# How much will the bank bailout eventually cost?



## Brendan Burgess (10 Feb 2011)

*Summary
*

|€bn
Anglo|29.3 
AIB|18.4 
Irish Nationwide|5.4
BoI|4.7
I.L&P|2.7
EBS|2.4
Total|62.9*

How much will we get back?
*Anglo has said recently that it may have more than it needs and could give back around €2 billion in time. Bank of Ireland has attracted outside investors recently, so they see value in the company. Irish Life and Permanent is way overcapitalised and the state should get back all its investment and probably more. AIB and EBS are overcapitalised as well. The most recent €12.7 billion put into them seems like an overkill. 

It's very difficult to forecast, but my guess would be between €10 billion and €20 billion. 

*Anglo *


€4 billion |June 2009|
  €10.3 billion| May 2010 |Promissory Note (increased from €8.3 bn March 2010)
  €8.6 billion| June 2010 |Promissory Note 
  €6.4 billion|December 2010 |Promissory Note
  €29.3 billion|Total*Irish Nationwide*


€0.1 billion |March 2010|Special Investment Share
  €2.6 billion|March 2010|Promissory Note
  €2.7 billion|Dec 2010|Promissory Note
  €5.4 billion|Total|.


*AIB*


 €3.5 billion|February 2009| NPRF – originally pref shares, now ordinary shares
  €3.7 billion|December 2010|NPRF ordinary shares
  €9.8 billion|July 2011|shares
€1.4 billion |July 2011|contingent capital
€18.4billion|Total| *

Bank of **Ireland*


€1.8 billion |February 2009|preference shares
  €1.7 billion|February 2009| preference shares converted to ord shares April 2010 
  €1.3 billiion|July 2011|shares
€1 billion|July 2011|contingent capital
€4.7 billion|Total *EBS*


 €0.1 billion|March 2010|Special Investment Shares
  €0.25 billion|June 2010|Promissory Note
  €0.525 billion|December 2010|Speical Investment Shares
€1.3 billion|July 2011
€0.2|July 2011|contingent capital
€2.4 billion|Total*Irish Life & Permanent 
*

€2.3 billion|July 2011|ordinary shares
€0.4 billion|July 2011|contingent capital|
€2.7 billion|Total


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## Brendan Burgess (4 Sep 2011)

updated September 4th based on an [broken link removed] by Cliff Taylor in the Sunday Business Post.
Updated 1 January 2015. 


Bank€ billionAnglo29.3 Irish Nationwide5.4Bank of Ireland 0AIB & EBS20.8Irish Life & Permanent2.7Total cost58.2Add loss on NAMA 0 Less estimated  value of AIB and IL&P 10Less estimated premiums on deposit guarantee3 Final net cost to the taxpayer45


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## Brendan Burgess (6 Sep 2011)

I think that the figure has changed a lot. I had a figure of €55 billion in my head which is why I did this table to try to tie it down.  This is the amount we have put into the banks so far.

I suspect we could get back between €10 billion and €20 billion, so the cost to us will be between €40 billion and €50 billion.

Others will argue that NAMA will lose €5 billion and as a result, the true cost of the bank bailout will be higher than the cash already put in.

Brendan


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## Brendan Burgess (1 Jan 2015)

*Who are the main beneficiaries? *

Irish people with deposits in Anglo and Irish Nationwide. They got a very high rate of interest on their deposits and they did not lose a penny. 

Bondholders who had around €6 billion in Anglo and Irish Nationwide who should have lost it all.  I don't know how many of these were Irish 


Source of table: Economic Incentives 

The depositors in AIB and BoI who could have lost if the banks had gone bust and if the state had not given a retrospective guarantee. 

But, in general, the Irish citizens are the main beneficiary because the economy and the banking system has survived. 

None of this excuses the huge error in guaranteeing the depositors and bondholders in Anglo and Irish Nationwide. They should have borne the cost of the collapse of those banks.


