I thank all the Senators for this opportunity to address the House and to give a brief update on the progress made in returning Allied Irish Banks, AIB, to private ownership and the continued normalisation of the State's involvement in the Irish banking system. Yesterday evening, I published an intention to float, ITF, announcement, indicating that the Department of Finance is preparing for the sale of around 25% of the State's shareholding in AIB. This announcement marks the start of an initial public offering, IPO, process which is expected to culminate in the disposal of these shares towards the end of June. I believe that the issuing of an ITF marks a significant milestone in returning our banking sector to a sustainable and normalised environment. Much work has been conducted at EU level to break the link between the State and the banking system and ensure that instances of taxpayer funded bailouts do not reoccur in the future. Exiting our equity investments in the banks is a natural part of this process and will reduce contingency liabilities for the State.
Proposed Sale of AIB Shares: Statements
Will we get copies of the Minister's speech?
Copies are coming across from the Department. As soon as they come, they will be distributed. The Senators will have to listen carefully until then.
That is the old teacher in the Minister.
These disposals will also help reduce our elevated national debt and can foster further competition in the Irish banking market, by removing any perception of State interference that might dissuade new entrants. I have previously made the case, and it is this Government's firm view, that the State should not own and support banks when the capital markets are willing and able to provide this function. Equity investments in any sector are risky propositions and the State's resources are better allocated to more appropriate areas. Moreover, the issuing of an ITF reaffirms the Government's commitment to recovering its investment in AIB for the benefit of the Irish people.
During the financial crisis the country was forced to make significant investments in AIB to protect the wider economy, reaching a total of €20.8 billion. We have already recouped €6.6 billion of this, through disposals, interest charges, coupons and fees. The Department of Finance, supported by advice received through 2015 and 2016 from our financial advisers, Rothschild and, previously, Goldman Sachs, did considerable work to identify the optimal route to maximise the value of our investment over time. It is clear from our analysis, given the size of the State's investment, that an IPO followed by the gradual sell down of our remaining shareholding over time, represents our best opportunity to achieve this. The advantage of a sell down through the stock market is that it allows us de-risk our exposure over time as circumstances permit. While we benefit from the proceeds of disposals along the way, at the same time the State can recoup the value of an improvement in the bank's prospects over the medium term through the remaining investment.
I have given careful consideration to the timing of an ITF announcement and made my announcement this week based on advice from my officials, our banking syndicate and our independent financial advisor, Rothschild. I am confident that conditions are currently conducive to achieving a successful transaction. Current stock market conditions are encouraging, with US and UK markets close to all-time highs and bank stocks trading positively. My officials inform me that the Irish macro-economic story is resonating well with international investors. The strong financial performance of AIB in recent reporting periods is also a factor in the timing of this announcement. The bank has now delivered three and a half years of profits, is well capitalised and, with the full approval of its regulator, was in a position to pay a dividend on the basis of its 2016 annual results, which is the first time it has paid a dividend since 2008. Investors can now see the significant progress made by the bank and its achievements so far in reducing its non-performing loans and will therefore be prepared to put a fair and reasonable value on the bank's equity.
Some Opposition Members have mistakenly sought to draw a connection between the implementation of our banking sector policy and the constraints on the State’s ability to increase our national spending imposed by the European Union Stability and Growth Pact. This is a mistake for two simple reasons. First, it unnecessarily conflates two separate and discrete policy areas. We are in a good position to make significant progress in the normalisation of our banking sector, reducing our contingent liabilities and fostering greater competition as I have described already. This progress is in no way related to, or contingent on, the application of the fiscal rules. It would be entirely counterproductive to conflate the two. Second, to identify potential income from an IPO as cash available to the State is to misunderstand the constraints on capital spending. The sale of financial assets such as bank shares are transactions which do not result in a beneficial impact on the general Government balance under EUROSTAT rules. Such disposals are classified as financial transactions that essentially involve the exchange of one form of asset, such as shares, for another, such as cash. Consequently, the sale of any shareholding in AIB would not count as general Government revenue. Moreover, in terms of investing in infrastructure, it is a not a shortage of cash that is inhibiting additional investment in infrastructure but the fact that we have reached the ceiling under the fiscal rules. The issue is our capacity legally to spend additional moneys or capital, not its availability.
The fiscal rules are enshrined in Irish law in the Fiscal Responsibility Act 2012 which followed from the referendum where this question was put to the Irish people, who decided by a majority of 60:40 that that Act was an appropriate way in which to control future expenditure. My strong view is that public indebtedness rose partly due to the recapitalisation of the banks. The appropriate way of treating one-off revenue from divesting the State of its banking assets is to use these proceeds towards debt reduction and to reduce the cost of debt servicing in future years. The strategy of reducing the national debt is consistent with Government policy of repaying borrowing previously undertaken to finance the bailout of the banking sector during the financial crisis. This policy has been clearly articulated by the Government since 2011 and has been consistently endorsed by several market analysts and international financial institutions. It has been argued in some quarters that the revenue should not be used to repay debt simply because it would have little or no impact on the overall debt-to-GDP ratio. I reiterate that it is precisely because the nominal amount of debt is so high that the impact might be considered small but this makes the need to reduce the debt level all the more pressing. The decision to proceed with an initial public offering, IPO, of AIB is an opportunity to reflect on the progress made in returning the bank, and the banking sector generally, to more stable, normal business activity which can provide services to the public in a prudent and competitive manner as well as facilitating investment and enterprise in our wider economy.
