AIB Bail-out False Facts - Time to Call Them Out

clearmurk

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It's time to address the false facts being repeated by the media about the cost of bailing out AIB, and therefore whether that cost will be returned to the citizens who paid for it in the first place.

Public Funding cost of AIB so Far

Up-front AIB bail-out 20.8 billion
Interest funding cost on this at 2% per annum 2.7 billion
5 years of no cash payments of dividends on preference shares 1.0 billion
Further bail-out through preference shares redemption 2.1 billion

Total funding cost 26.6 billion

Repayments of Public Funding so Far

Preference shares partial redemption 1.4 billion
Premium on redemption of preference shares 0.3 billion
Cocos repayment 1.6 billion
Cocos interest payments 0.8 billion
Cash dividend on ordinary shares 0.25 billion

Total repayments so far 4.35 billion

Now there will be claims that AIB has made payments to the state for the provision by the state of liquidity and loan guarantees. But these payments in no way constitute a repayment of funds put in to AIB – they solely represent charges for the risks undertaken by the state in providing the facilities in question. Such claims seek to conflate service income with return of capital funding, and are fraudulent.

The current deficit for the citizens of the state on the bail-out of AIB is therefore of the order of 22.25 billion euro.
 
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SamsonS

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It's time to address the false facts being repeated by the media about the cost of bailing out AIB, and therefore whether that cost will be returned to the citizens who paid for it in the first place.

Public Funding cost of AIB so Far

Up-front AIB bail-out 20.8 billion
Interest funding cost on this at 2% per annum 2.7 billion
6 years of no cash payments of dividends on preference shares 1.0 billion
Further bail-out through preference shares redemption 2.1 billion

Total funding cost 26.6 billion

Repayments of Public Funding so Far

Preference shares partial redemption 1.4 billion
Premium on redemption of preference shares 0.3 billion
Cocos repayment 1.6 billion
Cocos interest payments 0.8 billion
Cash dividend on ordinary shares 0.25 billion

Total repayments so far 4.35 billion

Now there will be claims that AIB has made payments to the state for the provision by the state of liquidity and loan guarantees. But these payments in no way constitute a repayment of funds put in to AIB – they solely represent charges for the risks undertaken by the state in providing the facilities in question. Such claims seek to conflate service income with return of capital funding, and are fraudulent.

The current deficit for the citizens of the state on the bail-out of AIB is therefore of the order of 22.25 billion euro.
Just for some balance, the C and AG in 2014 were using a figure of 8.8b, compared with your 22.25b at end of 2014.
Taking all costs and income into account they have a net cost to the state of 43.1b, with Anglo/IBRC 36.1b of this and AIB 8.8B ptsb .2b , offset with 2b from BOI.
http://www.audgen.gov.ie/documents/annualreports/2014/report/en/3 cost of banking stabilisation measures as at end-2014.pdf
 

HarshBuzz

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seeing as the OP
(a) didn't know the background of the AIB CEO (incorrectly stating him to be an AIB lifer whereas in fact he joined in 2010), and
(b) thinks the AIB share price will rise by 20% on the very first day of trading,

maybe his views on this subject might be considered a tad suspect?

I see Samson has demolished the OP already too!
 

clearmurk

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Just for some balance, the C and AG in 2014 were using a figure of 8.8b, compared with your 22.25b at end of 2014.
Taking all costs and income into account they have a net cost to the state of 43.1b, with Anglo/IBRC 36.1b of this and AIB 8.8B ptsb .2b , offset with 2b from BOI.
http://www.audgen.gov.ie/documents/annualreports/2014/report/en/3 cost of banking stabilisation measures as at end-2014.pdf
That C&AG figure

- Assumes a value for AIB which has not yet been realised, and is therefore unknown. My bottom line number is the total outstanding now, before any sale.
- Provides for a significantly higher interest charge than I have allowed. This would worsen the position.
- Incorrectly allows income from fees and charges against capital.
- Still arrives at a net cost at end 2014 of 22.1 billion. Compare against the 22.25 billion I conclude at mid 2017.
 

clearmurk

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seeing as the OP
(a) didn't know the background of the AIB CEO (incorrectly stating him to be an AIB lifer whereas in fact he joined in 2010), and
(b) thinks the AIB share price will rise by 20% on the very first day of trading,

maybe his views on this subject might be considered a tad suspect?