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## Brendan Burgess (30 Sep 2017)

The Controller and Auditor General's most recent report has updated the cost

http://www.audgen.gov.ie/documents/annualreports/2016/report/en/Chapter3.pdf









Brendan


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## Brendan Burgess (30 Sep 2017)

I am not sure why the debt servicing cost is being brought into it?

If I buy a car for €20,000, that is the cost of the car.
If we spend €5 billion on the health service in 2016, we don't say it costs us infinity - €5 billion + the interest forever.

I suppose if I borrow €20,000 to invest it in a unit-linked fund, I would have to net off the cost of borrowings against the investment return. 

Brendan


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## Firefly (30 Sep 2017)

So, the net cost is 40bn. Against a national debt of 197bn, the net cost of "bailing out the banks" represents 20% of our national debt. The other 80% was us living beyond our means. Future generations will be so proud of us!


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## dub_nerd (30 Sep 2017)

So most of the bailout cost will be for the bank that should never have been bailed out -- Anglo.


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## Brendan Burgess (30 Sep 2017)

And we call it a "bank bailout" - but it was a bailout of the depositors and the bondholders. 

Brendan


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## rob oyle (30 Sep 2017)

And the Anglo/Irish Nationwide element will never be recovered.


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## dub_nerd (30 Sep 2017)

So I guess history won't be smiling on Lenihan's infamous estimate -- that it would cost €4 bn and be "the cheapest bailout ever".


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## gar32 (30 Sep 2017)

At €8000 per person in Ireland. I am sure if the bank's where taxed until this was paid back plus interest then the people would not hate the bankers so much. I blame the banks in the USA too which go the ball rolling with lending to any one and everyone. I just hope the history does not repeat as the whole mess meant I had to leave Ireland to make a living. FG & FF running things I am not sure I will ever make it back.


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## TheBigShort (1 Oct 2017)

Firefly said:


> So, the net cost is 40bn. Against a national debt of 197bn, the net cost of "bailing out the banks" represents 20% of our national debt. The other 80% was us living beyond our means. Future generations will be so proud of us!



For someone who recently levelled accusations at me that I didn't understand basic accounting nor economics, that is some statement above.
How you have managed to separate the money borrowed for bailouts and money borrowed for all other State expenditures and conclude that the money borrowed for bailouts is not living beyond our means I just don't know.
Furthermore to conclude that the 80% of national debt used for all other state expenditures is, in its entirety, was money used to live beyond our means is simple financial and economic illiteracy.


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## Brendan Burgess (1 Oct 2017)

Hi Shortie 

There is a general view promulgated that we are in such deep debt as a nation because we borrowed all this money to "bail out the banks". 

In fact, only 20% of our national debt is due to bailing out the depositors and bondholders in the banks.

The other 80%, as Firefly has correctly pointed out, is due to spending far more than we raised in taxes. 

Brendan


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## TheBigShort (1 Oct 2017)

gar32 said:


> I just hope the history does not repeat as the whole mess meant I had to leave Ireland to make a living. FG & FF running things I am not sure I will ever make it back.



This is the unaccounted cost.


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## TheBigShort (1 Oct 2017)

Brendan Burgess said:


> The other 80%, as Firefly has correctly pointed out, is due to spending far more than we raised in taxes.



True, but not all borrowing is living beyond our means. The vast bulk of it is spent on building an economy that facilitates trade, job creation and in turn, wealth creation. It is the return on that borrowing that needs to be considered. 
If we are borrowing to support an economy that is worth less than what we owe already, then yes, we are then living beyond our means. If we are borrowing to support an economy that is worth more than what we owe and growing in value, then we are living within our means. The stability and fiscal pact marks 60% debt of GDP and 3% deficit as being economically prudent. Currently our debt 75% of GDP. If you accept the constraints of the fiscal pact as the measure to gauge our spending habits, 15% of our national debt is 'beyond our means'. 
At no point could you ever construe that all national debt is living 'beyond our means'.


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## Redone (1 Oct 2017)

Brendan Burgess said:


> If I buy a car for €20,000, that is the cost of the car.



