What the Canadian Bank interest in AIB tells us about NAMA

On Thursday it was announced that CIBC has an interest in buying a stake AIB but only after the NAMA clear out has gone through. The media heralded the CIBC interest as proof that NAMA is the right course of action. This conclusion could not be further from the truth. What does CIBCs interest in AIB tell us about NAMA? It tells us what we should already know at this stage, the taxpayer is going to massively overpay for severely impaired assets, and hence incur instant losses and be on the hook thereafter. Whilst bank stakeholders old and potential new ones are left with a clean slate and only upside exposure.

Let us be clear on this, CIBC does not want to buy a stake in AIB today at just over 2 euro. They want to buy it after the taxpayers pay a ludicrous price for the banks worst performing assets. AIB in an integral part of Ireland's banking system and it will be again be profitable in the future. AIB, stripped of its worst assets for more than they are worth, makes AIB at 2 euro be a spectacular proposition for any investor. Of course, CIBC are interested! CIBC have practically zero downside in taking a stake in AIB after the asset transfer, practically zero. It is both shocking and laughable that the media interpret this as a massive positive shift in sentiment of foreign investors towards Ireland. We as taxpayers are being asked to pay a massive premium so private investors can have a free option on the viable and profitable parts of our banking sector.

There is no denying that action needs to be taken on our banks and there is no denying that this will incur a cost to the taxpayer. However shouldn’t it be the taxpayer as the entity that is lumbered with all the risk, be the ones who get opportunity to recoup some of their losses through ownership of the banks? Why is temporary nationalization of our banks NOT being proposed by our government? Surely this should have been the natural conculsion of our government if they want to minimize the absolute cost to the taxpayer. Again and again our government shows a clear preference toward protecting the interest of a small few bank stakeholders over the current and future health of our nation.