Last month I wrote a piece about the Irish Nationwide Building Society and its special purpose vehicle, Armoin Securities.
Clare Daly, TD, asked a question in the Dáil on Wednesday (6 June) regarding the purchase of Armoin Securities by the Irish State via the Irish Bank Resolution Corporation (IBRC). This is the reply she received:
To ask the Minister for Finance the reason the Irish State, via the Irish Bank Resolution Corporation paid full value €2.5 billion to a company (details suppplied) even though the prospectus clearly stated that if Irish Nationwide was not in a position to pay, then the investors would lose..
- Clare Daly.
* For WRITTEN answer on Wednesday, 6th June, 2012.
Ref No: 26273/12
Armoin Residential Securities
Minister for Finance ( Mr Noonan) : As the Deputy is aware the Board of the bank is responsible for the day to day operation of the bank. Nonetheless, the Deputy may wish to note that the company referred to in the question was an independently rated funding vehicle set up by INBS that enabled INBS to access low cost funding from the ECB. It was fully consolidated into INBS and all securities issued by that company were held by INBS. Therefore at no time were any securities sold to external investors. The structure was unwound at no gain or loss to IBRC in April 2012 as the particular securities no longer met ECB criteria and therefore the bank was no longer able to access low cost ECB funding.
I find this fascinating. There’s a lot of information in that statement - the ECB’s exposure to Irish Nationwide via cheap loans based on a non-traded SPV, the increased reliance on the shadow banking system for funding post-2008, the role of the shadow banking system in the Irish mortgage market - and that’s just at first reading.
It’s fair to day that untangling the business practices of the Irish banking sector both pre-and post-2008 will be a long and difficult process, but the beauty of questions like the one asked by Clare Daly is that they get to the heart of the mechanism itself rather than the flashy lights of the personalities involved.
I just know that there’s more going on in that answer than I’m aware of at the moment, as I don’t know enough to truly contextualise it. But hopefully over the next year or so the gems that are hidden within it will become more clear.