Bank bailout to yield just €30bn return

TAXPAYERS and shareholders lost more than €127 billion in Irish banks in little more than two years and, at best, the state can hope to get back €30bn.

But in a twist, the shortfall in revenues to the state as a result of higher than expected unemployment and lower tax revenue was offset by €3bn in fees from the banks for the deposit guarantee and in interest on bonds injected as convertible contingent capital.

However, to offset further shortfalls the Government has prepared possible further taxation measures that have been costed in detail and studied for their impact, the European Commission’s report on the economy reveals.

Anticipating a tight squeeze in March when €8.7bn of debt matures, including €3.1bn in Anglo Irish Bank IOUs, the EU said it will give an advance of €3.1bn on top of the €13.9bn in the first quarter of next year to deal with this. And while the report notes Ireland has achieved its aims both in structural changes and meeting fiscal targets, together with a drop in wages compared with other euro area countries, it warns against complacency saying that a recession in trading partner countries poses a real risk.

It also warns continuing pressure for private sector involvement or burning bondholders poses a downside risk, especially as it is encouraging the Government to dip its toe in the markets for short-term paper soon. The Commission emphasises in its report that private shareholders in the three Irish banks (Anglo Irish, Allied Irish and Bank of Ireland) lost €65bn, more than the €62.8bn — 40% of GDP in 2010 — cost to the taxpayer.

“Limited reporting on losses borne by private investors in the banks may have contributed to a perception that virtually the whole cost of the banking crisis has been covered by the state”, the report says.

Dr John Fitzgerald of the ESRI said, when losses at non-Irish Northern Bank and Bank of Scotland Ireland, are taken into account, private sector losses increase by at least another €10bn.

“In the very long run the state could get back €30bn from selling the banks, if they can hold onto them until the middle of the decade at least, but it’s unlikely they will get that much,” he said.

The EU/IMF/ECB Troika will discuss the sale of state assets during its next visit to Dublin in January when it expects that “substantive decisions” will be made. It did not make any mention of the value of assets it wants to see on the market — the state has agreed to €2bn, but the IMF is on record as saying it favours the full €5bn.

It anticipates no change to the Croke Park Deal saying reforms are on track and will result in a total staff cut of 37,500, bringing public service employees to 282,500 and resulting in savings of €2.5bn from 2008 to 2015.

It approved the additional consolidation achieved in the budget worth €0.2bn more than in the programme and also supports further additional consolidation for 2013 by €0.4bn, bringing the total to €3.5bn.

They have agreed to give until the end of June for the publication of a new regulatory framework for credit unions to allow broader consultation with stakeholders. The report notes that 56 of the 400 plus credit unions are under-capitalised and says that, on top of the €250m of public money, a further capital injection will be made next year if needed, recoupable through a levy.

So far €29.59bn or 44% of the total €67.5bn bailout has been disbursed. €4.2bn from the EU has been delayed until January at the request of the Government — €3.8bn from the IMF together with €0.5bn from Britain is to be paid now as per the schedule.

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