# If AIB don't raise equity?



## canicemcavoy (12 Sep 2010)

From the IT yesterday:

[broken link removed]




> AIB HAS taken one step on the long path to raising the €7.4 billion it requires by the end of the year to boost its capital reserves but there’s still a mountain ahead.[...] The €3.1 billion sale of the Bank Zachodni WBK, the bank’s self-professed “jewel in the crown”, and a 50 per cent share in BZWBK’s asset management firm, has generated a tranche of that capital. This leaves a €4.9 billion shortfall....


 
From The Phoenix's Moneybags a few weeks ago:



> However, with Irish sovereign debt now topping €80bn (adding Nama's total brings the soverign debt up to over €120bn), the country is in no position to inject an additional €10bn into AIB, never mind the €10bn Brian Lenihan is currently determined to pour down the Anglo Irish Bank drain. If both of these bail-outs are carried out, the national debt will be approaching 100% of GNP. As any economist will explain, at that stage the interest charge will be so large that the economy will be crippled and remain so without a massive debt forgiveness programme.


 
Assuming that AIB do not raise the additional €5bn, what happens then? I'm curious as I hold deposits there.


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## jpd (12 Sep 2010)

The taxpayer coughs up the money required - ie bank is nationalised in all but name.


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## Sunny (13 Sep 2010)

Lenihan has already said any money required for AIB would come the national pension fund and not through extra borrowing.


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## Shawady (13 Sep 2010)

There was a banker on the radio last week saying that AIB are making a huge mistake selling the polish operation as it is a very profitable business for them.
Doesn't sound like they have much option thoough.


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## canicemcavoy (13 Sep 2010)

Sunny said:


> Lenihan has already said any money required for AIB would come the national pension fund and not through extra borrowing.


 
According to this article, in July there was €24bn in the fund:

http://www.breakingnews.ie/business/pension-fund-holds-241bn-465727.html

€3.5bn was put into AIB in February, so presumably there was at least €27 in it then. If €10bn is required, that'll bring it down to €14bn (that is, halve it). What knockon effect does halving the fund have?


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## jpd (13 Sep 2010)

The fund isn't halved - but it will have a lot of its eggs in the one basket ie Irish banks.

This isn't a great recipe for an investment fund - remember the golden rule is diversification. Any novice investment advisor would be able to spot the problem with this.

Still, I suppose it was a sort of rainy day fund although it was meant to fund the pension shortfall coming up in the next decade, so how will that be funded now? Maybe the investment in the irish banks will turn into a golden egg.


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## mmclo (13 Sep 2010)

Think the shares were up today so maybe state has made something on them?

I'm pretty sure debt/gdp ratio was above 100% in the 80's even early 90's but different circumstances

Surely state could liquidate this anytime it wants, saving for pensions in 30/40 years time seems less pressing than jobs for people today?


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## tvman (13 Sep 2010)

jpd said:


> The fund isn't halved - but it will have a lot of its eggs in the one basket ie Irish banks.
> 
> This isn't a great recipe for an investment fund - remember the golden rule is diversification. Any novice investment advisor would be able to spot the problem with this.
> 
> Still, I suppose it was a sort of rainy day fund although it was meant to fund the pension shortfall coming up in the next decade, so how will that be funded now? Maybe the investment in the irish banks will turn into a golden egg.




Assuming AIB is insolvent, which I think is a pretty reasonable assumption, then at least some of the money injected in a recapitalisation "dissappears" (technically the value if transferred from the new shareholders i.e. us to bondholders until the point where the bank is solvent again.) So even if the €10bn or whatever doesn't all disappear at least some of it will, the NPRF could not value a €10bn equity stake in AIB at €10bn.

tvman


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