I thank the Minister for his very comprehensive statement. As it is likely though not certain that this may be the last time he addresses Members of this House as Minister for Finance, I wish him the very best in his future endeavours and a long and happy time when his period as Minister for Finance ends. I thank him for all his efforts on behalf of the State.
This debate concerns statements on the proposed sale of AIB shares, not the motion that was originally alluded to by the Labour Party and, therefore, we are discussing the former, not the latter. There are issues in the motion which I would address were it up for discussion. However, I will confine my remarks to the topic of statements on the proposed sale of AIB shares. I welcome the opportunity to speak on this topic.
Fianna Fáil supports the gradual and responsible return of AIB to the private sector and agrees with the proposed sale of 25% of the State's shareholding of AIB. The party's position is that, provided market conditions are sufficient to secure the best return for the taxpayer, the sale would be a positive development. The Government has access to much expert advice in that regard to which we do not. As mentioned by the Minister, the Government has decided that now is an optimal time for the sale following professional advice from Rothschild and others. AIB returned to profitability in 2014 and has returned €6.6 billion of the €20.8 billion that the State put into it during the crisis. At the time that AIB was taken into State ownership, there was no European banking union or Single Resolution Mechanism in place to restructure European banks. It must also be recognised both here and in Europe that the bank bailout in Ireland saved other countries from bailing out their banks.
To give some background detail, AIB was nationalised on 23 December 2010 in order to safeguard the financial system in Ireland and Europe. The State, as I said, has put €20.8 billion into AIB and €64 billion into the banks in general to date in order to stabilise the financial system. As a further measure, AIB and the Educational Building Society, EBS, were merged on 26 May 2011. As part of the merger, EBS was de-mutualised and turned into a regular limited company. EBS continues to operate under that name and the ownership of AIB. AIB officials have acknowledged that the EBS brand is now probably an even more valuable brand in its own right. AIB returned to profitability in 2014. In 2015, it redeemed preference shares in the amount of €1.7 billion and in 2016, AIB redeemed loan notes issued to it in 2011 by the State. This involved paying €1.6 billion together with €160 million in interest, totalling €1.76 billion. AIB's financial position has been steadily improving as it is aiming to simplify its business model and this year it announced a dividend for the first time since 2008, which totalled €250 million.
The Minister for Finance is proceeding with the sale of 25% of AIB based, as he said, on the advice he has been given. It is difficult to ascertain at this point how the 25% share will be valued by the market. It is likely to be worth in the region of €2 billion to €3 billion. That is a guesstimate. A difference of €1 billion is a great deal of money and we will not know the market value until the IPO has commenced and ultimately completed. Fianna Fáil believes that conditions seem correct for proceeding with the IPO. The instability that engulfed European banks last year does not seem to be as evident or pronounced this year. In addition, in the context of Brexit and other uncertainties surrounding the euro, now may be a better time to sell than some time in the future. Again, one never knows what may happen. Many companies undergo IPOs. Some wish they had not at the time they did while some wish they had. It is an uncertain process.
The AIB shares are currently held by the NTMA and the Ireland Strategic Investment Fund. Under European fiscal rules, this will be deemed a financial transaction and the assets converted to cash. As it is deemed to be a financial transaction, the revenue received from the sale is not recognised in the general Government balance. Therefore, if we were to use the proceeds to invest in capital expenditure, we would most likely be breaking the rules. Our expenditure would go up but revenue would not. The Minister has indicated his intention to use the proceeds to pay down the national debt. There will always be competing objectives in terms of debt if we are selling as part of a gradual and timely unwind of AIB shares to return the company from 99.8% State control back to the private sector.
We are never actively sure when is the best time to do so but over time I think it is the best course of action.
The EU Stability and Growth Pact and the fiscal rules are vital for ensuring fiscal stability and responsibility across the eurozone. While we would like to see the rules changed, we do not believe the sale should be delayed due to those rules.
In an uncertain world, we do not know what the financial markets will be like in the future. Ireland faces a major capital investment deficit in part due to the money that went into all of the various banks, including AIB. Our capital expenditure has been inadequate, as we alluded to yesterday when we discussed the mid-term capital review. Many of us understand that the inadequacy is due to a lack of resources. We have major challenges, including a rapidly growing population, with very significant projections up to 2040, as well as Brexit.
