Sunday 22 July 2018

Taxpayers down €1.8bn as volatile markets hit banks

Minister Paschal Donohoe.
Minister Paschal Donohoe.
Gavin McLoughlin

Gavin McLoughlin

The State's holdings in Irish banks have had €1.8bn wiped off them this year.

The Government has lost €1.66bn in value from its holding in AIB, €45m from its holding in Bank of Ireland, and €109m from its holding in Permanent TSB.

The fall in share prices has come with the markets facing an extended period of volatility.

Concerns over a potential global trade war, a new populist government in Italy, and the outcome of Britain's departure from the European Union are all causing uncertainty.

The Government will not see a return of the money sunk into Anglo Irish Bank and Irish Nationwide, but it is hoping to ultimately recoup the taxpayers' money it put into AIB, Bank of Ireland and Permanent TSB.

However, that prospect seems more distant as the current geopolitical climate causes headaches for market participants.

In addition, Irish economic growth is expected to slow in the years ahead, and the Central Bank is reportedly about to ask banks to hold on to more capital to guard against excessive lending.

Both of those factors will put downward pressures on banks' ability to grow and may impact the value placed on them by the market. The Government has said it will use the proceeds from the sale of the stakes to reduce Ireland's debt.

The State is heavily indebted and despite the recent economic recovery, the Government still plans to run a deficit - meaning spending will exceed income - in the next Budget.

Ultra-low interest rates have made it easier for Ireland to borrow and refinance existing debt at cheaper rates. But that is set to become more difficult with interest rates poised to shift upwards.

The US Federal Reserve has raised interest rates a number of times this year, while the European Central Bank is unwinding a massive stimulus programme and has said it will consider lifting rates at some point after the summer of next year.

The State owns 71pc of AIB, which has lost €2.32bn from its market value this year.

It is down €3.16bn on the point near the end of January when it reached the highest level since being floated by the Government. Using that figure, the taxpayer is down €2.24bn.

Bank of Ireland is down around €325m this year which, when taking the State's 14pc stake into account, translates into a loss of €45m. The State owns 75pc of Permanent TSB, which is dwarfed by the other two banks. It has lost €145m in value in 2018, with the taxpayer down €109m.

Asked in the Dáil in February about his approach to selling the shares, Finance Minister Paschal Donohoe said: "Officials in my department continue to monitor the performance of the banks, their share prices and equity markets more generally to determine the next sensible opportunity to realise value from our investments.

"It is important to point out that exiting our investments in a measured way that will optimise value for our citizens, will take a number of years, but I do not propose to set out a rigid timeline for disposal. To do so would potentially impact the value we can achieve.

"However, I believe that over the medium term we will recoup all of the money that we invested in these banks during the financial crisis."

Mr Donohoe said that in order for a sale to go ahead he would "need to be satisfied that the market was prepared to put a fair and reasonable value on the bank's equity, bearing in mind its current performance, future prospects and the outlook for the economy".

He said he would do this on the advice of officials.

Mr Donohoe noted also that, as part of the programme for government, Fine Gael had agreed not to sell more than 25pc of any bank before the end of 2018.

Irish Independent

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