UPDATE 2-Ireland moves to further limit damage of bank bailout
Thu, Apr 12 2012
* Govt bids to keep 30 bln euros of NAMA debt of its books
* ECB's Asmussen says will look at govt 'tracker mortgage'
* Says strict criteria on replacing bank IOUs with EFSF loan
By Padraic Halpin and Conor Humphries
DUBLIN, April 12 (Reuters) - Ireland said on Thursday it is in
talks with EU officials to keep 30 billion euros of bank-related
debt off its balance sheet while the European Central Bank said it
was ready to help Dublin work on proposals to limit the damage from
its bank bailout.
As a fragile economy is making it harder for Dublin to contain its
debt spiral, the government has been lobbying to ease the burden of
its bank-related debt, brought on by reckless lending during a
Dublin had to pump 64 billion euros worth of capital into the
banking sector after the property bubble burst and it took 74
billion euros of risky land and development loans off banks'
To recover the 31 billion euros it paid for the loans, the
government created the National Asset Management Agency (NAMA),
which conducted much of its business via a special purpose vehicle,
allowing its debt to fall outside the government's balance sheet
for EU accounting purposes.
A shift in the agency's ownership structure means more debt could
appear on the state balance sheet. But Dublin's finance ministry
said on Thursday it was in "ongoing engagement" with Eurostat and
was satisfied that NAMA's debts would not be brought on to the
government balance sheet.
Even providing the NAMA debt stays off the government's accounts,
Dublin expects its debt burden - driven sharply higher by its bank
bailout - to peak at 119 percent of GDP next year, taking it into
the same sort of territory occupied by Italy and Greece before
Europe's debt crisis began.
With the economic growth needed to keep that forecast on track far
from certain, the government has been pursuing a months-long
campaign to ease the burden of its bank-related debt by trying to
reschedule payments on 27 billion euros worth of high-interest IOUs
issued to prop up two failed banks.
European Central Bank Executive Board member Joerg Asmussen said
the ECB would work with Dublin on these proposals as well as others
focused on shifting loss-making mortgages from the country's banks.
[ I D :nL6E8FC3GZ]
"We are ready to work with the authorities pretty soon on this
issue," Asmussen told Irish national broadcaster RTE, referring to
the burden loss-making "tracker" mortgages are placing on the
balance sheets of Irish banks.
"We will look very carefully if a plan is presented to us. It is an
issue that has to be dealt with for the future viability of the
banking sector," he said, adding that no concrete proposal had been
Tracker mortgages make up more than 50 percent of Irish banks'
residential property loans and although performing, they are not
earning due to a mismatch between high funding costs and the low
ECB rate which the products track.
Pfandbrief's vorzügliche Erklärung über die trackers***)
The government has said it wants to shift trackers from
Allied Irish Banks and Irish Life and Permanent unit permanent tsb,
in which it holds majority stakes.
However, it is not clear
whether a deal would also affect Bank of Ireland , in which the
government owns a minority stake.
Irish Bank Resolution Corporation (IBRC), a vehicle winding down
the two failed Irish lenders being propped up by the related IOUs,
has said it is in talks with the government on the possibility of
it buying the tracker loans.
However Dublin has yet to say how it would move the trackers
without forcing further losses on its viable banks or pushing the
losses onto the state-owned IBRC, or whether it is willing to pump
further capital into the banks to complete the cleanup.
Asmussen gave a mixed view on the efforts to reschedule the IOU
debt, saying that while the ECB would work with the government, the
loans and the interest rate paid on them are part of Ireland's
bailout programme and should be honoured.
He said Irish hopes of replacing the so-called 'promissory notes'
for loans backed by Europe's temporary bailout fund, the European
Financial Stability Facility (EFSF), would have to meet strict
"To replace the promissory notes with support from the EFSF must
meet important criteria, including that it should improve the
chances of both the state and the banks returning to market-based
funding, and of the banks reducing their extraordinary reliance on
" he said.
While Dublin faces a challenge convincing reluctant creditor
countries to allow it use the EFSF, analysts said the government
would likely be able to keep the NAMA-related debt off its books,
even it has to come up with a new solution to do so.
"The implications of an accounting reclassification are so severe,
one can assume that a solution will be found," Dublin-based Glas
Securities wrote in a note.