Nothing could have prepared us for what happened in the financial crisis of 2008.
Nobody could have imagined that taxpayers would be hit with bailing out banks and their bondholders to the tune of €64bn.
But when it happened and the Irish banks needed more and more new hand outs from the state, it wasn’t always apparent just how different the circumstances were in each of the banks.
AIB and Bank of Ireland were designated “pillar banks”, too important to be allowed to fail or close down. Together they required a net state investment of €20.7bn.
However, their fates are now looking increasingly divergent.
Today the state owns a load of preference shares in Bank of Ireland that cost it around €1.8bn. It also owns 15pc of the ordinary shares in the bank, which are now valued on the stock market at around €1bn.
A decision was taken some time ago that Bank of Ireland would avoid majority state ownership.
That meant getting additional outside capital investment into the bank. A group of mainly US investors came in and bought 35pc from the state for around €1.1bn or around 8c to 10c per share.
Those shares are now trading at 23c per share and these investors, which include billionaire Wilbur Ross, have more than doubled their money.
But for the first time, the value on paper of the state’s holding in the bank, combined with the €2bn it has already received from the bank, equals the €4.7bn investment that went in.
That puts the state on course at least, to get its money back from Bank of Ireland.
But there are caveats. The bank’s boom time lending could still cost the state money in a number of ways.
Firstly, Nama paid €5.6bn to buy €9.9bn of loans from Bank of Ireland. If Nama doesn’t get back €5.6bn plus the cost of funds, that would be a loss to the taxpayer.
Secondly, Bank of Ireland is likely to announce details of a massive €1.4bn rights issue to raise the money to buy out the state’s preference shares. The state will have to decide whether to participate in that rights issue with its 15pc or risk having its stake diluted.
If it buys more shares to keep 15pc and potentially more of the possible upside in the share price in the future, it will actually be investing new money in the bank. That brings a new exposure but could also bring new gains. Bank of Ireland is expected to make profits of around €850m in 2015.
If it doesn’t participate, its percentage shareholding will fall. Bank of Ireland shares may well dip in value around the rights issue anyway, which means it could take longer for the state to get back all of that money back.
However, at least there is a real market in Bank of Ireland shares and they are being traded every day.
Thirdly, if the Irish banks need more capital because they lose more money on legacy loans than expected, it is possible the state could be tapped to put more money in. However, many believe the banks will have enough capital and it is by no means certain that Bank of Ireland would require more or have to tap the state for it, if such a need arose.
Fourthly, if the state only got back the same amount as it put in, it will be a net loss anyway. The money that was invested by the taxpayer had a cost attached to it. Most of it came from the National Pension Reserve Fund. Since 2009, the money the fund invested around the world has made a return of 48pc.
The situation in AIB is a lot more uncertain. The state put €16bn in, hasn’t got any back yet, and the value of its 99pc shareholding is technically just €6bn. However, there isn’t a real traded market in AIB shares, so their real market value if the state were to sell, would be a lot less than that.
Bank of Ireland’s emergence from both the guarantee and the state bailout reflects a degree of achievement. But questions can be asked about whether the state could have held on to more equity and more potential upside, which has now gone to US investors.
Plus, the bank’s pending escape from the state’s clutches will come at a price to mortgage customers in difficulty. Bank of Ireland’s tough commercial stance with them, and with standard variable rate mortgage holders, may be good for taxpayers in the long run, but is hard for those struggling to pay their debts.