The UK’s Brexit Bill and the European Investment Bank

The annex to the EU-27 negotiating position released yesterday in Brussels states clearly that the UK will be departing the European Investment Bank, in which it is a 16.1% shareholder.

The UK will expect to be credited with the value of these shares when the exit bill comes to be totted up. How much are they worth?

According to the latest accounts the EIB had net worth of €66.2 billion at end 2016, and has been posting annual profits around €2.7 billion. By Brexit Day (March 29th 2019) the UK share of net worth should be at least €11 billion, not a small amount in the context of the row about money which has already commenced.

There are complications: the EIB retains all earnings and does not pay dividends, so owning shares has not been much fun. But as a result it has a CET1 ratio of 26.4 and leverage under 9, as well as a AAA credit rating, high liquidity and ECB access. This will be the last European bank to go bust.

There is very substantial uncalled capital, in the UK’s case €35.7 billion. This is in effect an option against the shareholders and hence a contingent liability. However there seems to be very low likelihood that this capital will ever be called. If it were called from all shareholders leverage would drop towards 2!

When the UK is ejected, who buys the shares? It could most conveniently be the EIB itself, from reserves. The bank looks to be over-capitalised. Numerous other angles will arise – the EIB shares are a substantial item and have been overlooked.

7 replies on “The UK’s Brexit Bill and the European Investment Bank”

It may not be simple as the EIB buying back the 16% shareholding.

The argument could be made that the shareholding should only be redeemed, as the loans to UK projects are redeemed.
[The possibility of loan default, in an ugly post-Brexit environment, would need to be a consideration.]

The situation is getting very ugly, particularly with the buy British campaign from the head of the Co-op supermarket, the Downing street dinner events, and the belligerent after-dinner speeches.

Would it really be politically feasible for the EIB to buy back the UK shares from reserves, but leave all outstanding lending to the UK on its balance sheet as an asset?

Do substantial chunks of the UK public sector want to still be in hock to a bank the UK is no longer a member of?

Or is it more likely that the divorce settlement will include a carving off of the EIB’s borrowing in sterling which broadly matches its lending in sterling?

This is but a detail. The real story is the triptych of initial negotiating issues picked by the EU26: “people, money and Ireland”.
The rather obvious answer is that the three most underline the contradictions in the English (no other description will fit) position. EU citizens in the UK, in the first instance (mainly Poles). The other main net contributors in the case of the second (Germany, Italy and France, in that order). The issue of the “external border” of the EU27 in the case of the third (i.e. In or out of the Customs Union and lorries backed up from Dover to London).
Fasten your seat belts!

There’s little point speculating about the treatment of the UK’s EIB shareholding. This is just one matter among many that will be addressed when the real negotiations begin. Everyone needs to have a bit patience.

In the meantime, Mrs. May has an election to win. The only question is whether she will have a stonking majority similar to the 179 seat majority Labour secured 20 years ago or a “comfortable” 40-60 seat majority. What evidence exists suggests something closer to the former. In the 2010 general election the Tory plus UKIP vote amounted to almost 40% of the total valid poll. In 2015 the Tory plus UKIP vote increased to 50%. The counting of the votes cast in yesterday’s council elections is continuing but the early indications suggest that most of the UKIP vote is “coming home” to the Tories.

It is also pretty clear that most voters, quite understandably, treat Labour’s offering of a government-in-waiting, featuring Jeremy Corbyn, John McDonnell, Emily Thornberry and Diane Abbott as candidates for PM, Chancellor, Foreign Sec. and Home Sec., resp., with a mixture of bemusement and contempt.

Mrs. May is positioning the Tories across the political spectrum from the right and pushing across the centre in to areas that Labour would traditionally consider as its own. She is also seeking to spread geographical representation by the Tories – recovering territory that hasn’t been represented by Tories for generations. So we return to the issue of the size of her majority. Will she have enough lobby fodder on her own benches to see off whatever swivel-eyed Europhobic loons are elected under the Tory banner – and the rabid Europhobic press? The hope and the expectation is that she will.

At that point lots of things will become possible.

That, of course, is the hope of the movers and shakers on the EU side. However, they may be disappointed. May’s fingerprints are all over various dossiers from her time as Home Secretary. One of the most extraordinary things to emerge from the leaked dinner discussion was the fact that she genuinely believed that the opt-out/opt-in arrangements on police and judicial cooperation, which she negotiated, could provide a template for Brexit. This suggests that advisors other than from the Home Office have been frozen out. None has yet had the courage to inform her that she cannot personally conduct the negotiations. She may have the time but her opposite numbers certainly do not. Circumstances must eventually force her to recognise reality i.e. the procedures set out in Article 50. The EU27 are on one side of the table and the UK on the other. Barnier is the nominated lead negotiator for the EU27. Davis has yet to be formally confirmed as his opposite number.
Only negative economic consequences felt personally by individual UK voters will bring them, and May and her new government, down to earth.
Probably too late!

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