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Cost of Banking Crisis - Update 1

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The following is an update of our previous estimate of the direct cost of the Irish banking crisis following the announcements on Bail-Out Tuesday (30th March 2010) by the Minister for Finance, Central Bank and Financial Regulator.

Our previous estimate was that the ultimate direct cost could be between €12.2 billion (best case) and €34.2 billion (worst case) with the most likely cost being €23.2 billion.

Our updated estimate is €22.8 billion (best case), €46.5 billion (worst case) and €34.7 billion (most likely). The central finding is that the most likely cost has increased by about 50% and our previous worst case estimate has effectively become the most likely.

The updated most likely cost amounts to three years' income tax receipts - equivalent to about €17,000 per taxpayer, or six months' average earnings.

This table presents the basis of our estimates. They exclude the cost of borrowings, dividend/coupons payments and any profits from share stakes, and they ignore the massive social and economic costs of the crisis.

Ignoring timing differences, crisis-related borrowings could theoretically hit €83 billion comprising cash provided to covered institutions (€38 billion) plus the Nama bonds (€45 billion). This takes account of the fact that any share investments made by the National Pension Reserve Fund are effectively funded by borrowings via the NTMA. Again ignoring timing issues, the annual interest cost could peak at about €3.8 billion before allowing for possible interest, dividend and coupon receipts.This is equivalent to about one-third of annual income tax receipts. At a guess, the net annual interest cost to the taxpayer could exceed €1 billion per annum. 

 
Previous Estimate*
Revised
Estimate
Comments on Revised Estimates for Worst Case
Items
Best
Case *
(€ bn)
Worst
Case
(€ bn)
Best Case *
(€ bn)
Worst Case
(€ bn)
Expended to Date:

  Preference shares - AIB & BoI

0.0
7.0
0.0
7.0
Some will be converted in equity.

  Cash injection - Anglo

3.8
3.8
3.8
3.8
 
Definitely Needed:

  Cash injection - Anglo

6.0
6.0
8.3
8.3
 

  Cash injection - INBS & EBS

2.4
2.4
2.7
3.5
Assumes €2.6 bn to INBS and €0.9 to EBS
Probably Needed:

  Equity injections - AIB & BoI

0.0
5.0
0.0
3.0
State is last resort source of new equity after asset disposals

  Cash injection - Anglo

0.0
0.0
8.0
12.0
Additional provision on top of possible €10 bn. Assumes bank has no residual value
Possibly Needed:

  Loss by Nama

0.0
10.0
0.0
8.9
Loss based on €81 bn loans with 45% haircut and 20% loss

  Central Bank MLRA

0.0
0.0
0.0
0.0
Assume that full €11.5 bn is repaid by Anglo
Totals
12.2
34.2
22.8
46.5
 
* Assumed that preference shares are repaid in full and that equity injections are recovered.

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This page contains a single entry by Brian published on March 26, 2010 4:56 PM.

Cost of Banking Crisis was the previous entry in this blog.

Banking Crisis Comments is the next entry in this blog.

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