AIB : €20 billion State Aid.

hinault

http://trueeconomics.blogspot.com/2010/03/economics-27032010-breaking-news-aib.html



Economics 27/03/2010: Breaking News: AIB and FF/Government

Posted by Dr. Constantin Gurdgiev

Major news are breaking in the media rooms:
AIB (the first story below)
RedC Poll (the second story below)


Story 1:

The first story is about the leaks reported by Newstalk (see here) that AIB will announce before opening of trading on Monday that the state will be taking a 65% stake in the bank.

Per senior source in the Dail (hat tip to - the reason for AIB guiding 65% ownership now is that in addition to Nama haircuts, they are, allegedly, seeing significant deterioration in the sub-€5mln loans (the loans below Nama-eligible threshold).

This is hardly surprising. Since May 2009 I have consistently supplied estimates as to the eventual state ownership in both AIB and BofI. Depending on various scenarios:

• assumed Nama haircuts,
• the actual current risk weighting on the loans being transferred,
• share price at the time of announcement and
• the willingness of the banks and the Government to recognize future expected losses on the loans not transferred to Nama

RVF approach to valuing AIB and BofI balancesheets suggests that at the end of the current crisis, the state will outright own around 85-90% of equity in AIB and 50-60% in BofI. This eventual outcome, for political reasons, will come in two stages:

• post-Nama injection of capital (with AIB placing around 60-70% of its equity with the State and BofI placing around 40-45%), plus
• second stage recapitalization to correct for continued deterioration in the books over 2010-2011 (adding another 20-30% of equity for AIB and 10-15% for BofI)

The problem with this two stage recapitalization is that the taxpayer will end up paying three times for the same equity:

• Having injected €7 bn into two banks at the time when they were worth less than €2.5 bn for the entire lot,
• we are now be left on the hook for some €20 bn worth of largely worthless loans - to be purchased at ca 30-40% discounts (against the real market discount of 65-90%),
• plus €7-8 bn in fresh capital post-Nama
• plus the margin of ca 10-15% for further deterioration in non-Nama loan books (requiring another €7-9 bn of fresh capital).

Thus the Irish state is now likely to use up to €20 bn to buy up equity and loans from a bank that is currently worth around €1.5 bn... In the world of finance, even the most reckless bankers never managed such margins.

Liam Byrne

So basically, the whole excuse for NAMA being put into existence has been exposed.

Over €5 million = pay for them via NAMA
Under €5 million = pay for them directly

Does anyone know if Rabobank will accept a slightly-in-the-red account, so that at least I can have my money away from those who are robbing the country blind through bailouts ?

hinault

In the time period since September 2008, we could have set up another bank, funded that bank and have some credit flowing.

Instead we have AIB/BOI/Anglo as a millstone around out necks, with no credit flowing and the cost of supporting these shysters rising by the day.

Count Dooku

It was much cheaper to let banks go bust
At least economy could start to recover now
FF gombeens wanted to save bondholders first, developers next and give to country empty banks

waster81

Surely the public service have to take a slice of the blame for this!!

Liam Byrne

waster81 wrote: »

Surely the public service have to take a slice of the blame for this!!

What do the public service have to do with AIB's incompetence ?

changes

waster81 wrote: »

Surely the public service have to take a slice of the blame for this!!

Sweet Jeeeeeeeesusss!!! Not again :eek:

waster81

Tongue in cheek guys!

Everything is the public services fault. Isnt it?

Count Dooku

Liam Byrne wrote: »

What do the public service have to do with AIB's incompetence ?

Financial regulator and Central bank were regulating AIB and other banks
The most incompetent part of public service, which completely ruined country together with reckless bankers and greedy developers
Majority of public servants, even unionized CPSU clerks, don’t deserve so much hate as they deserve

waster81

Count Dooku wrote: »

Financial regulator and Central bank were regulating AIB and other banks
The most incompetent part of public service, which completely ruined country together with reckless bankers and greedy developers
Majority of public servants, even unionized CPSU clerks, don’t deserve so much hate as they deserve

There we go thats more like it. Took a bit longer than expected.

Count Dooku

waster81 wrote: »

There we go thats more like it. Took a bit longer than expected.

It has been discussed many times before and I just was surprised that some people don’t know so simple things.
But I don’t think that PS bashing must be highest priority in this thread, especially when public servants will pay the heaviest price for AIB bailout.

Unions wants to reverse cuts, government urgently need to find 8 Bn for AIB only and it cannot borrow more then it was announced.

changes

Count Dooku wrote: »

Unions wants to reverse cuts, government urgently need to find 8 Bn for AIB only and it cannot borrow more then it was announced.

8 Billion thats 8 times more than the savings made from PS paycuts last year. Puts things in perspctive really.

waster81

Sure why not cut the public pay by €8 billion that will show them!

Count Dooku

changes wrote: »

8 Billion thats 8 times more than the savings made from PS paycuts last year. Puts things in perspctive really.

This is why I was always defending idea to let bank go bust.

Count Dooku

waster81 wrote: »

Sure why not cut the public pay by €8 billion that will show them!

Too late and it will be done anyway
Government shouldn’t bailout banks first

the_dark_side

a question from Joe public here... what if your AIB current account had a 4 figure sum in it at the moment, would it be a wise move to withdraw 80% of it and deposit it somewhere else, just in case?

MagicSean

the_dark_side wrote: »

a question from Joe public here... what if your AIB current account had a 4 figure sum in it at the moment, would it be a wise move to withdraw 80% of it and deposit it somewhere else, just in case?

That would be the start of the end for AIB.

danman

k_mac wrote: »

That would be the start of the end for AIB.

It's time that people realised this.

Even if workers don't bank with these banks, chances are, their employer might. That would be a awful lot of companies going to the wall.

So, yes, it makes perfect sense to let the 3 main banks go bankrupt.

To hell with it, why don't we just go back to bartering, start our economy from scratch again. We wouldn't be able to get any money from overseas again anyway.

Let the banks fail, it makes perfect sense.

oppenheimer1

Staggering amount of misinformation in this thread. The hole in AIBs balance sheet is €9bn not €20bn. It is organising the sale of its UK operations so Santander for about €1bn, its also selling its 70% stake in a polish bank as well as its interests in the USA.Its also trying to rise further capital in the market so the government probably won't pay more than €6bn for a 70% stake. It also should be noted that the banks share price has been steadily rising for the past while, so the market is showing some confidence in it.


But don't let that get in the way of a Bank/Government/Fianna Fail rant.

Idbatterim

If the state do take a majority stake in either bank, how long would they hold onto them for?

hinault

oppenheimer1 wrote: »

Staggering amount of misinformation in this thread. The hole in AIBs balance sheet is €9bn not €20bn. It is organising the sale of its UK operations so Santander for about €1bn, its also selling its 70% stake in a polish bank as well as its interests in the USA.Its also trying to rise further capital in the market so the government probably won't pay more than €6bn for a 70% stake. It also should be noted that the banks share price has been steadily rising for the past while, so the market is showing some confidence in it.


But don't let that get in the way of a Bank/Government/Fianna Fail rant.

Dr.Gurdgiev fits the profile of a real anti-FF ranter:o

Dr. Constantin Gurdgiev is the Editor of Business & Finance magazine, Ireland¹s number one business publication, is a Dean of Finance with CBSM, and a Research Fellow with Trinity College, Dublin. He also is a Founder and an Academic Director of the Open Republic Institute - Ireland’s only independent economic and social policy think-tank.

Constantin is an Honorary Fellow of the Copenhagen Institute, Fellow of the Pharmaceutical Economics and Policy Council, Member of the Academy of Political Science, the American Economic Association, the American Finance Association, Member of the Editorial Board of five international academic journals and a Member of the Executive Panel of the McKinsey&Co. He holds PhD in Macroeconomics and Finance from Trinity College, Dublin, MA in Economics from Johns Hopkins University (USA) and MA in Pure Mathematics from the University of California, Los Angeles.

Dr. Gurdgiev¹s academic research focuses on theoretical models of habit formation, taxation and international finance. His contributions to academic literature range from analysis of international debt markets to financial economics and theoretical macroeconomics. He is currently working on academic books in the areas of international debt and development, finance and economics of the property rights.

Prior to joining College of Business Management (CBSM) he taught economics, finance and mathematics at University College, Dublin, Trinity College, Dublin, the National University of Ireland, Maynooth and Johns Hopkins University (USA). Between 1990 and 1998, he served as a strategy director with the West-East Global Trade Co, Ltd in Los Angeles, CA.

Dr. Gurdgiev frequently contributes to economic and social policy debate in Ireland and Europe. His work on European policies is published by international think-tanks, including the Policy Institute, the Institute for International Integration Studies, CATO Institute, Centre for New Europe, Copenhagen Institute, CEPOS, Open Europe, and the Stockholm Network. He currently edits Ireland's only independent policy analysis quarterly, the Open Republic magazine.

He is the recipient of the World Medal of Freedom, 2006 and Man of the Year, 2005 awards from the American Biographical Institute. In 1998-2000, Dr Gurdgiev was awarded a Millennium Scholarship Award from the University of Chicago. In 2000-2004 he was the holder of the Whatley Award from the Trinity College, Dublin

oppenheimer1

hinault wrote: »

Dr.Gurdgiev fits the profile of a real anti-FF ranter:o

Dr. Constantin Gurdgiev is the Editor of Business & Finance magazine, Ireland¹s number one business publication, is a Dean of Finance with CBSM, and a Research Fellow with Trinity College, Dublin. He also is a Founder and an Academic Director of the Open Republic Institute - Ireland’s only independent economic and social policy think-tank.

Constantin is an Honorary Fellow of the Copenhagen Institute, Fellow of the Pharmaceutical Economics and Policy Council, Member of the Academy of Political Science, the American Economic Association, the American Finance Association, Member of the Editorial Board of five international academic journals and a Member of the Executive Panel of the McKinsey&Co. He holds PhD in Macroeconomics and Finance from Trinity College, Dublin, MA in Economics from Johns Hopkins University (USA) and MA in Pure Mathematics from the University of California, Los Angeles.

Dr. Gurdgiev¹s academic research focuses on theoretical models of habit formation, taxation and international finance. His contributions to academic literature range from analysis of international debt markets to financial economics and theoretical macroeconomics. He is currently working on academic books in the areas of international debt and development, finance and economics of the property rights.

Prior to joining College of Business Management (CBSM) he taught economics, finance and mathematics at University College, Dublin, Trinity College, Dublin, the National University of Ireland, Maynooth and Johns Hopkins University (USA). Between 1990 and 1998, he served as a strategy director with the West-East Global Trade Co, Ltd in Los Angeles, CA.

Dr. Gurdgiev frequently contributes to economic and social policy debate in Ireland and Europe. His work on European policies is published by international think-tanks, including the Policy Institute, the Institute for International Integration Studies, CATO Institute, Centre for New Europe, Copenhagen Institute, CEPOS, Open Europe, and the Stockholm Network. He currently edits Ireland's only independent policy analysis quarterly, the Open Republic magazine.

He is the recipient of the World Medal of Freedom, 2006 and Man of the Year, 2005 awards from the American Biographical Institute. In 1998-2000, Dr Gurdgiev was awarded a Millennium Scholarship Award from the University of Chicago. In 2000-2004 he was the holder of the Whatley Award from the Trinity College, Dublin

Sorry I didn't realise you knew him so well... maybe you should write his CV?

My point still stands whoever makes it doctor or otherwise. The amount AIB need is €9bn at the moment, not €20bn. Scaremongering otherwise.

hinault

oppenheimer1 wrote: »

Sorry I didn't realise you knew him so well... maybe you should write his CV?

My point still stands whoever makes it doctor or otherwise. The amount AIB need is €9bn at the moment, not €20bn. Scaremongering otherwise.

I leave CV doctoring to likes of FF and their Taoiseach.

The dogs in the street are aware of the €9b : what people want to know is how much saving these banks will cost.

IrishTonyO

oppenheimer1 wrote: »

Staggering amount of misinformation in this thread. The hole in AIBs balance sheet is €9bn not €20bn. It is organising the sale of its UK operations so Santander for about €1bn, its also selling its 70% stake in a polish bank as well as its interests in the USA.Its also trying to rise further capital in the market so the government probably won't pay more than €6bn for a 70% stake. It also should be noted that the banks share price has been steadily rising for the past while, so the market is showing some confidence in it.


But don't let that get in the way of a Bank/Government/Fianna Fail rant.

Where are you getting the 9 billion from? Thought we wouldn't know until we know the NAMA transfers?

oppenheimer1

IrishTonyO wrote: »

Where are you getting the 9 billion from? Thought we wouldn't know until we know the NAMA transfers?

It was in todays Times.

Langerland

So let me get my numbers straight.....Money to recapitalise banks €27 Billion (11 last year + 16 pending).......2009 Tax revenue €33 Billion (I'm guessing less for 2010)......National debt €75 Billion.....Are we screwed yet???

Amhran Nua

hinault wrote: »

Instead we have AIB/BOI/Anglo as a millstone around out necks, with no credit flowing and the cost of supporting these shysters rising by the day.

Would that be the biggest quango on earth? If only we could export those, we'd be set.