The Fianna Fáil position is clear: provided that the professional assessment is that the conditions are right for the IPO to proceed then it should proceed. We will support the initiative for all of the reasons I have outlined. We believe the Government has lacked the level of ambition we would like to see when it comes to capital funding. We have called on the Government to seek support from the European Commission to see if it can use some or all of the proceeds from the sale of AIB for capital expenditure.
To conclude, we will only know with the benefit of hindsight how good or otherwise this decision has been. The Minister has taken very significant professional advice and we have to rely on that kind of advice. We just hope, for all of our sakes, for the state of the country and for the future of this island that we get the best return for this money. We would prefer if the money was used for capital funding but I appreciate the rules do not allow us to do so at the moment.
I welcome the Minister for Finance to the House. I acknowledge the enormous amount of work that he has done in managing the economic crisis of this country for many years. I am also conscious that this may be one of the last times he appears here as Minister for Finance but maybe I am being presumptuous. I am always conscious about political legacy and the sale of a quarter of the AIB shares may be his final political legacy.
In principle, I welcome the gradual and managed disposal of these shares. I also welcome private involvement in any bank going forward. We must learn from many of the mistakes. The AIB has been effectively nationalised. This is the people's bank. This is the people's money. This debt is on Ireland Inc. and on nobody else. Therefore, we must always be conscious of the damage that was done by AIB and many other banks in terms of small business and family finance. The situation led to all sorts of macro and microfinancial disasters and implications for this country.
What has the Minister proposed? He has proposed that the State sell a quarter of AIB's shares. Analyst predictions published in the Financial Times yesterday, and in other financial reports today and sources within the Department of Finance, and I am open to correction, have predicted that we could net €3 billion from the sale of a quarter of AIB. If that is the case, does that value the bank at €12 billion? Maybe I have been presumptuous to reach that conclusion. I ask the Minister to express his view on the matter. It is important to remember that this Government or the previous Governments and Administrations pumped €21 billion into AIB from 2009 to 2011 and so effectively completely nationalised AIB by December 2010. That is the scale of the financial commitment made by the State - €21 billion was pumped into AIB - yet we are now selling a quarter of it for €3 billion, and we might not even get that sum.
Why has the Minister for Finance made this proposal? The British election is about to take place and there is political uncertainty in this country. Is this the right time for the sale? I presume he got professional advice on the sale and it was his only consideration when he made the decision to bring his proposal to Cabinet for approval.
We represent the public but sometimes we get caught up in this little bubble called Leinster House. What does the public want? If we get all of this money then we must be responsible and the Government must pay down some of its debt. We have a serious and critical infrastructure deficit in this country. We also have a major housing crisis. We also have a major crisis in the health sector. We also have a major crisis in education and, for that matter, in other supports allied to all of those areas. The public has an expectation. We would fail the public if we did not communicate that expectation to the Minister which is, at best, all that we can do. The money should be split or divvied up. We must adopt a commonsense approach and pay down some of our national debt. Some of the money should be siphoned off and invested in capital expenditure, infrastructure, health and education.
I thank the Minister for taking time to come in here, for giving us the information and for listening to us. The public want to know the following. Where is all of this money? They have made sacrifices and suffered greatly. The Government committed €21 billion. One can be excited to get €3 billion but the figure does not represent anything like the money that was pumped into AIB. I acknowledge in principle the importance of getting the bank back into the private sector and trading as a stand-alone entity away from the State.
I welcome my constituency colleague, the Minister for Finance, Deputy Michael Noonan, to the Chamber and commend him on this partial flotation of AIB. Like everyone else, I acknowledge the fantastic work he has done as both Minister for Finance and long-term Minister at the Departments of Health, Energy, Industry, Commerce and Trade, and Justice. I thank him for his dedicated service to Limerick and nationally, and more recently in terms of his period as Minister for Finance. He has guided us through these difficult times and it has been a pleasure to have been a colleague of his for so long.
I shall now deal with today's issue. As much as €21 billion of taxpayers' money went into AIB, which is a phenomenal amount of money particularly when one considers that the annual budget for the Department of Health is €13 billion and that for the Department of Education and Skills is €8 billion. When I talk about taxpayers, I am talking about everyone. I mean people who pay VAT on items that they purchase, unemployed people and every person living here. When Ireland was bankrupt, a decision was taken to keep a banking system alive by pumping in that level of funding. We cannot get away from the basic financial principle that one must repay borrowed money. The national debt is currently €200 billion, which is a frightening sum.
Two elements are missing from this discussion. First, I fundamentally believe that we need a properly functioning banking system. At present the State controls nearly 100% of AIB. We need to nurse AIB back to health. For the first time ever, AIB has paid a dividend. It is also making a profit. It is extremely important that legislation is brought in. Do the banks realise that they have a level of responsibility? I am of the opinion that when reckless trading took place, the banks were of the view that the State would bail them out. They can never have that view again. A European resolution mechanism has been set up to ensure that it is a European-wide responsibility and not just the responsibility of the State. There is obviously an element of judgment as to the timing of the flotation. It is about getting the maximum amount of money. Obviously there is the advice that the Minister has received, which is coupled with the fact that there has been a general strong response since the French elections. We also have uncertainty due to the UK election that will take place and Brexit going ahead.
