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State Banking Sector

Dáil Éireann Debate, Thursday - 29 September 2016

Thursday, 29 September 2016

Ceisteanna (10, 32)

Michael McGrath

Ceist:

10. Deputy Michael McGrath asked the Minister for Finance his plans in relation to the possible sale of a stake in a bank (details supplied); the estimate of the amount which would be received for a sale of a 20% stake in the bank; the use the proceeds would be put to; and if he will make a statement on the matter. [27549/16]

Amharc ar fhreagra

Eamon Ryan

Ceist:

32. Deputy Eamon Ryan asked the Minister for Finance the intended timeline for the sale of State ownership in a bank (details supplied); and the timetable and approach behind the reduction in the Government's shareholding in the company. [27529/16]

Amharc ar fhreagra

Freagraí ó Béal (6 píosaí cainte)

This question relates to AIB and the position of the State in terms of the possibility of it selling its stake in the bank. The Minister made some comments on Bloomberg TV in London recently, but I ask him to advise the House of his current thinking on the possibility of selling a stake. Has that course of action now been ruled out for 2016 and is it an open possibility for 2017?

I propose to take Questions Nos. 10 and 32 together.

The State has a shareholding of 99.9% in AIB. This shareholding is a valuable asset to the State and it is the Government's intention that the State will exit this and our other banking investments in a measured and careful manner. As I have indicated on a number of occasions, my primary objective in the disposal of those assets will be recovering the maximum amount of money for the Irish taxpayer.

I have indicated in the past that an IPO is likely to be the optimal route to recouping value from our investment in AIB. At the beginning of this year officials in my Department appointed an independent financial adviser, following a tender process, to assist with analysis and exit planning and much of the initial preparation has now been completed. The reorganisation of the bank's capital at the end of 2015 which allowed for the return of €1.7 billion to the Exchequer, the consolidation of the bank's ordinary shares and the maturing of the contingent convertible or so-called CoCo instrument in July of this year, has left AIB with a simplified market-facing balance sheet. The bank's CEO also indicated recently that much of the internal preparation that would be required in advance of launching an IPO process has now been completed. In addition, I also welcome the bank's continued strong performance, demonstrating sustainable profitability and strong capital generation over a number of consecutive reporting periods. I also note the recent comments made by the bank's chairman indicating that AIB may be approaching the time when the board will be in a position to consider the payment of a prudent dividend, in consultation with the regulator, which would contribute to the bank's strong investment case.

Nonetheless, given the complex nature of an IPO process, the need to access certain IPO "windows" and the recent volatility seen in stock markets, I now deem it more likely that a market event involving AIB would occur in 2017, rather than 2016. Given the strong state of the national accounts, progress made in reducing our national debt and positive market sentiment towards Ireland, there are no structural factors that would require the State to recoup the value of its banking assets in a constrained time period. The State is in a good position to consider the divestment of some of its shares in AIB, through an IPO, if and when we deem market conditions to be amenable.

It would not be possible or prudent for me to estimate the amount which might be received from any future sale of shares in AIB. As the Deputy may be aware, the shares in AIB that are currently freely held amount to only a tiny proportion of the bank's total shares. It is therefore an illiquid share with a distorted valuation, and so cannot be considered a valid indicator of how the market would value AIB in an IPO. I note that we have seen substantial reductions in the value of banking shares in the course of 2016, including those banks that could be considered AIB's peers. The weakness and volatility we have seen in banking equities this year reflect market concerns around Brexit, and a prolonged period of low and negative interest rates, as well as uncertainty around the strength of global economic growth. Clearly, in order for us to proceed with an IPO, we would need to be satisfied that the market is prepared to put a fair and reasonable value on the business, bearing in mind its current performance and future prospects and the outlook for the Irish economy. Officials in my Department monitor market conditions and the performance of banking equities on an ongoing basis. When I deem conditions conducive to recovering value for the Irish taxpayer, I will notify AIB and move to ready a market event.

As I have previously indicated, all capital returned from the State's investments in the Irish banks will be used to reduce the national debt. That is the prudent course of action as it reduces our ongoing borrowing costs and ensures the future strength and stability of the economy.

I think the right approach is being taken to make the preparations for a possible sale of a stake in the bank, but there is no rush. The market conditions must be right to maximise the return for the State. We will still retain a majority shareholding in AIB for the foreseeable future, but the bottom line is that we want to get back as much of the €20 billion that was pumped into the bank, and as quickly as possible, but we also want a bank that meets the needs of the economy in terms of lending to SMEs, personal customers and others. I welcome the reduction in interest rates, for example, that AIB introduced for variable rate mortgage holders. In his supplementary response could the Minister widen the issue to include his attitude to the Bank of Ireland in which we still hold 14%? I do not believe we should sell that stake now or for the foreseeable future. Could the Minister also outline his plans for Permanent TSB, PTSB?

I think the Deputy understands the position on AIB. He put it succinctly in his original question. I do not intend to go for an IPO in 2016, but I am leaving the option open for 2017. There are not other considerations now, apart from the best price available. The decision will depend on market conditions and the assessment of whether we will get a good return for the taxpayer in 2017.

We have approximately 14% of Bank of Ireland. Again, we are under no pressure to sell. The stake will be sold in due course but there are no plans to go to market at present. Bank shares took a bit of a hit right across the world and especially in Europe since early summer so it is not a conducive market to selling the stake in Bank of Ireland either at present.

PTSB raised money on the markets and approximately 75% of PTSB is now owned by the State and 25% is owned by private investment. The shares are quoted but the value has gone down since the investment took place. PTSB has been doing quite well. It has almost completed its deleveraging and I expect values to increase there as well. Nothing immediate is planned. The same rule will apply to all three investments: when the time comes and the best possible return can be got for the Irish taxpayer then one or the other will be put on the market.

I will repeat our position as a party. We are open minded to the sale of a stake in AIB when the conditions are right. The programme for Government commits that the Government will not sell more than a 25% stake in any institution up to the end of 2018.

We hold a 14% stake in Bank of Ireland and for now that should remain the position. That bank needs to make more progress in terms of treating customers fairly, especially mortgage customers. That is a drum we will keep banging.

Permanent TSB is a bank that is in recovery phase. It has made good progress but it does have major challenges in terms of the very large tracker mortgage book it has. The management there is doing a good job and it is important for the economy that there is as much competition as possible in the Irish banking sector. Competition is very limited and we would like to see new entrants. I hope the Department and the agencies are seeking to bring new entrants into the Irish market. It may not be the most attractive market in the world at this time, especially when banks are downsizing and deleveraging internationally but I hope the Minister's eyes are open to any opportunities that would emerge to bring new entrants into the Irish market to increase competition.

I met recently with the parent bank of Ulster Bank. I met the new chief executive of Ulster Bank as well. There is some competition there. They have assured me Ulster Bank will remain in the Irish market. Ulster Bank is quite significant in the northern half of the country but also in Dublin. Between AIB, Bank of Ireland, Permanent TSB and Ulster Bank, there is quite a good presence. I hope that when banking union is completed, there will be opportunities for branches or subsidiaries of strong European banks to trade in Ireland. If the economy keeps growing by between 3% and 4%, there should be investment, but I have no indication of any take-up on that yet.

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