Before presenting the information below, it’s worth explaining what the figures below do and don’t represent. They are supposed to represent the gross cost of bailing out the banks. Some of the cost may be recouped over time which may mean the final net cost is less than is shown. The cost for Anglo at €29.28bn is the government’s estimate (that is, not the worst case or indeed the best case) of the cost of bailing out that bank but it has said that in what they claim is a worst case scenario, the gross cost may be €5bn more. There have been recent suggestions that if subordinated debt is redeemed at a discount, this may reduce these gross costs, so €29.28bn mightn’t be the best case – it could be less. Bearing all of that in mind, here is the estimate from the Department of Finance at the end of September 2010.
Those who follow these matters closely will note that these numbers exclude a possible €5bn extra for Anglo’s cost in what DoF claims would be a worst case scenario and there is no provision for any further costs for EBS though it is understood that the government may face an additional bill of c€0.5bn for that building society which is presently being prepped for sale to either Irish Life and Permanent or a consortium that includes Cardinal Capital, the Carlyle Group and the WL Ross group. It has been pointed out by the commenter below that AIB’s shortfall of €7bn in that bank’s capital requirements after the sale of the Polish and US interests (capital requirement of €10.4bn by December 2010 less €2.5bn from the sale of Bank Zachodni and €0.9bn from the sale of M&T less €3.7bn shown by DoF) may be made up in part by the full conversion of the €3.5bn of preference shares. Add these together and the upper limit is €52.76bn – remember again that some of these costs may be recouped and that the costs may come in less than €45bn. My tuppence worth is that true loss levels at Bank of Ireland and AIB may push up this cost even further. But taking the present estimates, at an exchange rate of €1= USD $1.40, the upper limit cost would be USD $74bn. By comparison, the most recent US Treasury Department estimate on 5th October, 2010 of the cost of rescuing the US financial system was USD $30bn. Welcome to the Irish freak show indeed.
The above costs exclude any loss at NAMA which is planning to make a profit but NAMA’s profitability is doubted in some quarters. NAMA will spend €30bn approximately on buying a class of lending from banks that has been particularly badly affected by the bursting of our property bubble (land and development plus associated lending). In addition NAMA is allowed borrow up to €5bn to help complete developments. So if S&P is re-visiting its estimate of costs of the Irish financial crisis on the same basis as in August 2010, I would expect to see a range of €80-87bn excluding any interest charges on the borrowing needed to provide these funds.
NAMA Wine Lake 
It also excludes the interest payable on the promissory notes. Over 10 years that adds another €8bn to €10bn to total cost.
An excellent point and that is a real and unavoidable cost of the bailout. Also excluded will be more convoluted costs like the opportunity cost of taking one third of our Pension Reserve and investing it in AIB and BoI and seeing a loss to date of €0.4bn on the €7bn investment during a period when many global stock markets (the usual investment target) saw growth of 20-40%. There will be many such costs but yours is very clear and definite.
There’s also the €11.5bn loaned from the Central Bank to Anglo and “secured on highly risky property loans”.
http://www.independent.ie/business/irish/economic-crisis-final-bill-for-anglo-may-be-euro335bn-2254899.html
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Very clear table which I assume you’ll tirelessly keep up to date.
Another cost relates to opportunities forgone by virtue of the fact that most of the tabulated direct costs will be funded by borrowings. These will reduce the scope for the Exchequer to finance new capital expenditure until the baleout borrowing have to repaid from Exchequer funds. For example, we might need to build fifty new schools in the coming years. Beacuse we have no borrowing capacity, these could only proceed at the cost of a PPP or deferred until borrowings are reduced and then built at a higher cost (due to inflation). Not possible to include in your table but worth bearing in mind.
Hi Brian, it should be pointed out that the table was produced by the DoF at the end of September 2010 and is lifted from the C&AG’s report on NAMA. There are so many different bases for estimating costs and as you move away from direct costs (which as D_E correctly says should include interest costs on direct borrowings to bail out the banks) it becomes more subjective. But one thing is for sure – the costs identified to date are merely inclusive and not exhaustive.
The cost of “bailing out” our banks may be computed with reference to the position prevailing at September 2008. Total “speculative”-based assets in our banks at that time was no less than €150B. Likely necessary haircut was no less than 60%. Result; bailout cost no less than €90B. Both baselines may of course be the subject of discussion and fine tuning. Indeed the final “cost” is subject to reduction in respect of costs borne by shareholders and bondholders (ouch ! I bit my tongue.) but any estimate of the order of €forty-something billion is nonsense. That such is still being peddled by the DoF places a significant questionmark over the ability of the officials therein to make any meaningful contribution to extraction from the current economic morasse.
Hi NamaWineLake,
Your conclusion that the AIB figures are short by E3.3bn is wrong, I think. Your conclusion ignores the Government’s announced plan to convert at least E1.7bn, and if necessary a further E1.8bn, of the existing preference shares into equity. The total prefs of E3.5bn are already included in the above figures. Thus the total assistance to AIB shown above at E7.48bn, excluding the initial amount of E0.28bn, plus the amounts realised from the sale of assets to date (E2.5bn+EO.9bn) all comes to E10.6bn which is more or less the target to be reached by December 2010.
Hi Michael, you’re partly right (as far as I can see) by reference to the Minister’s statement on 30th September, 2010 (link at bottm) where he says
“If necessary, the NPRFC’s underwriting commitment will be satisfied by the conversion of up to €1.7bn. of its existing preference shares in the bank into ordinary shares along with a new cash investment for the balance of €3.7bn in ordinary shares. ” I haven’t seen any announcement regarding the remaining €1.8bn of preference shares (after the €1.7bn of the present €3.5bn is converted). Have you any link?
http://www.finance.gov.ie/viewdoc.asp?DocID=6515&CatID=1&StartDate=1+January+2010&m=n
So the upper limit would be €53.36bn (that is including the worst case for Anglo which would require an additional €5bn, an additional €0.5bn for EBS and €5.3bn for AIB), excluding interest charges on the borrowings to fund the bailout.
Hi NWL
The reference to the E1.8bn is contained in the Minister’s statement of 30 Sept, have a look at your own link above in the section headed ‘AIB’.
Michael
You’re completely right “In the event that the bank’s residual capital requirement is not met through asset sales by 31 March 2011, any shortfall will be met by the conversion of a proportion of the remaining €1.8bn. of preference shares.”
http://www.finance.gov.ie/viewdoc.asp?DocID=6515&CatID=1&StartDate=1+January+2010&m=n
Namawinelake,
Great stuff this site.
Does your AIB number include any allowance for the recent AIB announcement that it cannot sell AIB UK ?
Does that not add c. €3bn to the projected AIB capital need ?
Thank you & yes the figures do assume that the UK sale won’t take place in time to stop the need for a further injection from the State. The overall capital requirement for AIB announced in September 2010 was €10.4bn and the Polish and US disposals will contribute c€3.4bn leaving €7bn which is effectively shown in the DoF figures (being a conversion of the existing investment of €3.5bn in preference shares and additional investment of c€3.5bn.
So yes the abandonment of the UK sale is considered in the above numbers.
In fairness to our leaders, is there anyone who still really believes that that €30bn has actually rescued the US financial system? Other than Obama himself, that is. One could argue that it has at least kicked the can far enough down the road to allow the balance sheets to repair themselves over a long period, but I don’t think there’s really very widespread confidence about that anymore either. Not that this gets our own bunch off the hook though, as of course their calculations about the manageable nature of our sovereign debt are based on a bet that extend-and-pretend is going to work like a charm in the US, even as they practise relatively early recognition of bank losses over here.