I wish the Minister well and I hope that good price is obtained for the shares when they are floated on the market in the middle of June. If the proceeds were used for capital investment, they would, under European rules, add to our national debt, whereas not doing so will pare down the debt. It is extremely important that people are aware of that. The sale of 25% of the shares is part of the programme for Government. Opposition parties continually say that Governments do not deliver on what is in their programmes for Government but the Minister, Deputy Noonan, has done so. They cannot have it both ways. It was agreed that we would dispose of 25% and we have disposed of 25%, meaning we will be left with 75% of the company.
In the graveyard years for the Irish economy between 2010 and more recent times, infrastructural investment dipped to a level that was far too low. As a result, we now have to improve our infrastructure and I would expect a couple of things in this regard. The Minister has met Andrew McDowell, the vice president of the European Investment Bank who came before the finance committee recently and discussed with it the possibility of the bank providing funding to allow the State to invest in capital projects. This avenue has to be pursued, but the European Investment Bank will not give money for free or in respect of projects that do not stand up to scrutiny. It will, however, give it at low interest provided the projects are there. As a result, it is extremely important that, during the mid-term capital review, heavy due diligence is done on projects. The Minister and I are based in Limerick and the M20, which links Limerick to Cork, is a huge project for all of us in the mid-west. I hope it finds its way back into the capital plan.
People say that our national debt is at such a level that €3 billion will only make a small dent in it but every euro makes a difference. We have to start somewhere in order to reduce our national debt. There may be scope for flexibility as the economy proceeds to recover and the Minister mentioned a ratio of 45%. At any rate, we must bring the debt down to 55% at least. Once the review of the capital plan is completed, the Government should engage heavily with the European Investment Bank. It is extremely important that we engage with Europe to look at the fiscal rules and the stability and growth pact and how they measure capital investment and stability and growth targets. As we continue to release the State's AIB holding to the market, we need to look at how we can use the proceeds and whether there is scope to use them when our debt falls to more manageable levels. This is the correct time to proceed and I support the measure. The key thing now is to get the highest possible price. After that, we should engage with Europe to find some flexibility regarding capital projects so that we can raise our level of investment above 2% of gross domestic product. It used to be 4.5% so it is too low.
I compliment Deputy Noonan on his work as Minister for Finance and across a range of Departments. As a colleague of his in Limerick and the mid-west, I wish him well.
I will share time with my colleague. I will take seven minutes and Senator Warfield will have one minute.
Is that agreed? Agreed.
I thank the Minister for coming to the House to discuss this very important issue. I also wish him well and I hope he has a happy and healthy retirement. I wish to propose an amendment to the motion.
These are statements; there is no opportunity to table amendments.
We were not told that. I am extremely dissatisfied. A motion was presented by the Labour Party and we presented an amendment to it. This is such a serious issue that the motion should have been taken.
All I know is what is on the Order Paper. We can only make statements and there cannot be a vote on statements. Perhaps it is a matter to raise with the Leader.
This indicates why we are here.
If the Senator states her policy position, I will reply.
I will do so. I also have a series of questions which I would like the Minister to address. Sinn Féin believes AIB should be retained as a State bank. It is profitable and there have been dividends for the past three years. It is a profitable asset for the State and those who profited from the bankruptcy of the State and the austerity forced upon Irish citizens are now queuing up to make even more profits. The fundamental belief of Sinn Féin is that the profits and dividends need to go to Irish citizens.
I have to smile when I hear that we are doing it on the back of advice from Rothschild, and Goldman Sachs before that. Forgive me if I do not have confidence in either of those two organisations. It is well known that they created some of the economic crisis just to profit from it. They are always there to lend a helping hand to weak governments. Senator O'Donnell said we should be aware that if we borrow money it has to be repaid but a lot of money was borrowed by this country and the citizens who never borrowed had to pay for it.
We borrowed on behalf of the taxpayer; we have to repay the debt on behalf of the taxpayer.
We have to repay it because we nationalised the debt of the private banks and those who advised and audited the banks at the time.
Retaining AIB as a State bank would allow us to retain some form of democratic accountability in respect of organisation. I am not talking about political interference in that regard. This democratic accountability has already had a tangible impact on the lives of AIB customers. The pressure applied by the Oireachtas - especially its committees, of one of which, the finance committee, I am a member - has led to significant movements by AIB on key areas of concern for customers such as standard variable rates and the purchase of distressed mortgages by vulture funds.
