Almost €6bn wiped off State’s bank holdings in past year

AIB, