What are the government's plans for AIB and BOI?

valderrama1

Just reading interesting story in today's Indo about AIB's valuation:
http://www.independent.ie/business/irish/taxpayers-aib-stake-worth-up-to-11bn-noonan-30180073.html

What do the government plan to do with AIB and Bank of Ireland long term? Will they just try to get the banks into private hands as soon as possible?

Would it not be better to hold on to AIB now that we own 99% of it? At the moment it looks like it's being run basically as a private bank even though the government has such a big stake in it. Could this not continue?

Long term this will be worth substantially more than it is now.
Short term the bank is way over-valued if you look at it's market capitalisation (70 or 80 billion) vs. its current value (god knows what bad loans are still being covered up). So in the short term there could be a big fall in the stock price, or maybe it's right that it reflects its long term value in some way, and so on.

But long term, e.g. 15 - 20 years +, AIB will still be a pillar bank with 900,000 plus customers. And when they do recover and undo the some of the dilution that has been done in the last few years the bank will be worth quite a bit.
Because AIB is a basket case but people forget that it had some nice aces up its sleeve like a stake in M&T bank in the States which was a very astute venture indeed.

So should we not hang on to AIB for 25+ years? When the good times roll again and stock prices become irrationally optimistic instead of pessimistic, this would be worth quite a bit to the taxpayer.

It was a very painful investment for us to make so shouldn't we now follow it through and get the most out of it?

It seems by offloading as soon as possible that all the taxpayer will do is bear the cost of cleaning it up - both directly through recapitalising it and indirectly through cuts in services to fund the f$ckers. And then not really benefit from the long term investment at all other than to have the "privilege" of a bank.

sock puppet

Because money that the government has tied up in investments has to be taken from some other area. Also what makes you think that AIB is a better investment than any other company? I mean if we're prepared for the government to become investors in a bank in the hopes of making a profit, why not buy a stake in a pharmaceutical, oil & gas, or meat processing company?

valderrama1

sock puppet wrote: »

Because money that the government has tied up in investments has to be taken from some other area. Also what makes you think that AIB is a better investment than any other company? I mean if we're prepared for the government to become investors in a bank in the hopes of making a profit, why not buy a stake in a pharmaceutical, oil & gas, or meat processing company?

No my point is that now that we've been forced to invest in AIB, the benefit to the taxpayer should be maximised.

Obviously there is an enormous cost of reserving this money vs. spending it in other areas where it's needed. But if we sell it now too early we will have effectively gone through the pain of saving AIB without reaping any of the benefits, which vulture funds etc will then profit from.

Could the bank at all be kept until the taxpayer gets a return on it, OR seeing as we own 99% of it, we get a significant dividend or tax that would contribute to the exchequer that would make it worth our while?
There doesn't seem to be much debate around the whole issue. Seems like another issue where the taxpayer will fall down between the cracks.

Phoebas

BoI is in private hands.

valderrama1

Sorry I mean AIB mainly since it's entirely owned by the state

sock puppet

valderrama1 wrote: »

No my point is that now that we've been forced to invest in AIB, the benefit to the taxpayer should be maximised.

You seem certain though that AIB's value will increase more than, well every other company in the world. Surely the best way of maximising the benefit to the taxpayer would be by investing in the company with the strongest expected return. Why are you so certain AIB is that company?

valderrama1

sock puppet wrote: »

You seem certain though that AIB's value will increase more than, well every other company in the world. Surely the best way of maximising the benefit to the taxpayer would be by investing in the company with the strongest expected return. Why are you so certain AIB is that company?

I did not say that they were the most valuable company in the world in fairness, just that they are one of the two pillar banks and that position is valuable in the long term, once they are cleaned up, whenever that will be.
The terms that we sell AIB on are important given what we've gone through to bail them out.
I'm just pointing out that we have the choice whether we sell it, if we do when? and before we sell it into private hands should we not demand a share of future profits? No point in debating that afterwards.

sock puppet

valderrama1 wrote: »

I did not say that they were the most valuable company in the world in fairness

You implied they could be the best possible use of resources - so if AIB was on sound financial footing in 5 years time and was valued at €5 billion, the best way to use that 5bn would be to own AIB.

, just that they are one of the two pillar banks and that position is valuable in the long term, once they are cleaned up, whenever that will be.

Value is a relative term since the state could use any money raised in a number of ways. Would owning AIB for 20 more years after it has returned to health return more to the state than selling it straight away and investing it in global bonds and equities through a sovereign wealth fund? Or would the return on AIB be greater than the value of more schools and hospitals, or paying down debt?

The terms that we sell AIB on are important given what we've gone through to bail them out.
I'm just pointing out that we have the choice whether we sell it, if we do when? and before we sell it into private hands should we not demand a share of future profits? No point in debating that afterwards.

It is important but what I'm trying to explain, perhaps badly, is that it's not how potentially profitable or valuable AIB may be in future that the state should be consiering when selling, but whether owning a bank is the best use of limited state resources.

Also I'm not sure if what you're proposing would be allowable under EU rules either. I don't know what the rules are on disposals after bank bailouts.

Villa05

Does aib have a positive value? Surely its a basket case

valderrama1

sock puppet wrote: »

It is important but what I'm trying to explain, perhaps badly, is that it's not how potentially profitable or valuable AIB may be in future that the state should be consiering when selling, but whether owning a bank is the best use of limited state resources.

No that's true, the state has no business owning a private company to that extent and it seems to have become the norm in the EU that the taxpayer will bail out banks.

It's definitely not the best use of resources when it could take decades to give returns while we make cuts in urgent areas, that is for the birds, I am not suggesting that.

But I'm just pointing out the fact that we have enabled this company to continue in existence and the future value of their business is potentially quite big. There should be some kind of constant return to the taxpayer in the future, maybe as a tax or a dividend, otherwise we'll just have been used as a fallback and won't have benefited at all.

hfallada

Villa05 wrote: »

Does aib have a positive value? Surely its a basket case

Its probably the best of the Irish state owned banks. Its an excellent brand which is obviously worth something. It has branches in the best locations(some are extremely valuable with AIB grafton street worth million). Most of its loans are performing and it didnt really engage with dodgy buy to let mortgages.

Although it did have a sub prime subsidiary which has disappeared from the news. In a couple of years it will have a value. The thing is to not sell it for an undervalued price or worse overvalued on the stock exchange like Eircom.

vellakare

When the late Brian Lenihan stated back in September 2008 that it would be the "cheapest bailout in history", most folks thought he was borderline insane. I for one certainly did. I was asked at the time how long I thought the crisis would last, and I said:

"This one is worse than the 1980's. It will take 10 years to get out of it. We'll see the worst over with after 6 years"

However much I admire Brian Lenihan, its mainly because he is dead, the stress of handling this crisis killed him. He was still part of a party of corrupt profiteering mucksavages. That party still exists, and will take credit for the hard work done by Irish people, the emigration of young talent required for the future, and various legalised abuses which are too many to list.

AIB and BOI will be privatised. The Government will make a profit, but the share price will be around 25% to 30% lower than true value. Thats so their cronies can have first bite of the cherry

valderrama1

The devil will be in the details the way the "handover" is done from government to private hands. There should be some form of tax (in my opinion) to pay us back for the years we held it.

Also there will be a cost/benefit to weigh up as regards the price we sell it for and how long we wait to sell it. The danger is that its price will collapse in the next few years seeing as it's current valuation on the market is wildly overpriced due to only 0.1% of the shares being traded and every joe punter bidding the price up in a hope of return to its previous levels.