I see Samson has demolished the OP already too!
You might wish to review the concepts of irony for (a) and hyperbole for (b).
 

SPN

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The OP seems to believe that the AIB nationalisation was undertaken on a very narrow commercial basis, and the profits and losses should be considered on such a basis.


He is incorrect.


The State nationalised AIB on an emergency basis. It is a critical part of our social and economic fabric. Allowing it to collapse, or be taken over by Vulture Funds, would have had devastating effects on every person, every community, every business and every organisation in the State.

Not to mention the cost to the State itself.

My preference, as I stated on p.ie numerous times back in the day, would have been to set up four new regional banks, preferably Mutual Banks, with State capital, and for these banks to buy the assets of the collapsed banks, hire the staff of the collapsed banks, and take on the business of the collapsed banks. This would have left the liabilities and the dregs of the bubble in the collapsed shells.

But we can look back now and see why that would have been an overcomplicated way of doing things. The outcome would have been pretty much the same as we have today, but with more risk attached.


If you don't like the outcome of the 2002-2007 bubble, get yourself a time machine and go back to 2002 and warn people.

But I think they will be more interested in the low taxes, high spending, high employment wonderland that the FFailures were promising.

You could also, in the present, try and warn about the carnage that is going to happen when the current bubble bursts.

Nobody seems to want to know about that either.
 

gleeful

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Ultimately AIB is about property lending. It borrows internationally at low rates and lends to developers and mortgage holders at higher rates. That is their business model. For the state to get its money back AIB has to be able to lend more money for more property, and that property has to continue to go up in value. The money to return the bailout funds can only come from house buyers and renters.

The interests of the tax payer are now perfectly aligned with the interests of property.
 

SamsonS

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That C&AG figure

- Assumes a value for AIB which has not yet been realised, and is therefore unknown. My bottom line number is the total outstanding now, before any sale.
- Provides for a significantly higher interest charge than I have allowed. This would worsen the position.
- Incorrectly allows income from fees and charges against capital.
- Still arrives at a net cost at end 2014 of 22.1 billion. Compare against the 22.25 billion I conclude at mid 2017.
Ok.

The C and AG have a higher figure for interest than you, and that's to end of 2014. 3.7b, they do include 2b income from investments , 1.7 in fees, which I think you have to count, (no bailout, no fees,) and a small portion of the CB income.

Actually think your OP would be better supported by using the C and AG to back it up!

As AIB valued somewhere around 12b currently, and assuming we get 3b from the IPO, we would need the value of AIB to nearly double to have any chance of regaining what was invested.
 

clearmurk

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The OP seems to believe that the AIB nationalisation was undertaken on a very narrow commercial basis, and the profits and losses should be considered on such a basis.
That is not the case - and it for this very reason that I excluded additional AIB bail-out costs on the state, such as the costs of consultancy/advice fees incurred, not to mention all the time and effort expended by state staff on the bail-out.

But even taking this more holistic view, there is still a major problem with organs of the state seeking to claim that we will get our money back from the exercise, effectively seeking to trivialise the entire affair. This is very much an unknown at this time given the scale of the cost.

This is the fake news aspect.
 

clearmurk

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Ok.

The C and AG have a higher figure for interest than you, and that's to end of 2014. 3.7b, they do include 2b income from investments , 1.7 in fees, which I think you have to count, (no bailout, no fees,) and a small portion of the CB income.

Actually think your OP would be better supported by using the C and AG to back it up!

