Irish

Wednesday 30 July 2014

State will sell more banking assets to claw back cost of bailout - Davy

Donal O'Donovan

Published 11/12/2013|23:31

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Klaus Regling, German economist and Managing Director of the European Stability Mechanism (ESM)
Klaus Regling, German economist and Managing Director of the European Stability Mechanism (ESM)

THE State is set to recoup a substantial portion of the cost of bailing out AIB, Bank of Ireland and Permanent TSB by selling assets over the coming two years, according to a new report from Davy Stockbrokers.

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Selling banking assets to the markets is now the more likely route to recover part of the cost of the bank rescues than a deal to transfer loans to the European Stabilisation Mechanism (ESM), which is being sought by the Government, according to Davy bond strategist Donal O'Mahoney.

Further doubt was cast on that outcome in Brussels this week where the head of the ESM, Klaus Regling, said a retroactive recapitalisation of the Irish banks by his fund "doesn't seem very likely".

Cash is already flowing back to taxpayers through asset sales, Davy said.

Further disposal would follow on from €4.1bn recouped from the banks with last week's sale of €1.8bn of Bank of Ireland preference shares, and the earlier sales of Irish Life and Bank of Ireland contingent convertible capital (CoCo) bonds.

The recovery in Bank of Ireland shares over the course of 2013 has highlighted the "renewed investibility" of the Irish banks -- a "deeply restructured sector", according to the new Davy report.

Asset disposals could eventually see the State recoup as much as two-thirds of the cost of rescuing AIB, Bank of Ireland and Permanent TSB, or around €20bn, according to Donal O'Mahoney.

In January, when the sale of €1bn of Bank of Ireland "CoCos" was announced, Michael Noonan said the State had around a further €7bn of similar assets in AIB and Permanent TSB available to sell, but that figure excludes the value of shares taxpayers own in the three remaining banks.

However, analysts expect share sales will be the last part of the State's withdrawal from the banks -- disposals of debt instruments such as preference shares or convertible bonds are likely to happen first because investing in debt is regarded as less risky than buying shares.

Over time, cash raised by selling instruments used to bail out the banks will help reduce Ireland's total public debt, Davy said.

Irish Independent

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