Thursday, February 07 09:07:03
The ISEQ is up a little this morning as headlines around the world focus on our Promissory Notes and the prospects for a deal today from The ECB meeting.
Any deal is bound to be better than what we have and Davy Stockbrokers looks at the possible outcomes:
Last night, the Irish Minister of Finance announced the liquidation of IBRC. IBRC's assets will be transferred to NAMA, in return for NAMA bonds, which the government will hold. The liquidation has been presented as the first step of a potential deal with the ECB. It was clear yesterday that the government expected a deal imminently, but it was disappointed.
It appears that reservations by some ECB governing council members have delayed a conclusion to the negotiations. Attention will now turn to today's ECB governing council meeting, and President Mario Draghi's press conference.
The key parameters of any deal with the ECB are still unknown.
The 0.75pc ultimate interest charge on current ELA funding could be reduced to zero. We also do not know the potential term extension to the current ELA funding arrangement, allowing the Irish sovereign to take advantage of rock-bottom ECB re-financing rates for a longer period.
Ultimately, these interest rate cuts could save around E1bn per annum, or 0.6pc of GDP.
But it is not yet possible to fully judge the benefit of any deal to the budgetary arithmetic. In any case, both the IMF and European Commission will likely be resistant to any move to pass on these savings through a more gradual fiscal adjustment in next year's budget for 2014. If a deal is reached, it will clearly relieve E6.2bn of funding needs in 2013, and E3.1bn per annum thereafter.
This would be a significant reduction in funding requirements. However, we expect that upon the conclusion of any promissory note deal attention will inevitably re-focus on the decision by EU leaders to consider extending the term of Ireland's bailout loans. Currently E6.9bn of EU/IMF debt is due to mature in 2015, and E6.1bn in 2016 according to Davy Stockbrokers.