Three Billion

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Reuters reports:

Ireland raised 3 billion euros ($3.4 billion) by selling a quarter of Allied Irish Banks (ALBK.I) (AIB) on Friday in a remarkable turnaround for a company at the forefront of reckless lending during the “Celtic Tiger” boom.

…The initial public offering (IPO) of 25 percent of AIB’s shares at 4.40 euros each was the third largest European bank listing since the financial crisis and the biggest IPO of any kind in London by market capitalization in almost six years.

…In the biggest test yet of investor appetite for the Irish banking sector since the crisis, the AIB shares on offer were four times oversubscribed and sold at the midpoint of an initial 3.90 euro to 4.90 euro range set last week.

The sale price valued the bank at 11.9 billion euros, meaning investors only received a 3 percent discount to the bank’s book value of 12.3 billion euros at the end of 2016 – or 0.97 times tangible book value.

Ireland raises three billion euros from ‘milestone’ AIB sale (Reuters)

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47 thoughts on “Three Billion

  1. Murtles

    This is magnificent as that money will nicely cover important issues like :-
    * Enda’s retirement party and Lump Sum/Pension
    * Marie’s appointment party and salary (with top up and allowances)
    * Leo’s Office Refurbishment (new €24,000 curtains will be needed amongst other things)
    * Summer break up party drinks in the Dail Bar
    * New fleet of Mercs
    * Money to keep Angela off their backs for a few minutes
    * A boondoggle of a quango to form a commission to report on stuff (i.e. money for lawyer buddies)

    1. Michael

      That’s very cynical – there is no proof in Irish history that….wait…(checks Irish political history)… sorry there – that’s about right, maybe even selling it short.

    1. Anomanomanom

      Thats the worst thing do, it won’t make a difference to repayment costs. Using it to fund services is the way to go,build houses, more garda,nurse so on.

      1. Cian

        It *will* make a difference to repayment costs. it would reduce them by 1.5%. Every year for the next 20 years

        If you want to spend it then it should *not* go on salaries – it is a ridiculous way to spend borrowed money. If it is to be spent it should go on an investment – something that will improve the State: infrastructure of some sort,

          1. Cian

            Last year Irish National Debt interest repayments were €6.7bn.
            Paying off the 3bn will reduce interest repayment by €100m each year.

          2. Nigel

            As the Broadsheet bad-word filter would say – no poo-poo Sherlock. And yet it just emphasises how deeply down the toilet we were plunged in the name of paying off private debt.

          3. Cian

            Most (over 75%) of the increase in National Debt over the last 10 years was borrowed to cover day-to-day government spending – Social Welfare (mainly pensions), Healthcare, that sort of thing.

            The other 25% was a mix of debt for NAMA and the various banks. The State borrowed billions to prop up AIB (but got ownership of AIB in return) . AIB is now worth money again – if we sell (parts of) AIB we should use that money to repay the National Debt.

            We have lost the money put into the banks that are now worthless. (Anglo I’m looking at you!).

  2. ironcorona

    Does anyone know what this means?

    “The sale price valued the bank at 11.9 billion euros, meaning investors only received a 3 percent discount to the bank’s book value of 12.3 billion euros at the end of 2016 – or 0.97 times tangible book value.”

    I assume the answer is that they’ve screwed us over somehow?

    1. Papi

      Oh yes, very much. I have no idea what the number bits mean, but that we’ve been screwed, yes indeed.

    2. Cian

      It means that the bank was valued at the end of 2016 as €12.3bn; but it was sold today at a share price that would suggest it was ‘only’ worth €11.9bn (or €400m less than the start of the year).

      It is normal to sell slightly below value to entice investment.

      A real-life example may be: If you got, say, a painting[1] valued in January and the amount they told you was €1000. You sold it at auction today for €970. You got €30 less than the valuation. Were you screwed? It depends, if nothing changed in the 6 months then yes, you were screwed out of €30. However in the 6 months something might have happened to change the value of the painting – (a) the artist died, so it should be worth 1200 – you were screwed out of €230; (b) you damaged the painting and it’s really only worth €900 – you screwed the buyer out of €70.

      [1] replace this with any other item you wish.

  3. MoyestWithExcitement

    3 billion? Hooray! Great news. Our troubles will soon be gone for a couple of days. Congrats also to the private speculators who will now personally proft from us using a service we all need and owned until this momentous deal.

    1. Cian

      What? The State *bought* AIB with borrowed money. Today it *sold* 25% of it back to private investers.

