Noonan’s recovery roadshow goes on but stress tests are a potential speed bump

There was positive news on the double for the Government yesterday with the successful sale of the State's preference shares in Bank of Ireland and the National Asset Management Agency's announcement that it had completed the first €7.5 billion redemption of bonds, as per schedule.

Two and a half years after taking office, the tide appears to be turning for the Government in terms of the financial sector. The hated bank guarantee is gone; IBRC has been liquidated; Bank of Ireland has bought back its cocos (convertible contingent capital) and preference shares; Irish Life has been sold; the National Treasury Management Agency is back selling sovereign bonds; and Ireland will shortly be free from the IMF-EU bailout.

That’s a lot of boxes ticked for Minister for Finance Michael Noonan as he continues his global roadshow – he’s in London today – to persuade overseas investors that Ireland is firmly back in business.

The bank stress tests next year are a potential speed bump. The official line is that there is no reason to believe that AIB, Bank of Ireland or Permanent TSB will need additional capital, but
the results of the balance sheet assessments carried out recently by the Central Bank generated more questions than they answered.

AIB and Permanent TSB are still some way off profitability and being in a position to generate a return to the State on their bailout funds.

Nama has done a good job of maximising the return from assets and loans held overseas, but it has a big job ahead in shifting the multibillion-euro portfolio it holds in Ireland by the 2020 deadline set for its wind down.

For Bank of Ireland, the transaction illustrates the strong appetite that exists for its paper. Orders of €7.5 billion are believed to have been generated for the €1.3 billion sale of preference shares.

Buying the preference shares will save Bank of Ireland €55 million a year in dividend payments. More importantly, it is another step along the road to removing State involvement from the bank’s affairs.

Bank of Ireland received €4.8 billion in bailout funds from the State and was keen for everyone to know yesterday that it has given back €5.9 billion to date.

This includes dividend payments and fees paid for the bank guarantee, which provided an invaluable lifeline to the bank from September 2008 onwards.

It now just remains for the bank's chief executive, Richie Boucher, to devise a way to buy out the State's 14 per cent shareholding.