All Bonds Replacing Infamous ‘Promissory Notes’ Used in Bank Bailout Now Redeemed
Today, the National Treasury Management Agency (NTMA) completed the repurchase and cancellation of an Irish floating rate treasury bond valued at €534m. This bond was slated to mature in 30 years
This marks the final redemption of bonds issued by the NTMA in 2013 as part of the €29bn liquidation of Anglo, which were given in exchange for the infamous promissory notes. The purpose of this complex deal was to close down the failed lender without burdening the Central Bank, the major creditor at the time, with its losses.
The early buyback of this debt will reduce the NTMA’s interest expenses in the future.
Finance Minister Michael McGrath expressed his satisfaction with the transaction, stating, “This development brings an end to a consequence of the banking crisis from over a decade ago and has occurred ahead of the original schedule for the disposal of the floating rate bonds.”
He added, “The substantial regulatory reforms implemented both domestically and with our EU partners since the crisis have greatly strengthened the Irish banking system, making it better equipped to face any future challenges that may arise.”
Deputy Central Bank governor Vasileios Madouros declared, “The sale of these bonds, ahead of schedule, represents the end of a long chapter in Ireland’s banking crisis. The extensive regulatory reforms introduced over the past decade have reinforced the banking system’s resilience and served as a reminder of the lingering impact that crises can have on the economy and society.”
Anglo Irish Bank, which was taken over by the State in 2009, was primarily funded through the issuance of promissory notes. These notes held taxpayers liable for the bank’s losses but did not require an immediate cash injection.
In 2011, Anglo Irish merged with State-owned Irish Nationwide Building Society to form the Irish Bank Resolution Corporation (IBRC), which was subsequently liquidated in 2013. As part of the deal, the Central Bank exchanged the promissory notes for a portfolio of €25.034bn in floating rate notes, along with €3.461bn of Irish government bonds.
This move transformed the Central Bank from a creditor of the Bank to a creditor of the State, allowing it to bypass Euro rules prohibiting central banks from lending to their governments.
This deal, nicknamed the ‘promissory night’, sparked significant controversy as taxpayers were burdened with the debt and potential interest payments lasting for decades.
Over the past few years, as the Irish economy recovered and global interest rates plummeted, the NTMA has been repurchasing the floating rate notes.
Officials note that the higher price paid by the NTMA for these bonds ultimately contributes to increased profits for the Central Bank, benefitting the Exchequer.
CEO of the NTMA, Frank O’Connor, hailed this sale as a significant achievement for Ireland. He stated, “The exchange of promissory notes for floating rate bonds in 2013 provided Ireland with the necessary flexibility to manage its debt repayments as it emerged from the EU-IMF program and re-entered the debt markets.”
He further explained, “This enabled the NTMA to replace the floating rate bonds with fixed-rate Irish government bonds, issued to investors at historically low interest rates.”
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