Michael McGrath
Question:4. Deputy Michael McGrath asked the Minister for Finance his plans for the future of Allied Irish Banks; and if he will make a statement on the matter. [37400/14]
View answerThursday, 2 October 2014
Questions (4)
Oral answers (6 contributions)
The question relates to the future of AIB. I am aware the Department is appointing a panel of financial advisers to advise on the possible disposal of the State’s interests in the banking sector. The purpose of the question is to establish the Minister’s intentions in respect of AIB. I have some views on the matter which I will outline.
As the Deputy will be aware, the taxpayer has made a very substantial investment in AIB and it is critical that we carefully examine all possibilities open to us to ensure this investment is protected and enhanced with a view to ultimately generating a return for the State.
The return to profitability by AIB in the first half of 2014 is good news from the perspective of the Irish taxpayer as it enhances the value of the bank for the taxpayer, which will over time allow the State to maximise the return on its investment. The latest valuation of the AIB shares was carried out by the National Pensions Reserve Fund Commission, NPRFC, at the end of 2013, and this valued the State's ordinary and preference shareholding at €10 billion. Including the contingent capital, CoCo, this brings the value of the State's shareholding to €11.6 billion. Since the previous valuation of the State's holding, bank stocks in many eurozone countries have performed well. AIB has posted a profit in mid-2014 and I would therefore be confident that the value of AIB has also increased.
With respect to the State's holdings in the banks, Government policy remains unchanged and we do not wish to hold these investments in the banks over the long term. Subject to market conditions, therefore, we are willing to exit in a manner that maximises value for the taxpayer.
In the past 18 months the State has exited successfully from some debt investments with the sale of the BOI CoCo and preference shares in addition to the sale of Irish Life. Holding our equity investments longer enables the State to benefit from the economic recovery and fortunately given the significant cash resources we hold, we are not under pressure to exit these remaining investments.
The bank engages regularly on a range of issues including the financial performance of the bank, strategic objectives and its capital structure with officials from the shareholding management unit in my Department who are charged with this responsibility.
In recent months, the Department of Finance has been engaged in a process to appoint panels of financial advisers to assist in the receipt of timely advice relating to the future disposal of the State's banking sector investments, and other ad hoc assignments that may arise from time to time.
Additional information not given on the floor of the House
The Department has had the need for advice in the past and will continue to have a requirement in the future and the appointment of these panels is prudent planning to ensure the State is in a position to receive necessary advice in a timely and cost efficient manner. While I have said previously in respect of AIB that we may wish to test the market next year, the creation of these panels should not be seen as a signal that a transaction is imminent or indeed will happen at all.
There are three panels for the provision of the following services: panel 1 - capital markets, strategic, M&A and restructuring advice; panel 2 - general financial advice; and panel 3 - capital markets distribution services. The process, which is in line with the open procedure of EU procurement legislation, is well advanced and the Department expects to be in a position to publish the list of successful tenderers to each panel shortly.
I am not averse to the State divesting itself of at least some of its shareholding in AIB at the appropriate time, but there should be no question of selling any of our shareholding in AIB, pending the outcome of the negotiation of a bank debt deal. Selling equity share capital in AIB now would be a complicating factor in that arrangement and we are supposed to be preparing an application for a deal on retroactive bank recapitalisation as soon as next month. It is, therefore, absolutely premature to speak about selling part of our shareholding in AIB until there is full clarity on the outcome of the bank debt deal negotiations. AIB is in recovery, but it still has a distance to travel. I am, therefore, concerned about divesting our interest in AIB at a time when competition in the banking sector is in such short supply. I called on the Minister before to bring forward a White Paper on the banking sector and the fundamental point is that any decision to sell part of our shareholding in AIB cannot be made in isolation from the overall strategy in the banking sector. That sector has not recovered fully by any means and it is premature for the State to divest some of its shareholding in AIB at this time.
I have no plans to divest any portion of AIB in 2014 and no decisions have been made on divesting subsequent to that year. The major events that will occur in banking in Ireland will take place at the end of October, when the result of the stress test emerges. We will want a full account of the stress test before we begin to form policy on the future of AIB and our residual shares in Bank of Ireland and PTSB.
I accept that the Minister must, of course, accept the outcome of the stress tests before making any decision. Does he, equally, accept that we need to know where we stand on a bank debt deal before making any decision on the future of AIB. Selling a stake in AIB now to private investors would be, at a minimum, a complicating factor in any negotiation on a deal on bank debt. We are supposed to prepare an application for a retroactive deal to be submitted as early as next month. The issue must be dealt with and concluded one way or the other before any decision is made on AIB. There is a distinct lack of competition in the banking sector. Any decision to sell part of the ownership of AIB must be made in the context of the banking sector's current state. We need more competition and I would like the Minister, his officials and agencies on behalf of the State to actively seek to attracvt more competition to the banking sector which is badly needed. We need direction and a strategy for the future. The banking sector is coming off its knees and beginning to recover, but customers, including personal borrowers and those from small and medium enterprises, are still being gouged and paying significantly higher interest rates than in other eurozone countries. This is simply not acceptable. The banking sector has not been repaired and it is premature in 2014 or 2015 to sell a share in AIB. Does the Minister accept that we need finality on the question of a bank debt deal before making any decision on divesting some of the shares in AIB?
Things are evolving pretty quickly. With regard to the business plan for recovery in AIB, it is well ahead of the targets set, as it did not expect to be in profit in 2014. It is significantly in profit, with the figure in excess of €400 million. The two banks are strengthening well. The economy is growing at pace and there are effectively only two significant banks in business; therefore, there is a major business opportunity and they will move very rapidly to strengthen. I do not disagree with a number of the points made by the Deputy and all of these considerations will be taken into account before we make any policy decision on the disposal of AIB.