These are examples of the leverage that can be used to protect citizens but with any sell-off there will be a transfer of accountability from the Oireachtas to faceless and nameless strangers, the investors to which I refer. As is the case with other banks ruled by private investors, they are either unaware of the hardship faced by certain customers or simply do not care. I doubt if any of them are familiar with the details of the cases with which many of us in this House have had to deal. People cannot sleep at night for fear of the banks chasing them for mortgage arrears. Others were denied tracker rates when they were entitled to them and lost thousands of euro and, in many cases, their homes as a result.
The question of bank closures is also linked to this sell-off. When it is no longer profitable to have a branch remain open, a bank that is driven by private investors in search of huge profits will not think twice about shutting down branches and it will not think twice about rural customers and what they might do for a bank. State banks can work and many state banks are successful. Some of the most stable and successful banks in Europe are state banks. The Minister has not addressed this point at all. Of course, Fine Gael is wedded to the privatisation of public assets. It is no wonder the Minister chooses to ignore this option. This is why any decision to sell part of AIB should be subject to a vote of the Oireachtas. I also want the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach to play a greater role in exploring the possibilities for state-owned banks.
I know that the Labour Party motion calls for the sale to go ahead, conditional upon the altering of the fiscal rules to allow for the spending on capital investment. This is an admission by the Labour Party that the fiscal rules are bad for Ireland. The very rules that it campaigned in favour of during the referendum are now bad. I ask the Labour Party to join with us in Sinn Féin and with other progressive forces to have these rules changed. I also take issue with the overly simplistic attempt to portray this as an honourable return of money the Irish people had to pay to bail out the banks. This is wrong on two counts. First, in terms of money it represents a loss. Even the chief executive of AIB this morning-----
Just to let the Senator know----
The Acting Chairman used up my time when I was being heckled by Senator O'Donnell.
I will give the Senator a minute and a half.
That is the first time I have been known to heckle.
Was it Senator McDowell? Well the Senators' policies are very similar.
I will give the Senator a little bit of extra time.
It was a Freudian slip.
We certainly need to hear the answers to these specific questions. Which advisers have been appointed, on what date, and what fee do they stand to receive after the sale? Will the Minister send that detailed information on to us or will he tell us here today? What safeguards are in place to ensure that there is no conflict of interest between the advisers and the potential buyers? Will the Minister confirm that a change to the fiscal rules would require unanimous approval from all member states of the eurozone? Does he feel that they have an appetite to do that? Why does the Minister support the fiscal rules when it is obvious that they are inimical to any investment agenda? Can the Minister confirm that recurring dividends from AIB could be spent on day-to-day expenditure, at least once an annual pattern has been established? As privatisation unfolds, what guarantees will the Minister seek regarding workers, workers' rights and conditions, bank branches remaining open and services being kept available in rural areas? These are all questions that need to be answered at this time. The fundamental point is that this is a State bank. We should be keeping it in State ownership. We should be giving the profit from it to the Irish citizens who bailed out the banks previously.
To reiterate, I believe, and Sinn Féin believes, that the proposed sale of AIB should be abandoned. Selling AIB is the wrong decision. The Oireachtas is nothing without the people. The Oireachtas should vote on this sale because the people will not benefit from it. The people spent €20 billion bailing out this bank. We should think about the limited powers that we have as politicians and the huge powers that our banking sector has. This is a chance for the Irish people to have a say in how our banking sector is run. Again, I reiterate that this sale should be considered by this House and should be voted on by these Houses.
I thank the Senator. I acknowledge and welcome Lance Northcutt and his associates and students from the Chicago-Kent College of Law's international trial advocacy programme. They are very welcome to Ireland and to Leinster House. I hope they enjoy their stay.
I welcome the Minister to the House. It is probably his last visit to the Seanad as Minister for Finance, because he has indicated that he is not seeking reappointment. I note that he has said he is not standing for re-election, so I wish him the very best in his retirement and I acknowledge the lengthy public service he has given.
As a Government bankbencher in the previous Dáil, I have crossed swords with the Minister before. I have always been quite upfront and honest when I think something is wrong and I have said it at every turn. I acknowledge that this is part of the programme for Government. In fact, what we are saying is that this is not the time to sell. The Minister does not have to sell in June, it can be reassessed in the autumn. There are very good reasons it is not the time. The conversation is changing across Europe in respect of what is happening with the fiscal rules and putting additional money into infrastructure. That conversation has been continued by my own party leader, Deputy Brendan Howlin, who has been travelling to Europe almost fortnightly to talk to our sister parties with a view to bringing forward progressive proposals on important investment in infrastructure - the infrastructure that has been referred to in this House including our hospitals, our schools and the M20. We need a balance to the Dublin region and connecting Limerick and Cork makes perfect sense. That is why we have asked to put a pause on this. That is why the Dáil voted democratically in favour of the Labour Party motion which said we should not sell AIB now.
