The Future Of Allied Irish Bank

The government plan for the future of Allied Irish Bank was determined in early September 2009 and just as life or death for people of the Jewish faith are determined in September, The Irish government determined death for Allied Irish Bank that September. It was clear that the government’s plan (NAMA or National Asset Management Agency) was going to substantially reduce almost all of the companies value.

Allied Irish Bank has declined 82% over the last year and it still has a ways to go down. The company has little value since the amount of stock it has to issue to maintain minimum equity ratios required by Basel will be based on its stocks price and as its stock price declines the more shares it will need to issue which causes the investment to go down and the perpetual cycle of doom continues.

If the government of Ireland had acted more swiftly the bank may have been able to have been saved with substantially more value. The government also had an extremely poor plan to recapitalize the bank which essentially remade the bank from public holders to a government controlled company. The government of Ireland should have issued the banks preference shares and allowed its sour investment to stay on its books and allow them time to recover. On top of this it should have bought some of the investments off of the books of both banks, but not in a way that destroyed the two companies capital ratios. If this was not possible the government should have allowed these loans to remain on the books at incorrect prices. By forcing AIB and IRE to sell these investment it obliterated the banks capital by forcing the banks to recognize billions of losses.

The next year for AIB should be as miserable as the last and its likely to end in nationalization.

Edwards full report can be seen here Click Here