It has been a busy two weeks in Irish banking – and inevitably the Minister for Finance was at the centre of the action.
Yesterday’s confirmation that AIB was buying Goodbody – the stockbroker it was forced to sell a decade ago at a deeply discounted price – was a routine conclusion to a superficially ordinary bit of corporate dealmaking. Bank buys stockbroker to diversify its income streams – so far, so normal.
What makes this transaction extraordinary, though, is the special dispensation it required from Paschal Donohoe. Goodbody’s price tag of €138m requires ministerial sign off, but the real sticking point of this deal was pay – specifically the high salaries and bonuses customary to stockbroking, but banned in Irish banking.
Mr Donohoe had to say yes to those, too. The minister, along with AIB CEO Colin Hunt and Goodbody managing director Roy Barrett, got to ‘yes’ on the sale with a neat bit of Jesuitical reasoning. The bonus ban and pay cap would remain for AIB, which is 71pc owned by the State, while Goodbody gets to keep its remuneration policies as an operationally independent company wholly owned by AIB.
Or as the Department of Finance press release put it: “There have been no changes to the Government’s policy in relation to bank remuneration; AIB will continue to adhere to the Government’s pay restrictions, with separate ring-fenced remuneration structures in place for Goodbody.”
To recap: AIB is using public capital to buy a stockbroker that will only agree to a deal if the Minister for Finance bends the rules on bank remuneration.
This is not the only uncomfortable contortion Mr Donohoe has been twisted into in his role as the biggest single shareholder in the Irish banking system.
The exigencies of a marketplace in need of consolidation but lacking independent consolidators means the State has been forced to double down on the rescue investments it made in the main Irish banks a decade ago.
Not two weeks ago, the UK state-owned bank NatWest announced it was winding down Ulster Bank, its Irish subsidiary. What had been Chancellor Rishi Sunak’s headache now became Mr Donohoe’s.
Ulster Bank is a 180-year-old institution deeply embedded in the economic life of the country. It has €21bn in loans and a similar amount in customer deposits. With significant market shares in mortgages and business banking, its absence would be felt in towns and cities across Ireland.
In short, Mr Donohoe was going to have to chip in.
AIB is in talks to take over Ulster Bank’s €4bn corporate book, while Permanent TSB – itself 75pc owned by the State – is in negotiations over the bank’s much larger personal banking business.
Those deals, if they happen, could be transformative for those underperforming banks, much as Bank of Ireland’s aggressive cost cutting and branch closing could bring that institution back into the graces of investors – one of which is the State with a 14pc shareholding. But aren’t they also quasi-bailouts for a UK-owned bank that hit the skids 13 years ago?
Obviously Mr Donohoe has his eye on an eventual exit from the State’s bank shareholdings and that can only come if they make more money and increase their valuations.
But the question has to be asked: are we just throwing good money after bad?