Finally Someone Noticed

I have been puzzled since the withdrawal agreement terms first emerged that the UK is to be credited with no more than its subscribed capital on exit from the European Investment Bank. The EIB makes serious money, has not paid dividends and must be the most solvent bank around, This from the House of Lords Committee yesterday:

‘The Government failed to provide a satisfactory explanation of its negotiation position on the return of the UK’s capital. As a profitable business, there seems to be a plausible case that the UK should receive some share of that profit. A 16.1 percent share of the EIB’s retained earnings would be €7.6 billion, almost 20 percent of the UK’s financial settlement of £35–39 billion.’

The UK gets just €3.5 billion. The implied price-to-book is a steal for the surviving shareholders.

3 replies on “Finally Someone Noticed”

Brexiters are so wedded to the idea that the EU is teetering on the brink of bankruptcy that the idea that it has something that valuable does not compute.

It would appear that,as far back as December 2017, for whatever reason to do with balances within the overall negotiations ‘package’, the UK Govt. waived its rights to a slice of the EIB’s accumulated ‘profits’ and settled for a staged repayment of its investment funds over time.

In a Financial Times article by Kadhim Shubber discussing this issue and published in 2017 before Article 50 was formally triggered, Shubber observed:

“According to the EIB’s 2015 Financial Statements, the EIB’s reserves consist of paid-up capital from Member States of €21.7bn, plus a further €41.6bn of accumulated profits, i.e. total “own funds” of €63.3bn. The UK’s share of this, according to the proportion of capital it has subscribed, is 16.1% of this, or €10.20bn. While it is clear that the UK owns this capital invested in the EIB, it does not necessarily mean that the UK is entitled either legally or as a matter of practice to immediate cash payment, so stripping the EIB of a big chunk of its working capital. In practice the UK would need to ask for payment of this sum over time, while the EIB procures substitute core capital from elsewhere, or alternatively the UK could remain an EIB investing member after leaving the EU under a special agreement….
“But the obvious point here is that a proportional slice of the EIB’s funds is far smaller than the cash the UK would receive over the years by remaining a member. A one off payment in return for losing billions of yearly funding.” (Shubber,K. 2017, Financial Times , 13 March)

The general advice then, as now (in the HoL report) was that the UK should establish its own investment bank, as an alternative to the Treaty change that would be required to allow it to continue as an investment member of the EIB after ceasing to be a member of the EU.

Looks like it’s another one of those items already perceived as ‘done and dusted’ in the WA,and as such seems unlikely to be open to any further revision?

In so far as HMG had a strategy on this it was a strategy to manage newspaper headlines and the attendant feedback loop to television news. Viewed from that slightly pathetic perspective, there is a cynical logic to a poor trade-off focusing on (quite literally) the ‘headline figure’ at the expense of something that was never going to get on Paul Dacre’s front page.

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