      If you use AIB then the State will now profit (75%) from you using a service you need. Also some private speculators will now also personally profit (25%) from you using a service you need. However, in return for this quarter of the profit, they handed the State €3,000,000,000;

      1. MoyestWithExcitement

        Private speculators usually buy things with borrowed money as well, so I don’t know why you think that’s relevant. And ‘actually, private speculators will only take 25% of the proifit we all generate’ is not a very persuasive a counter argument. Also, the government spends about 7 billion a quarter so 3 billion will last about 6 weeks. Hooray for capitalism and short term stupidity!

        1. Cian

          Can I turn this around for a second?
          Will you give me reasons you think the Irish government should borrow money to invest in a public bank?

          1. Cian

            Moyst, Will you answer my question? And not deflect with a suggestion that I didn’t make.

            Will you give me reasons you think the Irish government should borrow money to invest in a public bank?

          2. MoyestWithExcitement

            I’m not deflecting. It’s a strange question. Can you give me a reason why they shouldn’t?

          3. Cian

            1. deflecting: You changed my specific question “Why should *Irish* government borrow money to *invest* in a *public bank*” into a completely different question: “Are you suggesting governments shouldn’t borrow money?”
            2. Some reasons that the Irish State shouldn’t borrow to invest in a high-street bank:
            – conflict of interest for regulation [e.g. high interest rates: bad for people; good for bank profits]
            – high risk [this is borrowed money]
            – rate of return: if this is purely an investment to make money: are there other, better, places to get a return?
            – anti-competitive [State owes one bank]
            – bank open to accusations of political impropriety in their day-to-day decisions

            Your turn: Will you give me reasons you think the Irish government should borrow money to invest in a public bank?

          4. MoyestWithExcitement

            Ah, ok. I was wondering if I was missing something. I’m not. You just have a personal opinion that borrowed money should not have been used,.it’s just none of your reasons are relevant to my original post so it’s actually been yourself who has been deflecting.

            My point was that this was a bad sale because private people will profit from our wealth and 3 billion is a miserly sum to get in return. Whether or not borrwed money was used to buy the bank is completely irrelevant unless you’re arguing that we should never have bought the bank in the first place.

          5. MoyestWithExcitement

            Oops. I meant your reasons for opposing borrowed money being used are totally IRrelevant to my originial post.

          6. MoyestWithExcitement

            Actually that was an unnecessary correction. Huzzah for 3 day hangovers.

          7. Cian

            You are saying that “private people will profit from our wealth”. I am saying that it is not *our* wealth. It’s borrowed wealth.
            Any profit that we get from owing AIB is offset by the interest that we are paying on the money we borrowed to buy AIB (and the risk that if AIB fails we still need to repay the 14bn).

            I’m not “arguing that we should never have bought the bank in the first place”. That was done for various reasons. We’re now at a stage where we can keep or sell AIB. I’m asking if there are any good reasons to keep it.

          8. MoyestWithExcitement

            So your objection is based on your personal and ideological understanding of the concept of ownership. We legally owned it. That is a fact. Whether the money was borrowed has nothing to do with the fact that we, the people, owned that bank and it’s we, the people, who use it and so generate the profit. If you’re going to argue that we didn’t really own it, then the banks own most things because the private sector use borrowed money to purchase assets routinely. Probably most of the time, actually. Just because I was reading about football a minute ago, Liverpool and Manchester United were both purchased by American speculators with borrowed money. Do Fenwick Sports Group not own Liverpool then? Do the Glazer family not own Manchester United? Of course they do. We own AIB, borrowed money or not.

          9. Cian

            My point wasn’t about ownership – it was that the debt burden that the ownership confers.

            Lets simplify this. I borrow 200,000 from the bank (interest-only loan – the principle is due in 20 years time) to buy a coffee stand. After all my (coffee-related) expenses I am making a profit of 15,000 per year – Happy Days! But wait – I still have to pay interest to the bank of 11,000/year.

            I ‘own’ the coffee stand, and its making 15,000 profit a year. But the fact that I borrowed to buy it means that my *real* profits are only 4,000/year AND I still have to pay back the original 200,000.

          10. MoyestWithExcitement

            Well sure. Credit makes the world go round. Obviously we incurred a debt by buying it. We have lots of debts but a government budget and a household budget are very different things.Anyway, it still doesn’t really have much relevance to my original point about this being a bad deal. We got 6 weeks spending money for something that made 1.7 billion in pre tax profits in 2016 and 1.9 billion in 2015. It has been turning back into a nice cash cow, instead this time, our society gets the profits instead of some millinoaire somewhere. But now we’ve given away a quarter of it for about 2 years profit. It’s so shortsighted and a terrible deal. Borrowed money doesn’t have much relevance to the conversation.

