12 hours ago
Never mind the spin - Ireland isn't close to ‘breakeven' on the €21 billion AIB bailout
Paul O'Donoghue
GOOD NEWS – WE'RE up on our big investment!
'What investment?' you cry.
Why, the Great Bank Bailout investment, of course!
You see, during the week the state sold its final shareholding in AIB.
It was once assumed that a lot of the cash poured into the lender was a sunk cost.
It turns out, that isn't the case. The government said during the week that, once everything is factored in, AIB will come extremely close to repaying its bailout.
Some €20.8 billion was put into the lender during the financial crisis. The government so far has gotten back €19.8 billion. Eventually, the total recovered amount will likely rise to just over €20 billion.
Multiple media outlets reported during the week that AIB will end up about '€700 million shy' of repaying the state. Essentially, coming very close to breakeven.
This is based on calculations provided by
the Department of Finance.
The department said when you look at the bailout money collectively put into AIB, Bank of Ireland (BOI) and PTSB, 'the state is €0.6 billion above break-even on its €29.4 billion investment'.
All of that sounds great.
But it doesn't give the full picture.
Here's why.
A LUAS tram passes in front of AIB headquarters.
Alamy Stock Photo
Alamy Stock Photo
The debt
To cut a long story short – the government's figures don't take debt servicing costs into account.
When the Irish state poured €29.4 billion into those AIB/BOI/PTSB during the financial crisis, it borrowed money to do so.
This debt costs money to service – quite a bit. Let's start with AIB.
As stated, the AIB bailout cost was €20.8 billion.
The Comptroller and Auditor General (basically the state spending watchdog) previously estimated that, as of the end of 2021,
debt servicing costs on the AIB bailout amounted to €7.1 billion.
That amount is on top of the €20.8 billion – so straight away, the actual AIB bailout cost goes to €27.9 billion.
And interest is still being paid on that money. In a statement to
The Journal
, the organisation said the report, published in 2022, 'is the most recent report the C&AG has published on this issue'.
But as some interest would still have racked up between 2022 and now, it's likely the final AIB bailout cost, when debt servicing is included, is well above €28 billion.
With this in mind, we asked the Department of Finance how taxpayers are €0.6 billion 'up' on the AIB/BOI/PTSB bailouts.
A spokesman said: 'The figures are based on a simple cash in, cash out basis. We have never included debt servicing costs over the last 10 years of tracking these figures.'
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Asked why debt servicing costs are not included, the spokesperson said: 'It [the Department] doesn't include debt servicing costs, which are under the remit of the NTMA'.
The NTMA (National Treasury Management Agency) is the Irish agency which manages the state's assets.
Let's think about that for a minute. The Department of Finance doesn't include the billions in debt servicing costs – which are real costs – because counting this is handled by a different state agency.
Does that sound like a good reason to ignore billions in taxpayer funds spent?
It would be one thing if profit and loss wasn't mentioned at all. But by saying taxpayers are actually in profit on the AIB/BOI/PTSB bailout, the Department's claims paint a misleading picture.
Let's take a quick look at debt servicing costs for the three main banks. As of end 2021, the most recent figures available:
AIB: €7.1 billion
BOI: €0.7 billion
PTSB: €0.7 billion
That's an additional €8.5 billion. So rather than taxpayers being '€0.6 billion above break-even', we'd actually be about €8 billion down. Not even counting the additional debt costs paid since the end of 2021.
It's also telling how the Department chose to highlight the 'investment' into AIB, Bank of Ireland and PTSB.
It didn't mention the other two lenders we bailed out 'invested' in at the same time. This pair, of course, was Anglo Irish Bank and Irish Nationwide (INBS). Between them, they received bailout funds of €34.5 billion.
The state has recovered about €1.1 billion of that amount. The remaining €33.4 billion
is officially deemed an 'unrecoverable sunk cost'.
Anglo and INBS were merged into a new state-owned entity called the Irish Bank Resolution Corporation (IBRC), which is trying to get anything it can back for taxpayers.
So it's perhaps understandable why the Department would prefer to forget about these two when talking about how well we are doing on our banking 'investment'.
Let's do a quick rundown of where things actually stand when looking at the Irish state's banking 'investments' – when including debt servicing costs.
AIB – loss for the state. Likely in the region of €8 billion
BOI – profit. Approximately €1.4 billion
PTSB – state still holds 57% stake, currently valued at €600 million. State will likely finish at a loss of about €1 billion. Possibly less, depending on how much it ultimately sells the shares for.
IBRC – loss. Likely in the region of €35 – €40 billion once all costs are included.
Briefly returning to AIB. Seeing as the Department of Finance consistently refers to the bank bailouts as 'investments', it's worth briefly considering them as such.
If someone invests €20.8 billion in 2010, and receives a payout of say €20.8 billion in 2025, how did they fare? Well, you *could* say they broke even, on a 'cash in, cash out' basis.
But in reality, they lost money due to inflation. €20.8 billion in 2010 is worth the same as about €27 billion in today's money.
And that's on top of… something… oh yeah, billions in debt servicing costs! How do we keep forgetting those pesky charges?
When the government continuously forgets them as well, it can be hard to remember!
We're down billions
None of this is necessarily to say that bailing out the banks was the wrong move. The Irish state got something valuable for the AIB bailout. It ensured one of the country's main lenders didn't collapse.
It also got a decent amount of the bailout money back in the end. At least, from AIB, PTSB and BOI. Likely a good bit more than was expected during the crash.
That's all fine. So why can't the government be happy with that, rather than trying to spin that we are around 'breakeven' on our AIB 'investment'?
To its credit,
AIB's statement on its return to private ownership
didn't make any mention of the state's 'return on investment'.
So if AIB hasn't tried to claim this, why has the government?
Put simply – the government is trying to spin that taxpayers got a return on the bank bailouts. Three of them, at least.
But we didn't. Even on those selectively-chosen three bailouts, we're down billions and billions of euro.
When the government is trying to rewrite history, it should be called out for it.
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