How the taxpayers have already helped AIB
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Wednesday November 18 2009
THE legendary investor Warren Buffet once remarked that any right-minded capitalist who had seen the Wright Brothers' plane take to the skies back in 1903 should have shot it down and saved investors 100 years of agony because airlines have never made a profit.
The Irish taxpayer could be forgiven for feeling much the same about our banks.
We simply don't know whether the billions in taxes paid by the banks over the years will ever cover the cost of bailing out Anglo Irish Bank and the others, such as Allied Irish Banks and Bank of Ireland.
The cost of bailing out AIB is hard to quantify.
The blanket guarantee for all the country's banks has undoubtedly weighed on Irish bonds, forcing up the cost of borrowing on the international markets but it will never be possible to say by how much. To that hidden cost, we can add the €3.5bn which has been injected into both AIB and Bank of Ireland.
While the plan is that it will be repaid one day, it is not what one would usually describe as a loan because the Government believed it had little choice but to recapitalise the banks.
Many analysts believe AIB will need a further recapitalisation in the new year which may end up costing the Exchequer even more.
Next year, the National Asset Management Agency is slated to take over debts of €24bn from AIB.
Optimism
While Finance Minister Brian Lenihan projects that NAMA will eventually make a profit, many observers don't share his optimism and in the meantime it remains another unquantifiable risk for the taxpayer.
The taxpayer has been generous to Allied Irish Banks over the years. While nothing compares to the present crisis, it is not the first time the taxpayer has bailed out AIB. In the mid-1980s, the State was forced to rescue the bank after a UK subsidiary called ICI ran into problems.
While most of the money was eventually repaid, calculations estimate that the cost of bailing out ICI amounted to around IR£403m (€512m).
Of that, IR£277m was borne by AIB and IR£34m by the State, while the remaining IR£78m was borne by an accountancy firm.
- Thomas Molloy
Irish Independent
