Labour Party Finance Spokesperson Joan Burton TD has written to the Minister for Finance Brian Lenihan seeking clarification in relation to the recapitalisation of Anglo Irish Bank, The Irish Nationwide Building Society and the Educational Building Society by way of the issue of promissory notes.

“This process started last March, when capital was injected into Anglo in the form of a promissory note, payable over a number of years – between 10 and 15 – into the future. All the notes issued this year will pay interest to the institutions at a rate equivalent to the yield on 10 year Government bonds at the time of issue.

“The total amount so issued and to be issued this year to the three institutions in the form of promissory notes is around €30 billion. Annual payments of €3 billion plus annual interest payments of around 5% interest mean that a 10 year payment plan will become a 15 year plan.

“In return for injecting additional public money into Anglo and the two building societies, it seems that the State is receiving nothing in return. Unlike the cases of AIB and the Bank of Ireland, where shares were received in return for funds, the additional recapitalisation of these three institutions is not being done by way of subscribing for shares (or “special investment shares”, in the case of the building societies) but by way of what looks more like a form of grant aid or donation, on a staggered payment basis.

“The questions I am putting to Minister Lenihan relate to the statutory authority for the creation and issue of these promissory notes. Under the Credit Institutions (Financial Support) Act, the Minister is entitled to provide “financial support”, defined as including “a loan, a guarantee, an exchange of assets and any other kind of financial accommodation or support”.

“But, in order for these injections of capital to be counted as financial support under the 2008 Act, the other conditions of that Act must also be satisfied. One condition that seems not to be satisfied arises because there is a statutory cut-off date beyond which financial support cannot continue.

“We are told that the amount due under the promissory notes will be paid over a period of 10 to 15 years. But, under section 6 (3) of the Financial Support Act as amended, financial support “shall not continue beyond (a) 29 September 2010, or (b) a later date specified by the Minister by order”.

“And the Minister has in fact specified a later date, by the Credit Institutions (Financial Support) (Financial Support Date) Order 2009. Under that order, financial support may be provided under the 2008 Act only to the 29th September 2015.

“So, the three institutions have been given notes under which they will receive lump sums consisting of principal and interest for somewhere between the next 10 and 15 years – which is between 5 and 10 years beyond the Minister’s own statutory deadline.

“Of course, the institutions may well avail of the benefit of the notes more or less immediately. But that does not take away from the fact that the obligation Brian Lenihan has entered into is one to pay roughly €3 billion per annum to the institutions by way of financial support for a period of time that exceeds the date he has himself specified by order as being the date beyond which financial support shall not continue.

“It therefore seems there are problems in attempting to classify the gift of these tranches of money by way of promissory note as financial support under the 2008 Act.

“If that is the case, then does he have any other statutory authority for the creation and issue of these notes? “