Saturday 25 November 2017

Analysis: As the saying goes, 'nobody ever got poor taking a profit'

AS big American investors take money off the table at Bank of Ireland, is it time taxpayers cashed out of the bank too?

Seeing sophisticated and successful international money men reduce their shareholding certainly begs the question – if it works for them, why shouldn't it work for us too?

Shares in the bank have tripled since mid-2011 and this is now a positive story for taxpayers, but that doesn't mean it will remain so for ever.

There is an old saying in the markets that "nobody ever got poor taking a profit".

Certainly, it is hard to see how the bank's shares can continue to outperform at the pace they have been. Indeed, shares have dropped sharply in recent days.

On the one hand, taxpayers have in many ways got there ahead of Mr Ross and Mr Watsa, meaning the State has already recouped its original "investment" in the bank and more.

Over the course of the banking crisis, taxpayers pumped €4.8bn into Bank of Ireland through various instruments, in addition to standing behind it and other lenders with guarantees.

There was a time when many people feared little or any of the money would ever be seen again.

In fact, the Exchequer has recouped about €6bn from the bank so far – including more than €3bn last year alone that came from selling off some of those rescue loans on to the markets, as well as from various fees and interest charges. Like Wilbur Ross and Prem Watsa after their coup yesterday, we are already "money good" on the deal while retaining a 14pc share holding – the biggest single stake in the bank and worth around €1.46bn.

Getting the original rescue costs back takes off the pressure, but that doesn't mean Michael Noonan and his team at the Department of Finance can afford to be complacent.

Bank of Ireland shares might have tripled since mid-2011, but they are down 17pc from a peak last week of slightly less than 40 cents each.

On a big money play like this that kind of volatility is very, very meaningful.

In real terms, that 17pc decline sliced about €300m off the market value of the State's holding in the bank.

Staying the course means risking future share falls, and having to live with the consequences.

On the other hand, selling now, potentially at the start of what could be a sustained economic recovery, means handing away future profits to others.

The good news about our latest banking dilemma is at least this time it's a question of "good or better", a nice change from the old "bad and worse".

Irish Independent

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