If you buy a car that costs €20,000 on finance and the total you pay back is €22,000. It cost you €22,000 to purchase the car. You may want to discount the payments by inflation, but finance costs are going to be higher than inflation, so you'll still have paid more than €20k no matter what way you look at it.


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## Redone (1 Oct 2017)

TheBigShort said:


> Currently our debt 75% of GDP.



You cannot treat our GDP like most countries.

Our National debt has  significantly increased. But, the annual effect is the interest we're paying. I'd love to know what annual interest we're paying now on a much larger debt (with cheaper finance costs) compared to pre crash with lower debt levels and higher interest rate charges.


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## TheBigShort (1 Oct 2017)

Redone said:


> You cannot treat our GDP like most countries.
> 
> Our National debt has  significantly increased. But, the annual effect is the interest we're paying. I'd love to know what annual interest we're paying now on a much larger debt (with cheaper finance costs) compared to pre crash with lower debt levels and higher interest rate charges.



That's a fair point and would be interesting. But that is separate to the notion that all government borrowing (or inexplicably just 80% of it) represents borrowing  'beyond our means'.


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## Redone (1 Oct 2017)

TheBigShort said:


> That's a fair point and would be interesting. But that is separate to the notion that all government borrowing (or inexplicably just 80% of it) represents borrowing  'beyond our means'.



Unfortunately, our borrowing (debt levels) shot up very quickly over a short period of time, significantly greater than just the bail out amount. That amount wasn't to fund infrastructure, but  (high?) Public Service pay rates, pensions and social welfare.


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## Brendan Burgess (1 Oct 2017)

Redone said:


> That amount wasn't to fund infrastructure, but (high?) Public Service pay rates, pensions and social welfare.



And low taxes, though.


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## Firefly (1 Oct 2017)

Redone said:


> Unfortunately, our borrowing (debt levels) shot up very quickly over a short period of time, significantly greater than just the bail out amount. That amount wasn't to fund infrastructure, but  (high?) Public Service pay rates, pensions and social welfare.



I think we're close to spending the same amount in interest repayments as we spend on education and that's with exceptionally low interest rates . Living beyond your means has a habit of catching up with you so I suspect we're going to bump along with a heavily indebted government for years. I remember a socialist poster here before saying that's what governments do, they borrow.  Well that's what we've done and now look where we are!


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## TheBigShort (1 Oct 2017)

Redone said:


> Unfortunately, our borrowing (debt levels) shot up very quickly over a short period of time, significantly greater than just the bail out amount. That amount wasn't to fund infrastructure, but (high?) Public Service pay rates, pensions and social welfare.



Yes it did shoot up over a short period of time, nobody is denying this, and there are certainly very obvious headwinds that we are heading into that could, and in my opinion will, lead to another economic crisis.

But the assertion was made that 80% of our national debt is us living beyond our means. That means some €147bn, in its entirety, is  'beyond our means'. In 2007 the debt stood at some €47bn or 26% of GDP. Nobody in their right mind would suggest that was living beyond our means. Even if it was double that at 52% of GDP, or €94bn nobody would suggest that was living beyond our means. The fiscal and stability pact marks 60% of debt to GDP as prudent. For Ireland to achieve that with current figures the debt would have to reduce to around €157bn from its current level of €197bn.
Arguably we are beyond our means to the tune of 15% of GDP or €40bn, which is no insignificant sum.
€40bn, that sounds familiar.


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## TheBigShort (1 Oct 2017)

Firefly said:


> I remember a socialist poster here before saying that's what governments do, they borrow. Well that's what we've done and now look where we are!



Don't tell me you needed a socialist to help you figure that out?
Do yourself a favour and take a look at the most heavily indebted countries in the world, we are up there for sure. Along with Japan, US, Italy, Greece, Spain, Portugal, Belgium et al.


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## Redone (1 Oct 2017)

Brendan Burgess said:


> And low taxes, though.



And that would have exacerbated the situation. If tax intake (not the same as higher taxes I know) it would have lessened the impact.


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