AIB on Grafton Street

AIB will not pay a cent in corporation tax for more than 20 years, despite making €814m profit in the first half of this year, writes Daniel McConnell.

…The anomaly has come about because the bank has a so-called deferred tax asset of €3bn, which under tax and accounting rules allows it to offset previous losses against future tax bills.

In 2009, the then finance minister Brian Lenihan sought to prevent bailed-out banks carrying massive historic losses into the future as assets. However, in 2013, Michael Noonan reversed the rule change.

AIB to pay no corporation tax for 20 years: CEO (Daniel McConnell, Irish Examiner)


Thanks Jesse

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59 thoughts on “AIB Anomaly

  1. Michael

    We own effectively the bank.
    We didn’t in 2009.
    The changes made in 2013 meant the potential sale price of the bank increased, and the costs of recapitalization decreased. That was a the cost of forgoing corp tax over twenty years.
    Which was better value for money?

      1. Michael

        We have a regular stream. They are to pay 250m to shareholders this year as a result of the profitability which is in part due to changes made in 2013 by Noonan.
        And guess who in the main the shareho;ders are? Us.

        1. MoyestWithExcitement

          That’s great, but you said yourself “Ollie – we intend to sell the bank in the near future” so no shareholder money and no tax income. Profits going to private bank accounts to sit and earn interest instead of national coffers for investment in public infrastructure and services. That doesn’t seem very smart.

          1. Michael

            We get a large chunk of money for selling it. we get more than we would if change had not been made. As we wait to sell we get larger dividend than we would if we had left debt on books. Who knows how the bank will perform over 20 years? If its a spectacular success, write off may happen sooner. If not, return on Ct could be worse in longer term.
            From a bird in the hand pov, seems at least arguable that it was a better decision to make changes that happened in 2013.

          2. MoyestWithExcitement

            “We get a large chunk of money for selling it.”

            We get about 2 months spending money for it. Govt spending is €68 billion this year.

            “Who knows how the bank will perform over 20 years?”

            There are entire industries built around the idea that you can predict this. AIB was one of the biggest commercial banks in the world before the crash. I and most sensible people would prefer to keep it and rake in the profit rather than selling it for 2 months spending money now.

          3. Cian

            As a warning on a trading site states: “Buying, selling and investing in shares is never without risk. The market itself can go down as well as up, and the companies you pick can perform badly. If you are going to invest in shares it is important to research potential investments to see if they are suitable for you. Make sure you do not invest more than you can afford to lose. You can also consider investing in a number of unrelated stocks in order to spread your risk.”

            This is why the State shouldn’t own a bank

        2. Liam Deliverance

          I ‘d like to see precisely where that E250M goes and what it is spent on or where it gets diverted to. I don’t know the full facts of AIB and its machinations but I get the feeling there is something fishy going on in there despite the fact that they are owned by the state.

          1. Robert

            and from there it enters the sanitation system and eventually flows into the sea where the cycle can all repeat once more!

    1. Harry Molloy

      Thanks, I was wondering what the justification was. I’m sure there’s good arguments for and against

    2. ollie

      ffs Michael “the potential sale price of the bank”
      wtf does that mean? I hate doing this online but you are a moron if you believe that it’s better to have a promise of money as opposed to cash in the hand.

      1. Michael

        Ollie – we intend to sell the bank in the near future. If the debt was still on the books the sale price would be adversely affected.
        In the meantime we as owners of the bank receive an annual dividend that looks to me would exceed what corporation tax we might get.
        Does that mean that when it all pans out the better option was to leave the corp tax position as it was? I’ll leave that to people who know more about these things.
        But think it’s worth finding out before judgement made.

        1. snowey

          will we get as much in the sale to cover the loss of taxes?
          who knows?

          we do know – a bird in the hand is worth 2 in the bush

          Cash now is king – cash in the future is a pipe dream
          in the long term we are all dead as the great man once said.

          1. MoyestWithExcitement

            “will we get as much in the sale to cover the loss of taxes?”

            You have to factor in inflation and the fluctuating profits as well. 12% of 2017 profits will be different to 12% of 2037 profits. The proceeds in 2017 won’t be as valuable in 20 years. This all seems really stupid but then, that’s right wing economics for you. No ability to see past their nose.

          2. Michael

            We are getting cash to the tune of 250m this year.The sale of the bank will likely happen in next year. Currently valued c 11.5bn.? Would it better to forgo some of this for uncertain returns over 20 yrs?

          1. fishbone

            here are 2,714,381,238 shares in AIB

            783,902,113 (28.8%) are owned by investment firms and individuals around the world. These were sold in June for 4.40 euro /share via an IPO raising approx 3.4 billion euro that the government was planning to use to pay back some of the national debt.
            The government own 1,930,436,543 (71.119%) shares via the National Pensions Register.
            The other 0.001% is owned by Directors and a few members of staff.
            Catherine Woods has 24000 down to Sarah McLaughlin who has 2 shares.

