Year: 2010

AIB Sell Stake in Polish Bank

AIB have (finally!) sold their 70% stake in Polish bank Bank Zachodni for €3.1 billion (press release here). The bank reports that the disposal

will generate c. €2.5bn of equivalent equity tier 1 capital towards meeting AIB’s Prudential Capital Assessment Review requirement set by the Irish Financial Regulator.

As I understand it, there are two elements to this €2.5 billion figure.

Page 225 of the bank’s 2009 annual report states

The market value at 31 December 2009 of the shareholding in BZWBK S.A. of €1.5 billion (2008: €1.3 billion) exceeds the carrying amount including goodwill of the investment by €0.09 billion

In other words, the stake in Bank Zachodni was valued at €1.4 billion on AIB’s balance sheet. So AIB has sold this asset for €1.7 billion more than this carrying value, triggering a corresponding increase in the bank’s equity.

In addition, because the Polish bank’s balance sheet was integrated into AIB’s consolidated balance sheet, the disposal allows AIB to deduct €10 billion from its risk-weighted assets (see page 35 of the 2009 annual report). With a target Tier 1 equity ratio of 8%, this implies a reduction of €800 million in the amount of equity the bank is required to have to meet its target (this is the part of the general Honey I Shrunk the Bank survival strategy). Added to the €1.7 billion gain on the sale, you arrive at the €2.5 billion figure.

This is a positive outcome but it’s not too far ahead of expectations as I understood them. For instance, a nice analysis from Barclay’s Capital a few months ago assumed the sale would generate a profit of €1.3 billion, which would put this €400 million ahead of that. The Barcap analysis foresaw the bank converting €3.3 billion of its €3.5 billion in preference shares into common equity, with the state then having €3.3 billion of €5.5 billion in common equity for a 60 percent ownership stake.

Keeping everything else unchanged, the additional €400 million from today’s sale would see the state converting €2.9 billion to common equity, which would still see it having a 53 percent stake (2.9 / 5.5 = 0.53).

Of course, the baseline 60 percent stake of that analysis may have been a bit low (others have been more pessimistic) and there’s lots of other moving parts to this analysis. However, today was a step in the right direction for AIB in its quest for the ultimate prize: 49.999% state ownership.

Monetary Dialogue Briefing Papers: September 2010

The latest collection of briefing papers for the European Parliament’s Monetary Dialogue with the ECB are available here (click on 27.09.2010). They focus on a range of interesting questions provoked by the sovereign debt crisis, such as what follows after the current bailout funds expire in 3 years and how to reform and implement the Stability and Growth Pact.

Independent Review of the Department of Finance

The press release is here.

Landfilling waste

The EPA has released a new report on landfill, showing that environmental and nuisance management is much, much better than it used to be. It also contains an action plan to further improve things.

In an interview with the Irish Times, Dara Lynott adds that Ireland is likely to meet its landfill target for 2010 (I disagree) but not after that (I agree) as too little effort is made to provide alternatives to landfill.

International Differences in Fiscal Policy During the Global Crisis

In this new IIIS DP,  Agustin Benetrix and I looked at the covariates of the shifts in fiscal outcomes between  2007 and 2009.

The abstract is:

We examine the cross-country dispersion in fiscal outcomes during 2007-2009. In principle, international differences in fiscal policy may be related to differences in optimal fiscal positions, funding constraints, political economy factors and fiscal control problems. We find that the decline in the overall and structural fiscal balances have been larger for those countries experiencing larger increases in unemployment and where credit growth during the pre-crisis period was more rapid. However, there is no systematic co-variation between fiscal outcomes and a larger number of other macroeconomic variables and country characteristics.