Saturday 17 March 2018

Benefits of bank deal exaggerated

DESPITE the initial hoopla, the deal on bank debt that was agreed by the EU leaders on June 29 will almost certainly yield fewer benefits for Ireland than the Government seems to expect.

At best, this country can probably hope to offload to the European Stability Mechanism (ESM) only a fraction of the €63bn we have pumped into the banks over the past three-and-a-half years.

While it is still early days, it would seem that the Government's stakes in the banks could go to the ESM as part of any rearrangement of our bank debt. At the end of March, the National Pension Reserve Fund (NPRF) was valuing its AIB and Bank of Ireland (BoI) shares plus preference shares at €9.4bn -- having originally paid €20.7bn for these shares.

The NPRF reveals that it valued its AIB shares at 1c per share and its BoI shares at market value, while it valued its AIB preference shares at 58.5 per cent of par and its BoI preference shares at 86 per cent of par.

At 1c per share, the NPRF is valuing its AIB shareholding at €5.15bn. With Bank of Ireland -- the only Irish bank in which there is a real market -- currently valued at less than €3bn, that's clearly an absurd figure.

At the end of March, the BoI share price stood at 12.4c, valuing the NPRF's 15 per cent stake at €560m. However, by last week the BoI share price had fallen to just 9.9c -- at which price, the value of the NPRF's shareholding had fallen to just €447m.

Even if one accepts the valuations placed on the preferences, it is difficult to see how the bank shares and preference shares are worth the €9.4bn claimed by the NPRF. In fact, €7bn looks closer to the mark.

Even if one adds Irish Life, purchased by the State from Irish Life & Permanent for a very toppy €1.3bn, the valuation would still struggle to reach €8bn. And at least these banks are still, just about, functioning.

But what about the Irish Bank Resolution Corporation (IBRC), the carcass of the former Anglo and Irish Nationwide, into which the State has pumped a combined €35bn, most of which, about €31bn, has been funded through the issue of the infamous promissory notes?

Whatever hope the Government has of persuading our European "partners" of taking the bank shares and preference shares off our hands, the chances of them doing the same with the promissory notes appear remote.

Just because our Government was foolish enough to stiff Irish taxpayers for these losses doesn't mean that other European governments will behave in an equally daft. manner.

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