I actually wonder at the contribution from Fianna Fáil Members today. They have so many positions on so many issues, it almost changes by the hour. One would sometimes wonder how many splinters can work their way into a political party's bottom from sitting on a fence. At this stage I do not think Fianna Fáil knows which side of the fence it is on. It constantly worries about where Sinn Féin stands so it can move in a different way. It then worries about where Fine Gael stands so it can move in yet another direction. I was quite surprised at the contribution by Fianna Fáil this evening because it clearly voted in the Dáil to say that this was not the time. Its representatives' public contributions since then have contradicted that position constantly. Therefore, I am not too sure.
In fairness to Senator O'Donnell, if I closed my eyes and put a wig and lipstick on him I would have seen Maggie Thatcher making his contributions today. It is the same thing - we must pay everybody back and so on.
I thought the Senator was having a go at me. It seems Senator O'Donnell is the real target.
Senator Horkan is clearly enjoying all the jokes, but Senator Humphreys has the floor.
Unfortunately, the joke is on the citizens of Ireland. A sum of €20.9 billion was put into AIB to recapitalise it. That is clearly where the joke is at the moment. I certainly do not support the sale of 25% of the shares. Questions need to be asked and identified. I would like to see the fees being paid to Rothschild and the other advisers in respect of the sale of this 25% being clearly explained. I would like to know whether senior management in AIB will benefit from the sales. The citizen is entitled to that information and to know what reasoning is behind it.
If I remember correctly, Senator O'Donnell is an accountant. I have worked with him on the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach. He was always fairly logical and so was the Minister. I wonder why we are rushing to sell now. The Minister was quite right to point out that AIB paid a dividend of €250 million for the first time. That is what makes it attractive and that is why the Minister has said we should sell now. What exactly is the dividend of €250 million worth to the Irish citizen? When it comes back into the Exchequer, 25% of the dividends of those shares is worth €62.5 million to the citizens, which can actually be invested in their future and the future of the children of this State. What is the interest on €1 billion? It is approximately €30 million. We are now saying that the State will lose out financially on the sale of the shares because the cost of servicing €3 billion of the Irish debt is approximately 1% or €30 million, while the return on 25% of the shares this year is roughly €62.5 million. Therefore, we are now losing money with the sale. We will not be allowed to invest that €3 billion into infrastructure that would have given a further return. I am sorry, it just does not stand up at this stage.
We all know the position on debt. We know the target figures. To lower the target from 60% to 55% as Senator Kieran O'Donnell suggested, does not make sense at this stage. We have a major infrastructural deficit because of the period of austerity when we were fixing the economy from the time Fianna Fáil held office.
We have to rebuild our social stock, whether that is housing, hospitals, schools or roads. I am disappointed that the Order of Business was changed. I thought we were going to come in at 5 p.m. this evening and debate the Labour Party motion. Obviously, so did Sinn Féin, as they wished to amend it. I do not know where the Fianna Fáil Party stands because this is the third speech I have heard from Fianna Fáil, and all three have been different.
It was my first.
Do the Fianna Fáil Members talk to each other at all?
The Fianna Fáil Members should compare their speeches to that of the party spokesperson on finance, Deputy Michael McGrath.
I ask the Senator to conclude.
I wish the Minister for Finance, Deputy Noonan the very best in retirement. The Labour Party and I believe that this is the wrong time to sell AIB shares. I ask the Minister to review that decision and that there be a democratic vote in the Dáil saying that the Minister should not sell the shares and I believe we would have had a similar vote in this House if we had been allowed to put the question to the House. Obviously we are not going to be. I do not think the Irish citizens will benefit from the decision taken this week.
I thank Senator Humphreys. I wish to acknowledge Councillor Teresa McGuire from Westport who is in the Gallery. I welcome her to the House.
I invite the Minister to respond.
I thank the Senators for their contributions. I like coming to the Seanad because the debates are always interesting. I thank the Senators who paid compliments to me on my impending retirement. I might come back and haunt the Seanad in the future.
I hope the Minister does.
A Senator
He could be back as Minister for Health
The Senator would not wish that on him, surely.
I might be in the Taoiseach's 11. I would like to deal with a number of the points raised. First, on the question of timing, it has always been the policy of the Government since we first put capital into the banks that in due course the banks would be restored to private ownership. That was the common policy position, shared with the Labour Party in the previous Government.
Second, it is included in the programme for Government and the programme for Government was debated in the Dáil and I assume it was debated in the Seanad as well. It is there in black and white that we were committed to selling about 25% of AIB shares when the timing was right. The advice I am getting is that the timing is now right. There has been a big boost in shares across the world in the past four months or so. Small banks in particular have gone to much higher values than they were. Today the Nasdaq reached its all time historic high. The stock exchange in London is also very near the top. The advice is that this is a good time and we hope that the month of June remains reasonably stable so that the benign atmosphere is not affected in any way. I will follow the advice. Of course, it is not beyond the point of no return. It will not get priced until the second half of June. The pricing process will be a range of prices. If the range of prices is falling well below expectations, whoever is Minister at that time, still has the capacity and the legal authority to pull it back from the market. It is not a case of selling under all conditions. It will be measured as it goes along, but in all likelihood there will be a successful sale of 25% of AIB and that is my expectation and that is my advice.
