Sins of the Father (30 page)

There was a deferral of payment, though, but it related to the arrangement the minister had struck with Bank of Ireland to raise funds to meet the promissory note payment. The government created a State-guaranteed bond, gave it to IBRC, which then sold it to Bank of Ireland with a guarantee to buy it back in a year’s time. IBRC then used the funds from the sale to pay back NAMA. Once the bond was repurchased by IBRC, it would be tagged onto Ireland’s long-term national debt. Bank of Ireland would make an estimated €38.7 million from the transaction.
⁴¹

However, that deal needed shareholder approval – a process that would take months. The NAMA transaction was put in place as a stop-gap measure. It was the payment from Bank of Ireland that was being deferred, not the IBRC/promissory note transaction. That was being covered by NAMA. All of this was hailed as somehow a victory for common sense. The
Irish Times
reported that, ‘the real benefit is that it frees up €3.1 billion of cash that can be beneficial elsewhere.’
⁴²
The
Irish Independent
chose to report the conversion of the promissory note payment into national sovereign debt as ‘the first major breakthrough on the issue of bank debt.’
⁴³
‘In the staring match between Ireland and the EU and the ECB’, said the newspaper, ‘the other guys blinked first.’

The ECB – ‘the other guys’ – released a statement regarding the deal which laid emphasis on the importance of the Irish State honouring ‘the full payment of the €3.06 billion promissory notes.’
⁴⁴
Four days later, Mario Draghi was asked to comment on the events at a press conference in Frankfurt. He said little except that he had taken note of the deal, and that it was ‘a completely Irish operation.’
⁴⁵
‘The ECB is not part of it’, he said. It was a matter for IBRC and the Central Bank of Ireland regarding funding under the Emergency Liquidity Assistance scheme. In May the
Irish Examiner
asked for documents from the ECB relating to the deal. In response, the bank said that ‘having duly looked into this matter, we would like to inform you that the ECB did not receive any documents from the Irish Government on the renegotiation of the terms of the promissory notes.’
⁴⁶
In its mid-term fiscal statement of November 2012 the Department of Finance stated that the promissory note payment of March that year was settled with a government bond.
⁴⁷
It is easy to win a staring match when you’re the only one in the game.

The deal was a very costly exercise in creative accounting. Sinn Féin finance spokesperson, Pearse Doherty, said that, ‘not only has the minister abjectly failed to seek a restructuring of the promissory notes, but that even the movement it claimed to have achieved is a jumbled-up mess of accountancy trickery and additional costs, with some crossed fingers thrown in.’
⁴⁸
Debt Justice Action highlighted the fact that only the Bank of Ireland would profit from the deal, as it was ‘lending to the Irish government to allow that government to repay a debt that was not of our making and which could easily have been suspended. This is what counts as a miracle in Ireland today – it’s called a scam in most other places.’
⁴⁹

Those voices were drowned out, however, by a mainstream chorus of approval and acquiesce. In December 2012 the Minister for Communications, Pat Rabbitte, told the media with a straight face: ‘we didn’t pay the promissory note this year and, as far as I’m concerned, we’re not going to pay it next year. it’s as simple as that.’
⁵⁰
He was not challenged in any way, despite the fact that his speech was a complete contradiction of the Department of Finance’s November statement. Moral outrage, rather than cogent analysis, is the default position of Ireland’s media, and the lack of the former tends to blind them to the latter. Two months later the bank itself was gone, with the remaining promissory notes transferred into sovereign debt. Once again, it was declared a victory for common sense.

