Paul O'Donoghue

EVERY FEW MONTHS or so, some optimistic soul suggests that the Irish state is creeping ever closer to AIB repaying its bailout money.

Well, we’re here to tell you – much like the development of a perpetual motion machine or Mayo winning an All Ireland final, it ain’t gonna happen.

This subject has cropped up again recently because the government has been rapidly offloading its stake in the bank.

In January 2024, the Irish state owned about 41% of AIB. Almost exactly a year later, it now holds just 12.5% of shares, most recently selling down 5% last month.

The government has signalled it may offer up its remaining shares by the end of 2025, meaning the lender would once again be fully privately owned.

So, where would that leave the state on its ‘investment’ into the company?

A quick history lesson

First, everyone’s favourite bit, a quick history lesson. During the crash, the Irish government spent about €64 billion to effectively bail out the country’s banks.

This included €21 billion pumped into AIB (€20.8 billion to be exact). Why did so much money go into the lender?

Well, AIB’s business was mostly based around Ireland’s property market, via either development loans or mortgages.

When property prices dropped off a cliff during the crash, this meant that much of the company’s loan book was now worth dramatically less.

As its assets fell in value and losses piled up, the government decided AIB needed extra money to avoid collapsing completely. As AIB, alongside Bank of Ireland, is the biggest bank in the country, its downfall would have had a devastating impact on thousands of customers, the country’s broader financial system, etc, etc.

So, €21 billion of taxpayer funds went into AIB. In return, the state effectively took over ownership of the company, nationalising it, ie – the state bought the bank.

AIB spent the next few years patching itself up, until 2017, when the government decided private investors would likely be interested in the business again.

Senior AIB staff were also eager for the company to be returned to private ownership, so they could remove pay restrictions such as an executive salary cap or high taxes on bonuses.

In June 2017, the company’s shares were offered to private buyers on the stock market, leading to the state selling a 28.8% stake.

Since then, the government has been gradually selling down shares as it looks to get back as much of the €21 billion it put in as possible.

To cut a long story short – so far, the Irish state has recovered about €18 billion from AIB. As well as selling shares, the state has also benefited from the likes of dividend payments to investors, which the bank was able to do once it got back into profit.

As mentioned before, the state now retains just 12.5% of the shares in AIB. As of the time of writing, that stakeholding was worth about €1.8 billion.

Ok, so €18 billion plus the €1.8 billion would get the state to €19.8 billion. Throw in the fact that the state will also benefit from AIB’s planned share dividends and buybacks later in 2025, and it sounds like taxpayers will get almost all of their money back, right?

Well, not quite. Because that €21 billion (or €20.8 billion) figure doesn’t quite tell the full story.

People pass the front of the AIB Bank in the Grafton Street in Dublin, 2013. Alamy Stock Photo Alamy Stock Photo

The full story

The biggest issue is the government had to take on debt to get cash to bail out the banks, including AIB.

This debt has costs, such as interest payments.

The Comptroller and Auditor General (basically the state spending watchdog) estimated that by the end of 2021, Ireland had spent €7.1 billion on various debt-related costs from the money it borrowed to bail out AIB.

To be clear, that’s on top of the €21 billion bailout cash – so the actual cost of the AIB bailout was really around €28 billion.

This €7.1 billion is conveniently never brought up whenever anyone talks about AIB repaying the state’s investment. But it is a very real cost.

This amount has also likely crept higher since these 2021 figures were published. The C&AG estimated that, in 2022, we would be paying about €250 million a year on the money borrowed to bail out AIB.

This amount varies. Ireland wasn’t viewed as a reliable place to lend money just after the crash, so the rates on its borrowings were higher just after the crisis.

The state paid €400 million on its AIB borrowings in 2018 – the fact that this had likely fallen to €250 million in 2022 shows that investors viewed Ireland as a better bet, allowing the country to pay less interest.

Still, those early years were expensive, and these debt servicing costs are as real as any other part of the bailout.

This alone is reason enough to show why the taxpayer is never recovering the full cost of the AIB bailout.

But since the bailout is often euphemistically referred to as an ‘investment’, it’s worth briefly considering it as such. Viewed through that lens – it’s far from a roaring success.

Generally, investments that don’t beat inflation aren’t great investments, as the value of your money goes down over time. When we consider that €21 billion in 2010 is about €27 billion in today’s money, and that’s not even counting the debt servicing costs, we’re some way off.

It’s also worth considering the opportunity cost of sinking so much money into the banks, with the likes of infrastructure projects getting postponed due to a lack of funds.

All of this is not to say that bailing out AIB necessarily was the wrong move. It’s one of the two most important banks in the country. If it had collapsed, there’s no telling what damage could have been caused to Ireland’s financial system.

But let’s stop kidding ourselves please. When all is said and done and the government has fully sold its shares in the bank, the Irish state will likely have got about €20 billion from its AIB ‘investment’.

We even have an actual example of a lender returning its bailout with interest – Bank of Ireland, which returned somewhere between €1.4 billion to the state, on top of its bailout money and debt costs. That’s an actual return.

AIB will likely return some more cash to the state in other ways, such as paying its share of the bank levy, which raises about €200 million a year.

But that still leaves us some way off the €28 billion figure we get when the debt costs are counted.

So – unfortunately, the Irish state is not on track to recover the full cost of the AIB bailout. And it looks like it ever will.