As AIB valued somewhere around 12b currently, and assuming we get 3b from the IPO, we would need the value of AIB to nearly double to have any chance of regaining what was invested.
The issue of the fees is an important one.

If you take out a loan or overdraft you will similarly be charged fees - typically for arrangement or set-up. Do you then get to offset these fees against the loan amount outstanding? No you do not, for very good reason - they are service income, not capital repayment.

The same principle applies here, but on a much bigger scale. The assertion otherwise constitutes a fraud upon the citizens of the state.
 

Jack O Neill

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seeing as the OP
(a) didn't know the background of the AIB CEO (incorrectly stating him to be an AIB lifer whereas in fact he joined in 2010), and
(b) thinks the AIB share price will rise by 20% on the very first day of trading,

maybe his views on this subject might be considered a tad suspect?

I see Samson has demolished the OP already too!
Demolished eh , you absolute tool . What has long been demolished is any credibility you or the other Noonan spinners here have ,.AIB is just another opportunity for that incontinent old ************************ to screw the Irish taxpayers in order to enrich his friends and family .
 

HarshBuzz

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You might wish to review the concepts of irony for (a) and hyperbole for (b).
I see. Perhaps you might let us know when you are indulging in hyperbole or indeed irony - as otherwise people will just read your posts as being plain dumb.

:p
 

clearmurk

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Ultimately AIB is about property lending. It borrows internationally at low rates and lends to developers and mortgage holders at higher rates. That is their business model. For the state to get its money back AIB has to be able to lend more money for more property, and that property has to continue to go up in value. The money to return the bailout funds can only come from house buyers and renters.

The interests of the tax payer are now perfectly aligned with the interests of property.
It is is quite clear that the property market is being managed/manipulated for that very reason.
 

Man or Mouse

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Ultimately AIB is about property lending. It borrows internationally at low rates and lends to developers and mortgage holders at higher rates. That is their business model. For the state to get its money back AIB has to be able to lend more money for more property, and that property has to continue to go up in value. The money to return the bailout funds can only come from house buyers and renters.

The interests of the tax payer are now perfectly aligned with the interests of property.
Indeed. And if you were a professional advisor or actuarial hired to assess the value of AIB based on that model, would you be giving the €3bn valuation currently being bandied about for a 25% share? That is certainly false news in my view, for exactly the reasons you set out.
 

SamsonS

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The issue of the fees is an important one.

If you take out a loan or overdraft you will similarly be charged fees - typically for arrangement or set-up. Do you then get to offset these fees against the loan amount outstanding? No you do not, for very good reason - they are service income, not capital repayment.

The same principle applies here, but on a much bigger scale. The assertion otherwise constitutes a fraud upon the citizens of the state.
Can't say I agree with you on fees analogy, but leaving that aside for a moment, in light of the planned IPO, what is your point - is it that we should not proceed with the IPO as the value of AIB is too low for the state to get its money back?
Or is it a bit more prosaic and that when we hear politicians talking about getting our money back we should ignore the hype!
 

clearmurk

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Can't say I agree with you on fees analogy, but leaving that aside for a moment, in light of the planned IPO, what is your point - is it that we should not proceed with the IPO as the value of AIB is too low for the state to get its money back?
Or is it a bit more prosaic and that when we hear politicians talking about getting our money back we should ignore the hype!
It is more than a "prosaic" issue if the state is actively lying to its citizens in order to justify the diversion of significant resources in a particular direction through policy choices. Especially when those resources might usefully be used elsewhere, such as health, housing, etc etc.

On the fees bit, maybe you should ask your bank manager, see what they say.

Do I think AIB should be sold now? No I do not. It is presenting the benefits to selected others when the citizens of the state have taken the pain. A new permutation on socialising the pain, and privatising the gain.
 

SPN

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That is not the case - and it for this very reason that I excluded additional AIB bail-out costs on the state, such as the costs of consultancy/advice fees incurred, not to mention all the time and effort expended by state staff on the bail-out.

