Cantillon

Inside the world of business

Tough sell to get ESM to take bank stake on future values

THE WHOLE concept of current market value versus future value will be thrown around quite a bit over the coming months as the Government attempts to share some of the banking debt burden with the euro zone bailout fund.

It has been reported that the Government will lobby the permanent bailout fund, European Stability Mechanism, to take direct stakes in the Irish banks based on future rather than current values.

This will be a tough sell given that the fund is hardly going to want to see its funds used for speculative investment and is unlikely to want to take on further risk.

Take Bank of Ireland as an example. The State’s injection stands at €4.2 billion in the bank. The bank had a market value of €2.8 billion giving the Government’s 15 per cent shareholding in the bank a worth of €420 million.

So why would the ESM want to pay €4.2 billion to take 15 per cent of something that is worth a 10th of that? And this is for Bank of Ireland, which offers the best investment prospect of any of the banks given that it didn’t do the crazy property lending to the same degree as other “pillar bank”, AIB.

It is hard to see how the ESM would be willing to give the State €20.7 billion for its 99 per cent stake in AIB or even €4 billion for a 99 per cent stake in Permanent TSB, given that these lenders are worth nothing near these sums.

It is also worth noting that Bank of Ireland has also paid a fair proportion of its bailout back to the State. It has paid the State fees of €1 billion for the bank guarantee, €400 million in coupons on the Government’s preference shares in the bank and €300 million in fees through various recapitalisations from 2009 to 2011.

If Bank of Ireland can return to full viability and profitability, the State might be better off holding this investment rather selling it to the ESM and concentrating its efforts on getting the bailout fund to acquire some interest in both AIB and Permanent TSB. However there is little hope of the fund taking the near €29 billion bill it has spent on all three banks.

Tasc backs worker-directors and calls for 25% on public boards

ARE WORKER-directors good for business? Yes, was the unequivocal answer given by a focus group of chief executives, other company directors and corporate governance types to a study conducted by think-tank Tasc and commissioned by the National Worker Director Group.