Gavan Reilly

thinking out loud

Archive for the ‘Finance’ Category

Thought for the day: March 31, 2011

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A GENERATION ago, the very idea that a British politician would go to Ireland to see how to run an economy would have been laughable. The Irish Republic was seen as Britain’s poor and troubled country cousin, a rural backwater on the edge of Europe. Today things are different. Ireland stands as a shining example of the art of the possible in long-term economic policymaking, and that is why I am in Dublin: to listen and to learn.

– George Osborne
The Times
February 23, 2006


Written by Gav

March 31st, 2011 at 7:03 pm

Posted in Banks,Politics

On that Irish Times editorial, and ‘sovereignty’

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A quick note – which will only make sense if you’ve read Madam Editor’s piece from Thursday morning, channeling Yeats: Was It For This?.

It’s obviously an emotive issue – especially in Ireland – when the loss of sovereignty is threatened. As I was corresponding with an American colleague earlier, trying to give him some sense of context as to why Ireland takes its self-governance more than most, I found it difficult to construct even a single paragraph without having to reference Ireland’s chequered relationship with Britain.

However, the editorial – eloquent and on-the-button as it was – overlooked one salient point: the very concept that Ireland had supposedly retained its sovereignty up until now.

The point was this: why is having to borrow money from overseas sources considered a loss of sovereignty, when such borrowing is what the government – any government – does every time it has a budget deficit?

If Ireland has lost its sovereignty by having to invite the IMF in, it’s not (directly) the fault of the incumbent government, nor is it because of the scale of the loans we’ll get – even if they hit €100bn, it’s only doubling the national debt we already have.

It’s because bankers got greedy and stranded us up the proverbial creek – and that’s both the long and the short of it.

Written by Gav

November 20th, 2010 at 12:48 am

How AIB’s gym fees more than double the amount it’ll make from increasing mortgage interest rates

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The front page of today’s Irish Examiner reports that AIB still offers to cover €2,500 per year in gym or golf club expenses on the part of its employees.

AIB is offering to pay employees’ golf club fees and leisure club memberships worth millions of euro every year despite being crippled with debt and facing massive job losses and a likely state takeover.

The crisis-ridden bank confirmed the generous staff perks scheme on the same day it raised interest rates for hard-pressed mortgage holders by half a percent – and just days after it announced record losses of €2 billion for the first half of the year. The interest rate hike will affect approximately 50,000 customers who hold standard variable mortgages. [more]

The piece goes on to say that the scheme is offered to each of the bank’s 12,500 employees in Ireland, as well as the 2,500 it employs in Britain. Up to €2,500, it says, is offered to each employee.

Meanwhile, the bank increased its variable mortgage interest rate from 2.75% to 3.25% yesterday, which will (it is reported) hit about 50,000 mortgage holders with a monthly repayments increase of about €27.

So this morning, after seeing the Examiner‘s lead, I decided to crunch some figures.

In the results it filed in March, for the year ending 31 December 2009, AIB said it had a residential mortgage book valued at about €27.1bn. In layman’s terms, that means that homeowners in Ireland collectively hold mortgages, from AIB, to the tune of €27,100,000,000.

How much of this €27.1bn is lent at a variable rate? Well, that depends on who you ask. This morning’s Irish Times estimates that about 30% of the bank’s mortgages are lent at a variable rate (thanks to Aaron Quigley for alerting me), while Karl Deeter from Irish Mortgage Brokers suggested to me that the variable portfolio amounts to about 20% of the total.

This is where it gets interesting. Yesterday’s Irish Times posited that the 0.5% increase in the interest rate would result in the monthly repayment increasing by €26.96 for every €100,000 outstanding on a borrower’s mortgage.

[Update, 2pm: I’ve crunched more numbers using slightly more mathematical formulae than those in the comments or, presumably, those used by The Irish Times. Using the c = (r / (1 − (1 + r) − N))P formula the monthly repayment works out at €26.96 for every €100,000 outstanding on a 30-year mortgage. The post previously stated an increase of €26.82.]

So, if 30% of AIB’s mortgages are lent at a variable rate (€8.13bn), then AIB stands to make an extra €2,191.848 a month from the increased interest rate – that’s €26.17 million a year. If as Karl suggests the rate is closer to 20% (€5.42bn), it will make €1,461,232 extra per month, or €17.44 a year.

