Why did AIB put €300 million aside if simply reducing mortgages by 12%?

Z

zxcvbnm

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Just digesting this new info.

So why did AIB put €300 million aside after the preliminary decision? That implies some significant redress being paid out does it not? It averages at €50k for each of the 6,000 customers.

My understanding is for Karen, they reduced her mortgage by 12% plus an additional c. 4%. That is, most of the AIBs hit will be from losing out on future revenue from mortgages due to mortgage write-down.
Why therefore put an additional €300 million aside?
 
Hi Z

This is the calculation I did before they announced the €300m

Average mortgage : €200k
Average redress: €30,000
Number of borrowers: 6,000

Redress to be paid: €180m
Admin costs: €50m
Additional fine: €30m
Total : €260m

I suspect that the average mortgage might be higher than €200k for this cohort as they borrowed in 2005 to 2008 , i.e. the peak of the market.

But AIB may have other costs e.g. compensation for loss of homes as a result of this.

So while the average might be €30k for the normal redress, there will be a few cases who get a lot more due to stress.

Brendan
 
Ok. But my point is did aib actually put €300 mil in cash aside in some account in anticipation of using it to pay out?

As I understand it, they are taking the hit largely by losing out on future revenue right? (Rather than paying out large sums now, with the exception of the c. 4%)
In which case they don’t need to put that much cash aside if that is the case.
Or am I missing something?

Basically I’m just speculating as to whether we can expect some significant redress paid out alongside the 12% mortgage write downs ? Putting 300 million aside in cash might suggest as much.
 
zxcvbnm said:
Or am I missing something?
Click to expand...

Yes, unfortunately you are missing a basic understanding of finance and accounting.

Let's say that AIB has on its mortgage book € 6,800 m worth of mortgages.

Now they have to reduce the balance on those by €300m down to €6,500m


Their assets have been reduced by €300m and they must make a provision for this in their accounts.

Look at it another way, let's say you owe them €200k today. And you switch lenders, you will give them €200k.

But due to the Ombudsman's ruling they say you owe them only €160k. When you switch lenders, they will get only €160k instead of €200k.

Brendan
 
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