On 6 February 2013 the government moved to liquidate IBRC. It was a move completely out of the blue, and one foisted upon an unprepared parliament. The Taoiseach tried to present the decision as a wiping of the slate, a clearing of the decks:

The bailout of private bank creditors cost Irish taxpayers, in total, an astonishing €64 billion, which is more than 40 per cent of GDP or €35,000 for every household in the country – over ten times the cost of bank rescues in any other Eurozone country. At €35 billion, the cost to date of the bailout of Anglo Irish Bank and Irish Nationwide Building Society remains, even to this day, shocking. This is the equivalent of almost €20,000 for every household in the country … Were it not for the bailout of banks, Irish public debt levels would be now below those of Germany. This debt weighs heavily on the country as it seeks to re-enter the markets at sustainable interest rates.
⁵¹

Yet, none of this would be tackled by the bill before the Dáil. In fact, in the case of the promissory notes, what was internal EU debt – and open to an internal EU solution – would now be transformed into cold, hard sovereign debt, subject to the whims of speculators and rating agencies. As Richard Boyd Barrett TD pointed out, once the bill was passed as legislation,

… the last bit of leverage with the ECB in terms of demanding a write-down will be gone. We were told that the winding up of the IBRC was part of the discussions as a prelude to any deal, but once this is done the ECB does not have to give the Government anything at all, despite any promises it may have made to the Government in the negotiations. That is because we will have fully taken on board the liability for the promissory note …
⁵²

Finance Minister Noonan spoke after Deputy Barrett and outlined one of the key aspects of the legislation. ‘It allows me to appoint a special liquidator to liquidate the IBRC and part of that liquidator’s functions will be to sell existing assets’, he said, of which ‘the purchaser of last – and perhaps only – resort will be NAMA.’
⁵³
Among those who owed the bank money were the department store group Arnott and the fuel group Topaz. The billionaire Denis O’Brien, part-owner of Topaz, was reported to have corporate and personal loans of €833.3 million with Anglo prior to the government takeover in 2009.
⁵⁴
The funding of Topaz’s takeover of the Statoil and Shell networks in Ireland was undertaken with loans secured from Anglo.

The Dáil was given fifteen minutes at committee stage to debate the legislation. It was signed by President Higgins at 7 a.m. on Wednesday morning, less than ten hours after its first reading. The President had been rushed back to Ireland that night from an official visit to Rome in order to ensure the smooth passage of the bill. The legislation was summed up by the
Irish Times
as offering ‘a much-needed psychological boost’ but little else to the Irish people.
⁵⁵

Apart from the liquidation of IBRC, the legislation also tried to provide ‘for an immediate stay on all proceedings against IBRC’ with no further action to be taken against the bank without the consent of the High Court.
⁵⁶
The Department of Finance said that claimants who had issued proceedings against IBRC would now ‘have to pursue and prove their debt to the Special Liquidators’ and that those claimants would ‘rank as unsecured creditors in the liquidation.’
⁵⁷
The act also allowed for the suspension of a person’s constitutional rights regarding property. ‘In the achievement of the winding up of the IBRC’, it stated, ‘the common good may require permanent or temporary interference with the rights, including the property rights, of persons.’
⁵⁸

About one-third of all cases before the commercial court involved IBRC.
⁵⁹
Although the legislation appeared to put a stay on all cases against IBRC, it allowed cases taken by IBRC to carry on, including that against Sean Quinn. The most prominent case against IBRC involved Patricia Quinn and her five children, who alleged that they were ‘not liable for €2.34 billion in loans to them by Anglo on grounds the loans were unlawfully made to prop up the bank’s share price.’
⁶⁰
On 15 March Justice Ryan ruled that the courts had the power to allow existing actions against IBRC to proceed, adding that any interpretation which saw existing cases blocked would involve ‘extensive and substantial interference with constitutional rights in modes that are discriminatory and unjustified and unnecessary in the circumstances.’
⁶¹
It allowed the Quinn family to continue their case against former Anglo chairman Sean Fitzpatrick and two other senior Anglo executives. Justice Ryan noted that the act allowing the liquidation of IBRC was passed ‘with great urgency over the course of one night.’

