Q&A: Where do the banks stand a decade after their bailouts?

The Irish State spent about €64 billion to bailout the nation’s banks during financial crisis. Following news that the Government has sold its final shares in Bank of Ireland, bringing the amount returned by the bank to the State since its bailout to €6.7 billion – or €2 billion more than was put in – it’s a good time to see where taxpayers stand with the other lenders.

Where does the State’s exit from Bank of Ireland leave the other banks?

Let’s look first at AIB, which was the subject a €21.8 billion bailout during the crisis, by far the largest of the three surviving banks.

AIB has so far returned €11.1 billion to taxpayers, including proceeds for share sales, dividends, interest and principal repayments on bailout bonds and guarantee fees.

Minister for Finance Paschal Donohoe has also been drip-feeding AIB stock onto the market this year and, in June, raised almost €305 million from a placing of a 5 per cent block with investors.

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That reduced the State’s stake to 63.5 per cent. Following a self-imposed 90-day lock-up from disposing more shares, the Minister will be free from the end of this month to recommence selling.

The remaining taxpayer stake is currently valued by the market at €4.41 billion, meaning that the State is currently underwater to the tune of €5.29 billion on its investment in rescuing the bank.

Just to be clear, when we’re talking about recovery of the bailout money from the surviving banks, we are talking in simple terms of cash that went in and cash that came back.

This ignores things like interest payments on money borrowed to rescue the banks or the so-called opportunity cost to the State’s pension reserve fund for investing in ailing lenders during the crisis (rather than the return it might otherwise have expected from investing elsewhere).

What about Permanent TSB?

Permanent TSB (PTSB) received a €4 billion rescue in 2011 when it was known as Irish Life & Permanent.

It has since returned about €2.7 billion. A big chunk came from the €1.3 billion sale of its former Irish Life pensions and life assurance unit in 2011 – to the State, which went on to sell the business to Canada’s GreatWest Lifeco for the same amount.

Again, the total repaid to date also includes proceeds from the sale of shares, redemption of bailout bonds, interest and guarantee fees.

The taxpayers’ remaining 75 per cent stake in PTSB is worth about €570 million. Combining that with the €2.7 billion means that there continues to be a €730 million gap.

The Government’s stake in PTSB is on track to be watered down to 62.5 per cent in the coming months as the bank completes the purchase of an estimated €6.8 billion of loans from Ulster Bank, which is exiting the market. Ulster Bank’s UK parent, NatWest Group, has agreed to take a 16.7 per cent stake in PTSB as part payment for the loans.

The Government and NatWest have agreed that they will coordinate any future PTSB share sales and offer the other a chance to join forces if they are disposing of a block of stock.

Can you give me the big picture on the bailout recovery?

Sure. So, €29.3 billion was committed to the three surviving banks more than a decade ago. If you include the cash that has been returned by the three, plus the remaining value of the stakes, taxpayers remain €3.7 billion under water.

But what about Anglo Irish Bank and Irish Nationwide Building Society?

This one is far more complicated. You might need a strong coffee.

Previous governments effectively wrote off the €34.7 billion that was pumped into Anglo Irish Bank and Irish Nationwide Building Society, after their remnants were combined under the banner of Irish Bank Resolution Corporation (IBRC) and put into liquidation.

But remember the promissory notes – effectively IOU notes, rather than hard cash – that the State used back in the day to fund much of the bailout, and which IBRC used as collateral to secure emergency funding form the Central Bank? It was the stuff of front-page stories and news bulletins a decade ago.

Well, when IBRC was put into liquidation in early 2013, the promissory notes were replaced by €25 billion of government bonds with the Central Bank. The Central Bank has since sold off most of these bonds – making multibillion-euro profits as a result, as the value of the bonds has surged in the past decade as the Government’s borrowing costs on the financial markets plummeted.

Some 80 per cent of the profits have been handed over to the Exchequer. But, again, the big picture is more involved. The buyer of the bonds from the Central Bank has been the National Treasury Management Agency, which has had to raise money to do so in the long-term bond markets – albeit at a much lower interest rates than what were attached to the original bonds.

Meanwhile, it remains to be seen what surplus will be left over from the liquidation of IBRC, which is expected to be wound up by the end of 2024.

The final cost of the IBRC rescue is still far from being tallied.

Dare I ask if there are any more complicating factors?

There are. The big one is Nama. The so-called bad bank took over €74 billion of toxic commercial property loans from Anglo Irish Bank, AIB (including its EBS unit), Bank of Ireland and Irish Nationwide Building Society a dozen years ago.

However, Nama only paid €32 billion for the loans – reflecting how the value of property assets behind the loans had slumped in the wake of the crash. This triggered massive holes in the banks’ balance sheets and contributing to them needing bailouts in the first place.

Nama said in June that it is now on track to pay a lifetime surplus of €4.5 billion to the Exchequer by the time it is wound down in the middle of this decade. A proper appraisal of the total cost of bailout out the banking system would also have to factor this in.