How much will the bank bailout eventually cost?

Brendan Burgess

Brendan Burgess

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

Bank€ billion
Anglo29.3
Irish Nationwide5.4
Bank of Ireland 0
AIB & EBS20.8
Irish Life & Permanent2.7
Total cost58.2
Add loss on NAMA 0
Less estimated value of AIB and IL&P 10
Less estimated premiums on deposit guarantee3
Final net cost to the taxpayer45
 
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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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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

upload_2015-1-1_10-27-4.png
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.
 
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
 
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!
 
So most of the bailout cost will be for the bank that should never have been bailed out -- Anglo.
 
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". :rolleyes:
 
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.
 
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!
Click to expand...

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.
 
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
 
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.
Click to expand...

This is the unaccounted cost.
 
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Brendan Burgess said:
The other 80%, as Firefly has correctly pointed out, is due to spending far more than we raised in taxes.
Click to expand...

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'.
 
Brendan Burgess said:
If I buy a car for €20,000, that is the cost of the car.
Click to expand...

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.
 
TheBigShort said:
Currently our debt 75% of GDP.
Click to expand...

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.
 
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.
Click to expand...

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'.
 
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'.
Click to expand...

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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