14% government stake in Bank of Ireland should be sold before end-2017 – Hayes
Proceeds of sale should go to new Rainy Day Fund
Brian Hayes MEP today said that there is strong rationale for the government selling its stake in Bank of Ireland before the end of 2017.
“While the focus has all been on the government sell off of AIB, there is also a clear opportunity for the government to sell its 14% stake in Bank of Ireland before the end of this year. This would be the perfect source of income to kick-start our rainy day fund which is expected to be set up in 2019.
“The government’s 14% stake is worth over €1 billion based on the current share price. Given that we expect to put €1 billion into our rainy day fund every year this is the ideal way to start the process and build up our savings to protect against the risks of Brexit and other potential economic shocks. We also are facing a massive pension liability into the future as people are living longer and demographics are changing.
“The problem facing the government is that the commitment in the programme for government only allows for a 25% sell-off in any bank until the end of 2018. This needs to be reconsidered – the government needs to have the flexibility to be able to go to the markets if there is opportunity to get value-for-money for the taxpayer on the government shareholding in the banks.
“At the moment there is good value for a stock market flotation. Bank of Ireland’s share price has recovered from the shock of the Brexit referendum and with Eurozone growth looking steady, we now have an opportunity to get a good return for Irish taxpayers. On top of that, given that Bank of Ireland is the most exposed bank to the UK market it may be prudent to offload the stock before the oncoming uncertainty of Brexit.
“Bank of Ireland has recorded annual profits of over €1 billion for both 2015 and 2016. It has reduced its non-performing loans by €4.1 billion or 34% since December 2015. Its tier 1 capital has increased rapidly in recent months to over 12% and the bank is expected to pay dividends later this year or early 2018.
“It would be a positive message for the government and for the Irish economy if we can soon state that one of our pillar banks has been fully returned to the private sector and is free of government influence. This would be a significant milestone after the scale of our banking collapse.
“It is not in Ireland’s long-term interest to have large state holdings in the banking sector. It doesn’t help competition in the sector. It discourages new entrants from coming into the banking market, offering new products and competing with the pillar banks for business. If ever we need new entrants, it is now.
“Minister Donohoe has many issues to consider in coming to a conclusion on the disposal of its shareholding in both AIB and Bank of Ireland. Timing the sale of the bank shares requires good judgement and a measure of luck. But we should not wait around too long for the perfect opportunity as it may never come.”