Ireland's National Treasury Management Agency has been left with huge losses plus a €5.3bn hole in the pension reserve, reports Emmet Oliver
The value of the Irish state's investments in First Trust parent Allied Irish Banks (AIB) and Bank of Ireland has plunged by €10.1bn (£8.7bn), the National Treasury Management Agency (NTMA) has revealed - with AIB the main cause of the decline.
The NTMA has been forced to mark the shares in AIB and Bank of Ireland strictly to market prices, leaving it nursing huge losses, said John Corrigan, the agency's chief executive.
However, he added that a recovery in values could not be ruled out in future years.
Using mark-to-market accounting, ordinary shares and preference shares in the two banks have tumbled in value, with AIB, in particular, causing an €8.8bn (£7.6bn) drop.
Investments in Bank of Ireland have also slid by €1.3bn (£1.1bn)
Mr Corrigan said the NTMA was being "very conservative" in relation to the value of its AIB investment.
Shares were trading last week at about four cent. He said the NTMA was valuing them at one cent.
"The situation is quite volatile,'' he said, remarking that volumes of trading in AIB and Bank of Ireland shares were "very thin".
The NTMA holds investments in its 'non-discretionary portfolio', which is separate from its normal portfolio of bonds, property and private-equity holdings.
The original state investment in the two banks was €20.9bn (£18bn), NTMA staff explained to the Oireachtas Public Accounts Committee last week.
"It is a very fluid situation,'' Mr Corrigan said, denying that the value lost would become permanent.
"To suggest the money is written off forever is not necessarily the case,'' he said.
While the Bank of Ireland and AIB investments could recoup value in the long term, the money invested in Anglo Irish Bank was "gone" said Mr Corrigan.
All the State could do now, he explained, was try to negotiate on the €30bn (£26bn) of promissory notes to Anglo.
Attempts are being made to finance these via Europe and the European Financial Stability Facility, said Mr Corrigan.
He explained that the notes were paying an 8% interest rate, but cutting this back would leave Anglo Irish with a capital hole that would have to be filled.
"We are looking at it,'' he said.
Mr Corrigan also revealed that the NTMA was leading the push to impose losses on subordinated bond holders, which were reducing the cost of the bank bailout bill from €24bn (£20.7bn) to around €16.5bn (£14.2bn).
Talking about the NTMA unit involved in these burden sharing exercises, Mr Corrigan said: "The banks wouldn't have been as aggressive as us.''
The NTMA also revealed that there was only €5.3bn (£4.6bn) left in the National Pensions Reserve Fund.
The chairman of the fund, Paul Carty, admitted that this amount was nowhere near enough to meet future pension liabilities of the public sector.
"I'm guessing now, but covering 30% to 50% is the best we can do,'' said Mr Carty.
He explained that raids on the pension fund to pay for the banks and the IMF/EU programme meant that pension liabilities would have to be met by the markets.
"We're then relying on the markets to generate the return,'' he told committee members.