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