The cost of the banking guarantee
The Government says that the amount involved being guaranteed is €400bn. The current standard rate for interbank credit default swap insurance for the Irish banks ranges from 2% to 3.2% (as of last April). So, this guarantee is worth at least €8bn per annum to the Irish banks (or a maximum of €12.8bn).
The four listed banks could all have been purchased outright on Monday afternoon for approximately €10bn*.
On top of that, the insurance certificate was issued without a premium even being discussed What kind of negotiating position is that? We still don’t know what the banks will be charged for this ‘insurance’, or even if they’ll be charged at all if they never claim.
Can I have that sort of cover on my car insurance, please? I promise I’ll start paying premiums when the car is totalled.
* Calculations as follows:
- AIB share price at COB Monday was €5, with 880m odd shares in existance = €4.46bn
- BOI share price at COB Monday was €3.40, with 1bn odd shares in existance = €3.4bn
- Anglo Irish Bank share price at COB Monday was €2.30, with around 800m shares in existance = €1.84bn
- Irish Life & Permanent share price at COB Monday was €3.72, with around 277m shares in existance = €1bn
- EBS & Irish Nationwide building societies aren’t listed, but it’s reasonable to put their values at around €1bn to €2bn each
All those prices are from the Irish Stock Exchange, and are the closing prices, not the lowest prices of the day.