    1. Cian

      There are number of reasons that you don’t sell things in their entirety (note: these are all general reasons – I’ve no idea why AIB specifically was done in this fashion).
      * uncertainty of the ‘real’ value: if they sold 100% today… and then by tomorrow the share price doubled… then they just sold a 24bn company for 12bn. This is really bad for the State, and would destroy the government.
      * uncertainty of the ‘real’ value: if they sold 100% today… and then by tomorrow the share price halved… then they just sold a 6bn company for 12bn. This is really bad for investors.

      This won’t actually happen – the investors aren’t going to buy 100% of a company nless they get a really good discount. And this won’t fly with the owners.

      So you just sell part of the company and you can show that you believe there is long term value – which is why you are keeping 75% of it. You can assess the real value of the company over the next few months/years. Then sell another 25% – you will get the ‘true’ value of the company for the 2nd and future tranches of disposals.

      1. Boj

        Thanks Cian, some very good clear info throughout your responses.
        I personally think *we* should have held on to *our* investment and not floated. The share price is inevitably going to go up and we could have enjoyed the full 100% return for many years to come. I’d imagine the truth about this IPO will eventually come out after Noonan etc are long gone. With a minimum of 10k to get a piece of the pie, some rich people/funds are going to get richer off this. It’s up 7% already.

        1. Cian

          Three other things to ponder:
          1. We borrowed the money to invest in AIB. The profits from AIB must be greater than the interest for us to be making money. (and we still have to pay back the original borrowed monies)
          2. If the Government is going into the business of investing money to make a profit – is AIB the best way to go? Why not invest in Google stock? Or Bitcoin? or ANother? Are we right putting all our eggs in one basket? Should the government be borrowing to invest?
          3. If AIB remains government owned, are there risks that it will become open to political corruption (or perceived corruption)? Could we end up in a scenario where you need to make a donation to the local political party before applying for a loan in AIB!

          1. scottser

            on your first point cian, borrowed money is not intended to be paid back, it’s used to either further lend to others or as an asset to borrow more. furthermore, the lender uses that debt not as a liability but also as an asset to borrow on. the reason why no-one can calculate the real value of the bank is that no-one can unravel who owes what to whom.

          2. Cian

            scottser, I don’t understand what you mean by “borrowed money is not intended to be paid back”. Perhaps I was unclear.
            The State borrowed 20.8bn (raised the money by selling bonds on the international markets) and put this money into AIB. When AIB started to make money (6.8bn so far) it was given to the State, who in turn redeemed those bonds (repaid the borrowing). There is still14bn outstanding that we borrowed to buy AIB. We need to sell AIB to repay that borrowing.

        2. Cian

          you wrote: “The share price is inevitably going to go up and we could have enjoyed the full 100% return for many years to come”
          If you truly believe this, then you should invest *all* you money in AIB shares. Borrow as much money as you can and buy AIB shares.

          1. Boj

            As I said though, with a 10k min buy in, it rules out many of us plebs from investing.
            If I had a million in the bank I would most definitely invest a chunk on these shares. The only way is up at the moment and with the right guidance (which would cost more money I don’t have) I could sell at the right time too. Remember these shares were priced at over €25 at one stage pre-crash, and with many accounts/loans cleaned up/out over the last few years, I can see share price pushing up quite fast as liabilities are down.

    2. Jibjob

      Another reason for not selling the whole 100% in one go is the sheer size of the sell off. Euro 12bn in one go is a lot for the market to absorb in one go. It can be done, but the price that the State gets could be lower.

      Buyers might also wonder if the State is selling off a 100% because it knows of a problem at AIB that markets are not aware of.

      In short, a slow and steady privatisation is likely – but by no means guaranteed – to get a greater return for the State.

  4. dav

    they can put into a slush fund for the next bailing out of property developer/banker debt – like good little serfs

  5. Eoin

    I’ve a feeling these shares are being bought with recklessly borrowed money from the same banking system we’re still bailing out. The casino never closed after 2008. The press just stopped talking about it. They even took money off us to help keep the whole thing up and running (NAMA). Stick the 3bln into healthcare. No point in giving it to the EU. They’ve made us into debt slaves forever!!! We should be telling them to shove their odious debt. Getting nation states lumped with massive debt that isn’t theirs is the EUs model for unity. I hear people talk about us leaving the EU. Impossible when you’re a debt slave.

    1. Cian

      The State put 20.8bn into AIB in 2009 & 2010 to prop it up. In return they got 99.9% ownership.
      AIB has already paid back some 6.8bn of this.

      So selling AIB shares today will reduce the Nation Debt by 3bn. So this is a good thing.

      1. curmudgeon

        Cian I just wanted to commend you for being an actual decent commenter on a site long since overrun with muppets who have zero knowlewdge of the subject matter, but express ignorant outrage anyway.

  6. bisted

    …the shares were sold at 3% discount and are already trading at 7% above the bid price…10% return if you sell now…what do you mean you didn’t buy any…

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