Belfast Telegraph

Profit possible on bailed-out banks

The Government has said it could turn a profit on the record funds pumped into three surviving bailed-out banks.

While it has ruled out selling all its 99% stake in Allied Irish Banks this year, Finance Minister Michael Noonan said money could be made on the bank rescue over the next 10 years if economic and trading conditions continue to improve.

Goldman Sachs has been appointed to advise the Government on the best way to maximise returns.

Ireland pumped almost 21 billion euro into AIB as part of one of the world's most expensive bank bailouts following the financial and economic meltdown.

Another 8 billion euro was poured in to rescue Bank of Ireland and Permanent TSB, with 5 billion euro already recovered from the sale of Irish Life and Bank of Ireland stock to North American investors.

The Government declined to state when a sale of AIB stock could take place but said the groundwork will begin this year.

"Given the significant progress made by AIB in 2014 and the expectations for 2015 my officials are engaged in discussions with the bank's management team to explore how best to reconfigure the bank's capital structure to make it fit for purpose and agree a roadmap that will see the bank begin to return cash to the State," Mr Noonan said.

"While no decisions have been taken regarding a reduction of the State's ownership in the bank at this time, the delivery of a work programme around capital structure during 2015 is an essential prerequisite for any future decisions in that regard.

"Given the significant size of our AIB investments and the range of options available to us to recoup value, my officials and their financial adviser are focused on ensuring that the optimum decisions are made regarding potential capital restructuring options and sequencing in order to maximise the ultimate return from these investments to the State over time."

Any sale of AIB stock or the investments in Bank of Ireland and Permanent TSB will likely be used to pay down Ireland's massive debt burden but will do nothing to alleviate the mammoth financial crisis caused by the nationalisation of Anglo Irish Bank and Irish Nationwide, a crippling bill of 34.7 billion euro.

Goldman Sachs was appointed to advise the Government following a mini-tender process in December.

The Department of Finance said it makes "good sense" to have Goldman Sachs advise on the optimum capital structure to ensure that the bank is appropriately funded to maximise value for the taxpayer.

The initiative comes after the European Union's Single Supervisory Mechanism began overseeing AIB in November and the bank reported improved financial performance last year.

In an opinion article for the Irish Times, Mr Noonan revealed the Goldman Sachs appointment and said "maximising the banks' value and ultimately the return of cash to the taxpayer is a key priority in 2015".

The minister claimed at the least the Government will recover its investments in AIB, Bank of Ireland and Permanent TSB, and with improving economic conditions across Europe and internationally there is the prospect a profit could be turned on the bailout.

The State has stakes worth about 15 billion euro in the banking sector in Ireland including equity and preference shares in AIB worth 11.7 billion euro and a 14% stake in Bank of Ireland valued at 1.4 billion euro.

It also has a holding of 1.6 billion euro of contingent convertible capital notes (CoCos) - bonds which can be switched to shares - in AIB and 400 million euro of these in Permanent TSB.

The Government will also look at how to deal with the large number of AIB shares in circulation before any stock market sale is finalised.

Your Comments

COMMENT RULES: Comments that are judged to be defamatory, abusive or in bad taste are not acceptable and contributors who consistently fall below certain criteria will be permanently blacklisted. The moderator will not enter into debate with individual contributors and the moderator’s decision is final. It is Belfast Telegraph policy to close comments on court cases, tribunals and active legal investigations. We may also close comments on articles which are being targeted for abuse. Problems with commenting? customercare@belfasttelegraph.co.uk

Popular

From Belfast Telegraph