I will now deal with the issue of ownership. Sinn Féin Senators were arguing totally in contradiction to the policy position the Sinn Féin Party has taken up on the banks in the past eight years. There was a common analysis that the reasons the banks went down was that the banks and the sovereign were inextricably linked. When the banks went bust, it pulled the sovereigns, the national Exchequers down as well. It is a common analysis. The reason it is a common analysis is because it is absolutely true.
There is a difference between that and cronyism.
The Minister without interruption.
Let me finish the point.
Do not misrepresent Sinn Féin.
I am not misrepresenting the Senator's party. I will give the Senator the codes from Deputy Pearse Doherty and several of the party spokespersons. I agree with what Senator Conway-Walsh was saying, it is just that she is saying something different now. The policy right across this House and the other House was that we must break the link between the sovereigns and the bank, because if we do not break the link between the sovereign and the bank, every time a bank gets into trouble, it is the taxpayer who is the last line of defence. If one wants to break the link between the sovereign and the banks, one must put the banks back in private ownership. This is the policy in banking union across Europe now. If one looks at what has happened, the banking union and the bank resolution Bill that came through the Oireachtas, the bank resolution Bill that was generated in Europe, it is stand alone now and the banks' investors are liable in future if banks go under - starting with the shareholders, then the senior bondholders, then the junior bondholders and down along the line to corporate depositors. There is a cascade of responsibility and the assets are bailed in to rescue the bank; the taxpayer is not going in because the break is taking place now. In line with that policy which applies all across the banking union in Europe, we need to break the link between the sovereign and the banks as well. Fundamental to breaking the link is progressively to restore the banks to private ownership so that the private investors carry the risk, not the Irish taxpayer. All the political parties from every platform have said that we must never let it happen again. We must never have the taxpayer bailing out the banks again. Well, we will not, if we change the ownership, but we will, if we do not change the ownership because if there was to be a crisis in one of our banks that is publicly owned at present, the taxpayer would be the last line of defence. If one wants to separate the contingent liability, that is the fundamental reason the ownership issue is a very important issue. We also want to get the taxpayer's money back
The Senator raised a very good question about value. Some €6.8 billion has been recovered from AIB already in terms of contingent convertibles, CoCos, preference shares and fees and all sorts of things, which is a good lump of money. A value of €12 billion was given but I am not endorsing that. I know that many analysts have put that kind of value on it. If one adds €6.8 billion to €12 billion, one reach €18.8 billion, which is very nearly €19 billion. The figure of €19 billion is not so far off the €20.6 billion that was put into the bank. We are coming close a situation where one can see the full investment of the Irish taxpayer being returned. I do not think the next Minister will be coming back in 12 months time to sell another 25% of the bank, but I think over a period of eight years, by strategically putting shares on the market, it is possible not only to recover what the taxpayer has put in but to show a significant profit. If the economy keeps going, the bank gets more valuable and so on. That is the issue of value.
In respect of the capital, it is a financial transaction. It is an exchange of shares paper with cash. It does not, under the fiscal rules, give the Exchequer any capacity to spend more. If we were to spend the €3 billion which notionally is coming from AIB, it would be added on to the debt, because it is treated under the fiscal rules as a financial transaction. Now, that is not to say that we should not invest in infrastructure. Of course, we should and we should invest more in both economic and social infrastructure in this country. Coming out of a recession, that would be good macro-economic management. We are doing it at this stage and we are doing it quite significantly but we do not need the money from AIB to do so. We have a strategic fund and there are several billion in it. There must be €5 billion to €6 billion still in it looking for opportunities to invest. Yesterday, the interest rate on Irish ten-year bonds was 0.79%, that is four fifths of 1%. We can get money on the market of four fifths of 1%. There is no shortage of cash. There is plenty of cash.
What we have is a legal arrangement under the fiscal rules which does not allow spending above certain levels. This was brought in for all sorts of good reasons. It was often left out of the debate in Ireland that overspending was as much a cause of the crash as were the banks. The accumulated deficits over the years have taken the debt up to €200 billion, which is a serious amount of debt. When we measure the debt, as it is done internationally in terms of debt-to-GDP ratios, it appears as though we have it under control. It is currently approximately 74%, which is well below the European average. In 2015, some of the multinational companies onshored their intellectual properties such that in one year GDP increased by 26%. This is in accordance with the EUROSTAT rules and it was reckoned in Irish GDP but it did not reflect real economic activity in this country. Leaving that year out of it, our debt is nearer to 100% than to 74%, which is well outside the European average.
