is not some way in which Anglo could be rolled into the Central Bank, in which Anglo's liabilities could be offset against the Central Banks reserves.

The State owns both banks. One has massive reserves, the other is bleeding reserves. And the Central Bank has no real function anymore other than to manage our registered banks.
 

Cassandra Syndrome

Well-known member
Joined
Aug 23, 2009
Messages
16,908
That's staggering given our current predicament.

I wonder if there is not some way in which Anglo could be rolled into the Central Bank, in which Anglo's liabilities could be offset against the Central Banks reserves.

The State owns both banks. One has massive reserves, the other is bleeding reserves. And the Central Bank has no real function anymore other than to manage our registered banks.
Must check that today if there is any way of breaking down that 50 Billion figure. Its just in there as a figure that balances their assets and liabilities. Page 7 has their basic balance sheet.

The Central Bank & Financial Services Authority of Ireland

I see in May the 25 Billion Euro the government has on deposit is nearly wiped out by government credit of 23 Billion Euro. At the end of last year they had 10 Billion of a net surplus.

Doesn't really matter its all borrowed anyway.

But as you say what the hell is in that 50 Billion Euro? I wonder does any poster here know a breakdown for it.
 

goosebump

Well-known member
Joined
May 23, 2008
Messages
4,953
But as you say what the hell is in that 50 Billion Euro? I wonder does any poster here know a breakdown for it.
I guess we need a rock solid Central Bank in the long term as there are no guarantees re. the continued existence of the euro, but the euro isn't likely to go anywhere soon.

In the meantime, I wonder if there isn't some creative way to use the Central Banks reserves to deaden the impact of Anglo on the State's current account, at least in part anyway.
 

Cassandra Syndrome

Well-known member
Joined
Aug 23, 2009
Messages
16,908
I guess we need a rock solid Central Bank in the long term as there are no guarantees re. the continued existence of the euro, but the euro isn't likely to go anywhere soon.

In the meantime, I wonder if there isn't some creative way to use the Central Banks reserves to deaden the impact of Anglo on the State's current account, at least in part anyway.
I checked out their Annual Report for 2009. Throws up a completely different balance sheet in their statement of accounts

Page 70 & 71

http://www.financialregulator.ie/publications/Documents/Central Bank and Financial Services Authority of Ireland Annual Report 2009.pdf

Note 32 details Capital and reserves. But its only €1.3 Billion. Furthermore Their total assetsis €116 Billion Euro which is far less than the monthly report which shows over €300 Billion.
 

Conor

Moderator
Joined
Apr 7, 2004
Messages
5,206
For some reason the Central bank has stopped showing its Balance sheet since May of this year. Its monthly report used to be 26 pages. Now its just a 6 page executive summary. In the appendix are spreadsheet links to tables, but none of them show th complete balance sheet.
Isn't this the complete balance sheet?
 

Libero

Well-known member
Joined
May 22, 2004
Messages
3,000
goosebump said:
My read on this is that Anglo borrowed money from the Central Bank (ie the State) and used an IOU from the Government (the State) as security.

As such, if Anglo defaulted on its loan from the Central Bank (and use the money to pay off some of its debts), the Government (the State) would owe the Central Bank (the State) €10.3bn.

Given that one arm of the State is lending to t'other, why not just call it quits?
Why not?

Because if the government admitted to what's just gone down, it would show up the lie of the Promissory Notes allowing the cash commitment to Anglo to be spread over many years.

If the PNs were left as they were on Anglo's balance sheet, there would be truth in that claim.

But the PNs, as you say, are being cashed in with the Central Bank, which, again as you say, is another arm of the state.

So, in the round, the PNs are not allowing the state to spread the cash contribution to Anglo over many years. That was a false claim by the government.

goosebump said:
I wonder if there is not some way in which Anglo could be rolled into the Central Bank, in which Anglo's liabilities could be offset against the Central Banks reserves.
For what feels like the thousandth time, the fact that Anglo is a nationalised company does not mean that its liabilities are state liabilities.
 

goosebump

Well-known member
Joined
May 23, 2008
Messages
4,953
Bump.

Looks like these "free money" promissory notes will actually be paying the banks a 5% interest coupon per annum or €1.5bn . Ouch!

The Irish Economy » Blog Archive » Budget Calculation Update: Promissory Note Interest Payments

Twitter
That hasn't been confirmed. Whelan is just going on an off-hand remark by Joan Burton.

From what I understand, the banks use the collateral of the notes to borrow actual cash, which they presumably have to pay interest on. You would have thought that the banks could cover the interest themselves.

I can't see the sense in it. If this coupon did apply, it would make more sense for the State to just borrow the cash and hand it over to the banks, rather than pay a coupon on the notes and then a coupon on borrowing to fund the maturity of the notes.

But who knows.
 

DCon

Well-known member
Joined
May 5, 2009
Messages
5,901
Here is what BIFFO said today

Brian Cowen (Taoiseach; Laois-Offaly, Fianna Fail) Link to this

The answer is twofold. Deputy Gilmore omitted the other issue over the course of the year. It was not simply about whether the growth rate was 0%, 0.5% or -0.5% or whether the current budget deficit was 11.9%, 11.5% or 11%. There was also the banking issue, which provided a spike in our current budget deficit for this year. Given what we had to provide for in that regard, the increase in the national debt was of the order of 20%. The increase in the deficit means the promissory note system, on which Opposition finance spokespersons were briefed yesterday, provides for paying over a longer period of time, as in a mortgage situation. That must be dealt with. I do not want to say that this is the sole source of our problems and annoyance, upset and frustration about this exists. However, it is 10% of the repayment we must make next year in respect of the repayment of debt interest.
Adjournment Debate Matters: 19 Oct 2010: Dáil debates (KildareStreet.com)
 

New Threads

Popular Threads

Most Replies

Top