Thursday 27 July 2017

BoI shares sale could net €1bn for rainy day fund - MEP

Fine Gael MEP Brian Hayes says the time is right to sell the State's stake in Bank of Ireland. Picture: Tom Burke
Fine Gael MEP Brian Hayes says the time is right to sell the State's stake in Bank of Ireland. Picture: Tom Burke
John Downing

John Downing

The Government should move promptly to sell off its 14pc Bank of Ireland stake - which would net €1bn at current share prices - and use the proceeds as the cornerstone of a planned "rainy day fund".

The proposal comes from former junior finance minister and Dublin Fine Gael MEP Brian Hayes. He argued that the entire focus on selling Allied Irish Bank shares risked missing an important opportunity for taxpayers and to help establish an emergency fund to cope with the Brexit fallout and the pensions' shortfall crisis.

Mr Hayes said the "rainy day fund" planned for 2019 would benefit from this Bank of Ireland windfall. He acknowledges that such a sale would require a change in the Programme for Government, but argues that this should be done.

"The Government's 14pc stake is worth more than €1bn based on the current share price. Given that we expect to put €1bn into our rainy day fund every year, this is the ideal way to start the process and build up our savings to protect against the risks of Brexit and other potential economic shocks. We also are facing a massive pension liability into the future as people are living longer and demographics are changing," Mr Hayes said.

The Fine Gael MEP said the problem facing the Government was that the commitment in the Programme for Government only allowed for a 25pc sell-off in any bank until the end of 2018.

"This needs to be reconsidered - the Government needs to have the flexibility to be able to go to the markets if there is opportunity to get value-for-money for the taxpayer on the Government shareholding in the banks," he said.

Mr Hayes said that there was currently good value for a stock market flotation. Bank of Ireland's share price had recovered from the shock of the Brexit referendum, and eurozone growth again looked steady, creating an opportunity to get a good return for taxpayers, he said.

"On top of that, given that Bank of Ireland is the most exposed bank to the UK market, it may be prudent to offload the stock before the oncoming uncertainty of Brexit."

Bank of Ireland has recorded annual profits of more than €1bn for both 2015 and 2016 and it has reduced its non-performing loans by €4.1bn, or 34pc, since December 2015.

Milestone

Its so-called "tier 1 capital" has increased rapidly in recent months to more than 12pc and the bank is expected to pay dividends later this year or early next year.

"It would be a positive message for the Government and for the Irish economy if we can soon state that one of our pillar banks has been fully returned to the private sector and is free of Government influence. This would be a significant milestone after the scale of our banking collapse," Mr Hayes argued.

"It is not in Ireland's long-term interest to have large State holdings in the banking sector. It doesn't help competition in the sector. It discourages new entrants from coming into the banking market, offering new products and competing with the pillar banks for business. If ever we need new entrants, it is now.

"Minister Donohoe has many issues to consider in coming to a conclusion on the disposal of its shareholding in both AIB and Bank of Ireland. Timing the sale of the bank shares requires good judgement and a measure of luck."

Irish Independent

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