Moving away from the criteria of debt to GDP to per capita debt, per capita debt in Ireland is second only to that of Japan, at €42,000 for every man, woman and child in the country. It is a serious risk. In what might be my last day in the Seanad, I want to underline the fact there are a number of external risks, including Brexit and President Trump's policies in the US, but our most significant internal risk is the debt. It is high by any standards. Taking a different criteria and measuring this by historic standards, before the crisis, in 2007, the debt was approximately €25 billion of GDP. It has increased now to €200 billion, which is eight times what it was in 2007. Regardless of the criteria used, it is very high and it is a risk to us. If there were another recession across Europe and other bad problems across the world such that we hit bad times again, because our debt is very high, we would have very little scope.
On capital spend, the Government is as committed as anyone else but we have to spend in accordance with the fiscal rules. The capital plan, Building on Recovery, provides a €42 billion framework to address our capital priorities up to 2021. The sum of €42 billion is a huge amount of money. As well as this, the Minister for Public Expenditure and Reform has said that Exchequer capital expenditure is projected to increase by almost 75% between 2016 and 2021. That is a significant increase in capital spending. The Minister for Public Expenditure and Reform will set out the details in that regard in the autumn in the context of the budget. There is also off-balance sheet funding. Public private partnerships on schools, health centres, main roads and so on are off-balance sheet and are not caught by the fiscal rules. There is more scope in that area. Senators may have heard or read in the media about our engagement the week before last with the European Investment Bank, which was focused on exploring how we could expand further the off-balance sheet funding.
I agree with Senators that there is a necessity for more capital expenditure but I disagree that there is any connection between that and the sale of the State's 25% shareholding in Allied Irish Banks. There is money available. The issue is the legality of spending in accordance with the fiscal rules. We have raised many times in Europe the point that because we are coming out of recession, we need more scope, and there have been a significant number of rule changes already. For example, there is now a smoothing arrangement for capital expenditure such that 25% rather than 100% of a country's capital commitment is now taken out of the fiscal space in year one, which means, for example, that a four-year capital investment is smoothed over a line. This provides a great deal of scope. When the fiscal rules were first introduced, a member state had to evaluate the fiscal space over three years. This is done annually now, which gives us more space as well. There are a number of exceptions relating to spending beyond the fiscal rules, such as in a crisis, be that an earthquake, volcanic eruption or flood. Italy has done this very significantly.
There were a number of questions posed, which, if I do not respond to them today, will be responded to directly for Senators in due course. On fees, the bank rather than the Exchequer will pay the fees. There is an arrangement in place in this regard. We are not paying the advisers out of Exchequer taxpayers' money. AIB will meet that cost. There is no commitment to any shares for senior bank management or to any enhancement on bonuses, salaries and so on. There is no provision being made in that regard. The bank has a good management that is working very hard, but we all know what the context is so there is nothing like that in this particular IPO. The Senator asked who are the advisers. Rothschild & Co. are the advisers to me as Minister for Finance and to my successor. There are other advisers to help with the IPO. J&E Davy, Deutsche Bank and Bank of America are the principal advisers. There are many other institutions and banks, known as "book runners", who engage in face time with investors in order that they will buy the shares. If the Senator, or Deputy Pearse Doherty on his behalf, would like to table a parliamentary question on the matter, all the information will be provided. There is nothing secret about this process and I have no problem providing any information in this regard. I hope the process will be successful. By way of clarification, the timing has nothing to do with my impending retirement. There is a theory that I am announcing this before I retire. There is a commitment in this regard in A Programme for a Partnership Government. Throughout the year, I have been telling my colleagues in the Dáil in answer to parliamentary questions that the first investment window is from mid May to the end of June or the first week in July. If we miss that, because of the way the market goes in the summer time, the next window is mid-October into November, after the budget. It looks as if now is the right time. Values have increased and the advice is to avail of this window to sell.
I thank Senators for their questions and contributions.
I thank the Minister.
Does the change to the fiscal rules require the unanimous approval of member states?
What normally happens is there are informal discussions with the Commission, and the Commission, when it believes there is agreement, brings forward the proposal.
So it does require unanimous approval.
Yes, but there would be no difficulty getting that, if it is beneficial.
Cronyism and corruption is very different from sovereignty and the separation of the banks-----
The Senator has made her point.
I do not think, Senator Conway-Walsh, that that is a valid point.
Where is the cronyism and corruption in the sale of AIB?
What happened in the banking collapse in the first instance.
The Senator is throwing out words.
I am not.
Where is the cronyism and corruption?
I refer the Minister to what happened last week.
I can allow the Minister to speak for as long as he wishes but I cannot allow conversation in the Seanad. Perhaps the conversation could be taken outside. I join in the tributes paid to the Minister, Deputy Noonan, and I acknowledge his tireless work on behalf of Ireland at home and abroad in terms of regaining our financial sovereignty and reputation abroad. I hope there will not be an election too soon such that he will not be retiring too soon, but I also hope that when he does retire it will be a very happy and pleasant retirement. The Minister has been a good friend of mine and has given me great advice down through the years. I will miss him when he retires.
I do not know when an election will be called, but any prudent Senator or Deputy would need to have their wick trimmed and oil in their lamps.