But even taking this more holistic view, there is still a major problem with organs of the state seeking to claim that we will get our money back from the exercise, effectively seeking to trivialise the entire affair. This is very much an unknown at this time given the scale of the cost.

This is the fake news aspect.
Ultimately it doesn't really matter that much.

What is important is that we were able to conjure up a way of preventing the economy from imploding in 2008/2010.

Taking a narrow view of the P&L of AIB in the aftermath doesn't tell us anything useful.

I'm more focused on the fact that we (the Government/Society) are doing everything possible to blow up a new bubble that, while not being as big as the 2002-2007 bubble, is being built on much more shaky foundations (we no longer have the ability to borrow to maintain Government expenditure commitments if (when?) the tax take implodes again.

If you don't want to have to nationalise the banks, and take big losses on them, then you have to go back to 2002 and set up a rainy day fund. Put all the windfall taxes into the rainy day fund. Don't cut taxes, don't raise expenditure, and don't rezone enough land to last until 2070.
 

Watcher2

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The OP seems to believe that the AIB nationalisation was undertaken on a very narrow commercial basis, and the profits and losses should be considered on such a basis.


He is incorrect.


The State nationalised AIB on an emergency basis. It is a critical part of our social and economic fabric. Allowing it to collapse, or be taken over by Vulture Funds, would have had devastating effects on every person, every community, every business and every organisation in the State.

Not to mention the cost to the State itself.

My preference, as I stated on p.ie numerous times back in the day, would have been to set up four new regional banks, preferably Mutual Banks, with State capital, and for these banks to buy the assets of the collapsed banks, hire the staff of the collapsed banks, and take on the business of the collapsed banks. This would have left the liabilities and the dregs of the bubble in the collapsed shells.

But we can look back now and see why that would have been an overcomplicated way of doing things. The outcome would have been pretty much the same as we have today, but with more risk attached.


If you don't like the outcome of the 2002-2007 bubble, get yourself a time machine and go back to 2002 and warn people.

But I think they will be more interested in the low taxes, high spending, high employment wonderland that the FFailures were promising.

You could also, in the present, try and warn about the carnage that is going to happen when the current bubble bursts.

Nobody seems to want to know about that either.
"AIB was systemic blah blah" is not necessarily correct. All we needed was a functioning financial system. You could argue that it wasn't functioning even by saving all the banks (Anglo and INBS subsequently were dissolved). The government could, and did, pass emergency legislation to ensure the financial system stayed moving money around as required while still letting all banks close, perhaps bar one (BoI), and let the chips fall as they should have rather than on the taxpayers.

In the end, its all well and good surmising what COULD have happened. I am in no better position to say definitively what could have happened than you are. There are ways and means to structure everything to minimize the potential damage. You don't know any better than me either because it was not allowed happen they way I describe and I don't believe its because of the consequence you claim would have occurred.
 

SamsonS

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It is more than a "prosaic" issue if the state is actively lying to its citizens in order to justify the diversion of significant resources in a particular direction through policy choices. Especially when those resources might usefully be used elsewhere, such as health, housing, etc etc.

On the fees bit, maybe you should ask your bank manager, see what they say.

Do I think AIB should be sold now? No I do not. It is presenting the benefits to selected others when the citizens of the state have taken the pain. A new permutation on socialising the pain, and privatising the gain.
But is that not a contradiction - you suggest we keep the bank , thus not getting resources back in that could be used elsewhere (although would not agree that it should go on current expenditure).

If we do not sell off AIB , are we then also incurring the cost of servicing the 22b, so hoping that dividends are greater than the cost of servicing the 22b?

Your point about selected others I can't figure out, that seems to say AIB is grossly undervalued, or that when the IPO happens it will be sold for less than even the 12-13b valuation.

What would you say AIB is worth? And if the state was offered that for it would you sell it?
 


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