Now let’s go back to the gym membership scheme. Though it’s unlikely, let’s suggest – as well most employees might want to – that every single employee claims their €2,500, there’s a chance that AIB is faced with 15,000 bills for €2,500 every year. That’s €37,500,000 a year for AIB employees to go to the gym or the golf club.

So, if 20% of AIB’s mortgages are at a variable rate, then the amount by which AIB is hitting mortgage holders – the vast majority of whom, we can guess, are in negative equity – doesn’t even cover half of its bill for sending its employees to the gym or golf club.

Let me repeat that. AIB is increasing its mortgage interest rates, when potentially more than double the amount it will make is being offered to send its employees to the gym every year.

It will take at the very least 17.10 months, and at most 25.66 months, for the increased mortgage rates to cover AIB’s annual cost for the scheme.

This is the bank that got a €3.5bn recapitalisation bailout from the taxpayer last year, will probably need another one to the same amount this year (according to JP Morgan, anyway) and which has been able to offload billions in loans to NAMA that it otherwise would probably never be able to get back.

Written by Gav

August 10th, 2010 at 11:07 am

Can a fans’ trust really work?

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A cross-post from Back Page Football where I cranked out this opinion piece last night. Actual blogging resumes shortly…

As a Manchester United fan it’s been difficult of late to read any kind of club news without encountering inevitable bumf about the Glazers, the Red Knights, green and gold scarves, potential boycotts, Wayne Rooney’s forehead, blah blah blah… the list goes on. (OK, I realise that last one isn’t that terrible, but it’s been the saving grace of late.)

When the Glazer family launched their formal takeover bid of Manchester United in the summer of 2005, I was probably in the small minority (or, if in the majority, the silent one – but then again, it’s always been difficult to publicly express one’s support for a status quo) who thought the takeover might not have been a terrible thing. As a Commerce student at the time, I was being heavily briefed on investment practices and, in my business-y frame of mind, and figured that although the transition would mean United (then debt-free) being loaded up with a roundabout £500m in debt – small change, you know yourself… – that nobody would put a business through such a financial mill if they didn’t think the business could adequately cope with the strain.

In hindsight I still stand by that logic. Nobody – not even an Irish banker intent on spending billions on a floundering Irish bank – puts money into an enterprise if they don’t think they’ll be able to get their investment back, with more. After all, that’s what profit is: the reward for taking a risk.

That’s not to say I didn’t understand and share the fears that MUST and the soon-to-be F.C. United brigade. The club was debt-free and had built its modern empire – a top-class stadium; an era of incomparable dominance in English football, the ability to confidently and consistently break transfer records to get the players we needed, and others we didn’t – upon the fact that its monetary situation was so resilient and dependable. Good investment and solid management breeds more money, which if managed correctly keeps the cycle going.

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Written by Gav

March 9th, 2010 at 1:09 pm

Banking. Again

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First of all, apologies for my apparent absence from the world for the last couple of days – between Comm Day stuff hitting full swing and a website that needed doing, the DramSoc Swing Ball on Friday night (which was great), being at the glorious rugby game on Saturday (Allez les verts! Now let’s not let this Grand Slam talk get too out of hand…) and two issues of the University Observer to get online – as well as blogs to set up for some of their contributors, it’s been a manically busy couple of days. So sorry for not blogging, and to the few commenters from the last post on third-level fees, I’ll get back to you shortly, I swear.

(Shameless plug: being on GTalk on Friday night led to me spending a few hours setting up for my friend Carla. Plug plug plug.)

But no matter how far away from the world-at-large you can run, some things you just can’t escape. Today – getting back on the rungs of college life – we put on Morning Ireland to wake us up and ease us into the world outside of the house. We might as well not have bothered.

First news – banking. Second news – unemployment. Third news – unemployment. Fourth news – banking. Main feature – how Wexford is faring in the economic climate.

Christ. Whatever. We get it. Ireland is fucked. Fine. Let’s get on with it! I understand that people are losing their jobs, and it’s shocking and regrettable and sad but it’s been like that for a few months now. Anglo Irish was nationalised. Fine. That happened a month ago. Why is it still in the news? The country was frustrated before today that people were losing jobs, having pension levies, seeing education funding cut, and all of that, before it came today. People are short of money at the moment – the people already know that. They don’t need Morning Ireland to tell them when the world is getting better – they’ll know themselves when they can afford the odd mild luxury again.

An honest question to anyone: isn’t there a serious market right now for a news outlet that sidesteps financial news completely?

This F**k The Recession lark might catch on, you know.

Written by Gav

February 9th, 2009 at 9:43 am