      2. b

        we get cash in hand from dividends that are higher from lower tax

        we also got more cash from a better valuation of the bank when we sold part of it and when we sell more

        by your reasoning every equity investor is a moron

      3. GenerationScrewed

        If the profits for the next ten years were going to be €1 Billion a year with no tax, an investor may be willing to pay €15 Billion for the bank. If the profits after tax were forecast to be 875 Million (less 12.5% tax) an investor may pay €13 Billion for it.

    3. realPolithicks

      “The changes made in 2013 meant the potential sale price of the bank increased, and the costs of recapitalization decreased.”

      If you actually believe this is the reason Noonan made this change then I have a bridge I would like to sell you.

      1. Michael

        “AIB is set to return to the main stock markets in Dublin and London on Friday with a market value of €11.94 billion, some 56 per cent above that of rival Bank of Ireland, the country’s only bailed-out lender to avoid falling under State control during the financial crisis….
        Deferred tax assets
        Its valuation also reflects the fact that AIB has a stock of about €3 billion of losses accumulated during the financial crisis that it can use to slash its tax bill for up to three decades. Bank of Ireland, on the other hand, had €1.3 billion of so-called deferred tax assets on its books as of the end of December”
        Seems pretty clear that valuation has been improved.
        And Moyest – if you think think real value of say 3bn now is less than 3bn in 2037 you must think we will have 20 years of no inflation

        1. MoyestWithExcitement

          “And Moyest – if you think think real value of say 3bn now is less than 3bn in 2037 you must think we will have 20 years of no inflation.”

          No, I’m saying 3 billion will be worth less in 20 years. Obviously. The coroporate tax we could have taken from them in 2037 could be for the same amount we sell it for now, for all we know.

          1. Harry Molloy

            so you think we should gamble on potential future gains as opposed to known current gains.

            it’s a valid position but many would hope we would be more risk averse than that.

          2. MoyestWithExcitement

            Many would be very silly to accept 2 months worth of government spending money now to forgo 20 years of tax income. Very very silly. That’s right wing economics though.

          3. spudnick

            Any (sensible) sellig price now would take into account the opportunity cost of future income streams. How much of gov’t spending would be covered by these income streams if it were to remain in State hands? As others have pointed out, it’s all down to a) a decent sale price that factors this in, and b) whether you ideologically believe the State is better at running a bank than it being in private hands or not.

  2. snowey

    good old Michael Noonan….Lenihan and Cowan will always have their names sullied and noonan who made shocking policy choices rides off into the sunset as the “wise old man” who lumped us all with generations of bank debt and the rest.

    you’d nearly want McCreevy back at this stage……

    1. Cian

      What? Lenihan lumped us with generations of bank debt when he gave a blank guarantees to all the main banks in 2008.

          1. Cian

            technically, it was under Enda.
            But it was Lenahan that signed the promissory notes in the first place. He promised that Ireland would pay the €30billion.
            If we still had the promissory notes we would be paying 8% interest on them, this way we are paying 3% interest.

            Last year we paid 6bn interest on the total 200bn debt; the IBRC debt is €30bn. So the IBRC interest is ~€900m;
            If we still had the promissory notes the interest would have been over €2.4bn. Swapping that debt saves us €1.5bn each year.

            As an aside, the 2016 total debt interest repayments were 14.1% of the tax take. In 1996 it was 17.7%.

  3. Frilly Keane

    and now they are going to fund a Housing Agency to buy all their distressed Mortgaged Securities and have David Hall be the Land Lord

    and have the current owners surrender the properties directly back to AIB so they can sell them to David Hall and what ever price they feel like

  4. Michael

    Moyest – Its not precisely 20 years of tax income. it is the length of time it takes to write profits off the 3bn deferred debt.
    If it was twenty yrs the annual write off would be 150m. Not clear to me that taking say an extra 3bn on sale price now is better than waiting to get it over 20 yrs. Even if the premium was 2bn think money now worth more.
    Another factor is that AIB scored very badly in stress test by EU. That was after debt change. Might have failed if change was not made. If so unlikely it would be saleable

    1. MoyestWithExcitement

      It’s still long term income you want to give up in exchange for 2 months spending money now. It’s Jack and his magic beans.

        1. MoyestWithExcitement

          That analogy doesn’t work. If you had a contract with me to pay me a substantial amount of money that I needed to pay bills and staff every year and offered me enough money to pay my bills for 2 months to get out of the contract, I’d politely decline.

          1. Michael

            It does really. Substantial is not quantitative. The sum is roughly 150m a year over 20yrs versus 3bn now.
            And your earlier point re people being paid to forecast how returns would be over 20yrs may ring hollow to all those who ploughed money into safe as houses bank shares

          2. MoyestWithExcitement

            “It does really.”

            It really doesn’t.

            “150m a year over 20yrs versus 3bn now.”

            Comparing a situation involving 150m a year with 15 a year is ludicrous and shows you have little to no understanding of the topic at hand.

    1. Francis almond

      if you know they don’t know what they’re talking about, you obviously do. please give us the educated opinion

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