In the months leading up to the liquidation, there was a challenge to the legality of the promissory notes. It was undertaken by the campaigner David Hall, on the basis that the Minister for Finance was appropriating State funds without a Dáil vote. This was dismissed by the High Court in January 2013 on the grounds that Mr Hall was not a TD. On 7 February his application to appeal was heard by the Supreme Court. This time he was supported by three TDs – Shane Ross, Stephen Donnelly and Joan Collins – who were applying to join Mr Hall’s original challenge. Chief Justice Susan Denham said that there may be an element of ‘mootness’ to the case given events the previous night.
⁶²

The appeal went before the court but was dismissed on 20 February on the basis that ‘to allow the TDs substitute themselves for the original, but unsuccessful, appellant in an appeal so as to continue the case in the High Court to which they were previously not parties would be unprecedented’. By this stage the bank had been liquidated, its files protected from further court cases by legislation which had gone from first reading to legislation literally hours before the initial Supreme Court application was heard. The act also addressed Mr Hall’s challenge directly. Section seventeen of the act allowed the Minister for Finance, without prior Dáil approval, to ‘create and issue securities, bearing interest at such rate as the Minister thinks fit or bearing no interest, and subject to such conditions as to repayment, redemption or any other matter as the Minister thinks fit.
⁶³
’ For a bill that was rushed before the Dáil supposedly to protect the remaining assets of IBRC, it was a happy coincidence that it contained a section relating to a Supreme Court challenge to the promissory notes that was to be heard in court the very next day.

The president of the ECB, Mario Draghi, was asked at a press conference on 7 February for his opinion of the liquidation of IBRC. ‘I am going to refer you to the Irish government and the Irish central bank for the details of this operation, which was designed and undertaken by the Irish government and the Irish central bank,’ he said. ‘I can only say today we took note of this. We all took note of this.’
⁶⁴
It was put to Draghi by a journalist that the rushed nature of the legislation was a strange form of choreography between the Irish government and the ECB, and that it was not clear as to what was actually reached with the liquidation of IBRC. ‘Well, you are absolutely right about not being clear’, he said. ‘We took note of an action that has been undertaken by the government. And I would not actually speak about choreography. It has been Irish government and Irish central bank actions. And we took note of these actions.’

One week later the president of the Bundesbank, Jens Weidmann, voiced his concern at the conversion of the promissory notes into sovereign bonds. In his opinion the deal set a dangerous precedent by blurring the ECB’s clear line between monetary and fiscal issues.’
⁶⁵
When IBRC was liquidated the Central Bank assumed €25 billion in Irish government debt, which put it in possible breach of ECB monetary financing rules. The news service Bloomberg reported that in order to circumvent the rules ‘the Irish Central Bank has been allowed to borrow unused capacity either from fellow central banks in the Euro area, or from the euro system as a whole.’
⁶⁶
The former ECB president, Jurgen Stark, entered the debate, saying that the arrangement contravened EU Treaty rules. One week later, Draghi said that the disposal policy was crucial to the future of the bonds, with the ECB insisting that they be transferred into market-bonds as soon as possible. These public pronouncements were hardly what one would expect from a decision-making process that included the ECB at all stages, as the Irish government insisted was the case.

On 9 February the
Irish Times
wrote that, although the Irish State was obliged under the Eligible Liabilities Guarantee scheme to compensate the mainly corporate deposit holders in IBRC, it was by no means certain that it would be repaid these monies from the liquidation of the bank’s assets. The total bill for depositor compensation stood at between €900 million and €1.1 billion.
⁶⁷
It also emerged that certain IBRC tracker bonds sold to Irish credit unions were not covered by the Eligible Liabilities Guarantee. As a result of the liquidation a total of sixteen credit unions suffered losses of around €15 million.
⁶⁸

Minister Noonan told the Dáil that the credit unions would have to join the queue for reimbursement. ‘Preferred creditors will be paid first and then the debt which NAMA will have purchased from the Central Bank will be paid,’ he said.
⁶⁹
‘If there are proceeds available after repayment in full of the NAMA debt, these proceeds will be applied to remaining unsecured creditors. This would include credit unions to the extent that their deposits are unguaranteed.’ The Chief Executive of the Irish League of Credit Unions, Kieron Brennan, said that ‘the Irish authorities are doing precisely what they said they would not do … this is a deposit-based instrument and it has been burned.’
⁷⁰
It was a stark reminder that in the world of Irish finance, community-based credit unions were of little concern to the State. It was also in stark contrast to the handling of the debts of SiteServ the previous year.