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Banks Recapitalisation

Dáil Éireann Debate, Wednesday - 18 May 2016

Wednesday, 18 May 2016

Ceisteanna (6)

Pearse Doherty

Ceist:

6. Deputy Pearse Doherty asked the Minister for Finance if he will indicate the source and detail of the recommendation that the Government no longer seek the direct recapitalisation of banks (details supplied) through the European Stability Mechanism, ESM, fund; and when he will make this information available to the public, given his confirmation of this course of action. [10543/16]

Amharc ar fhreagra

Freagraí ó Béal (8 píosaí cainte) (Ceist ar Finance)

I thank the Deputy for his question. As I have stated previously, I see no benefit in making an application for retrospective use of the ESM's direct recapitalisation instrument, DRI. During the period between June 2012, when the agreement was reached regarding retrospective recapitalisation, and December 2014, when the DRI tool became operational, the Irish economy recovered significantly and the options available to the State to recover its money invested in the banks expanded. This remains the case, with investors now willing to support Irish banks, the institutions having begun to repay capital to the State and the market value of our investments having improved accordingly.

The terms and conditions attaching to the use of the DRI are onerous, as it is designed to be used almost as a last resort after the creditor waterfall has been applied and other options have been exhausted. Moreover, the mechanics behind a potential retrospective application of the instrument, if such a decision could be agreed, would likely be equally if not more onerous and would not be in the best interests of the State at this time.

As the Deputy will be aware, the operational framework of the DRI includes stringent conditionality and any application would need to be unanimous among the other 18 ESM governors. Achieving such an outcome for a deal that valued our investments at a level significantly above what we might achieve in the market is unlikely, particularly given the strength of our economic recovery since 2012 and the other concessions won by Ireland in recent years.

The disposal of our bank assets is a process that will likely take place over a number of years and the best avenue to do this is through the financial markets. I have said before that my interest is in recovering the maximum amount of money for the Irish taxpayer from these assets over time but current market conditions are not conducive to achieving this objective. Fortunately, given that our public finances are once again on the right path, we are not under pressure to dispose of these assets in the short term.

On 6 April, the Minister stated in the House in response to me that while he did not believe that pursuing the matter was in our best interests "at this time", ultimately, "it will be an assessment as to which route - ESM or the markets - represents the best value which will determine these decisions." The Minister went to Brussels, spoke to the media and said that this was off the agenda for AIB and Bank of Ireland. He has just repeated that. While he stated "I have said before", he left out the crucial words "at this time". He is now saying that it is no longer on the agenda. Many of us suspected that it was never on the agenda or had not been on the Minister's agenda for a long time. He was trying to take the Irish people with him knowing full well that he was not going to make an application.

This is too serious an issue to be left at that. We are discussing a large amount of money that we pumped into AIB and Bank of Ireland. The Minister went to extreme lengths to get Angela Merkel out to tell the Irish people how special we were. He talked about the game changer that was getting the words "retrospective recapitalisation" written into the articles.

What reports, evaluations and types of consideration have gone into making the decision that we will no longer apply for retrospective recapitalisation? The Minister claims that achieving it or getting it at above what the market could offer might be difficult but what work has he done to find out what his counterparts on the ESM board would consider offering were we to apply for retrospective recapitalisation? This is a significant amount of money for the State and the matter should be considered thoroughly. What considerations, reports and evaluations have been made and what work has the Minister done with his counterparts to arrive at his assessment?

It was clear when the possibility was raised in the first instance and subsequently that any retroactive recapitalisation of the banks would require an exchange of shares in Irish banks for any money given through the ESM. One need not do much study to know that the potential for acquiring a great deal of capital through the sale of bank shares on the markets is now a more valuable option than going through a reluctant ESM, which requires unanimity among governors - in other words, finance Ministers - across the eurozone.

As to the evaluation, I spoke formally with the people involved in the ESM and asked about the potential. They pointed out that an application could be made but that it would require unanimous assent. Given my soundings over the year, I do not believe that we would have got virtually any support. Circumstances have changed dramatically and we are now the fastest growing economy of the 28 in the EU. We are certainly the fastest growing in the eurozone and are projected by the Commission to be the fastest growing again next year. We have the better option of going to the market when the time is right to recover the money that the taxpayer invested in the banks.

Within the Department, in particular given the preparations for an IPO of AIB, much evaluation work has been done. That advice is available to me.

When the Government scrambled back from Brussels and went on our national airwaves to tell people about the game changer and the seismic shift, I appeared on the same radio station a little later. I said that the Government was holding the ball in its hands and was facing an open goal and that all it needed to do was put the ball in the back of the net but it has screwed that up royally. While we always knew that there was a need for unanimity and that the shares would be transferred, what was not known and is still not known is the value that would be attributed to the shares by the ESM. As we exited the recession and the economy picked up, it was always going to be more difficult to achieve that. For a long time, an application for an ESM recapitalisation of all of the banks - nothing in the Minister's statement claims that it must just be for the pillar banks - could have been made.

The House has major debates about selling shares in our airlines that are valued at a fraction of the assets that we hold in AIB and yet a Minister is deciding without any scrutiny that an option that is available to the State as we speak - it may not be achievable, but it is available - is off the table. The assets are worth in the region of €40 billion. This is not an acceptable way to do politics. The matter should be referred to a committee so that all of the options might be discussed-----

I thank the Deputy.

-----instead of the Minister going to Brussels with the notion that this should be off the agenda. If we want new politics, let us discuss the issue instead of relying on the likes of Rothschild and Goldman Sachs, some of whose advice to the Minister on what we should do with the banks is given pro bono and some of whose advice is not. Let parliamentarians decide with all of the information. The Minister has continued to make the wrong decision for a number of years. It is the Irish people that he has crucified with this debt. We should have been released from it a number of years ago but he has screwed up the situation.

I thank the Deputy but will he allow the Minister to respond, please? The Minister to conclude.

There are some matters that are for the competence of an individual Minister, such as the Minister for Finance, and there are other matters that are for the competence of the Government.

It is the job of the Parliament to hold Governments accountable, but the Parliament usually does not exercise executive functions along the lines the Deputy has suggested and I have not seen anything in the new reform programme for this Dáil that indicates that the Parliament is going to exercise an executive function. The Deputy is wrong in his analysis of what happened. We kept the matter under review and the banks are now functioning well. They are almost back to normality. They are quite profitable and valuable, but I have no intention of selling the shares until I am convinced we will get best value for the taxpayer. However, there is value in the banks and it is a question of when and how we will realise it. What I have indicated so far as a matter of policy is that the first step will be an IPO of 25% of AIB, but market conditions are not right. If we were to do it in the last quarter of this year, we would need to take steps now that the market might see as irrevocable. Therefore, it will be the first half of next year before an opportunity arises.

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