£70m ICI loan repayment will not help profits - AIB

 

Profits at AIB will not be boosted by the repayment of £70 million (€89 million) from the administrator of the Insurance Corporation of Ireland, according to a statement from the bank. Describing the payment which the bank will get by October 1st as the repayment of a deposit, AIB said it was "a cash flow item and does not benefit AIB's profit and loss statement in 2000".

The £70 million is the repayment of a loan, or deposit, made by AIB in 1985 to fund the administration of its failed insurance operation and as such does not go through the profit and loss account. But the loan repayment will reduce AIB's costs by about £3.5 million per annum - the amount it charged to its profit and loss account as an interest expense over the period of the loan. And the interest costs of the other licensed banks who have paid about £2 million per annum to subsidise the interest on the Central Bank funding arranged for the ICI administration will fall by the amount they put in, with the repayment of the loan.

Separately, AIB will continue to pay the additional £8.8 million per annum it agreed to pay in 1992 when the administrator needed further funding to run Icarom and meet the liabilities as they fell due. That annual payment runs from 1992 for 20 years. At the same time the government also gave a £32 million loan to Icarom. Then, in 1994 Icarom got additional funds from the $110 million (£76 million) settlement paid by ICI auditor Ernst & Whinney to AIB. Half of this £76 million went to Icarom.

The latest twist in the AIB/ICI saga is the result of an agreement made in 1985 when the State took over the administration of the ICI, which was in serious financial difficulties, from AIB. As a result of the liabilities and potential liabilities that had been run up at AIB's insurance subsidiary, the government was concerned that the bank itself could collapse.

It decided to appoint an administrator to ICI and an administration company, Icarom, was set up. To fund the administration AIB put up a loan of £70 million and the Central Bank put up £30 million. The funds were advanced to Icarom with an agreement that the loans would be repaid by October 2000.

Last night the Icarom administrator, senior partner at accountant PricewaterhouseCoopers Mr Donal O'Connor, confirmed that the £100 million loan would be repaid to AIB and the Central Bank. He added that it would be repaid without recourse to further borrowings. Mr O'Connor said the current financial projections at Icarom indicated that it would also be able to repay the loan from the government in 2012 when it is due.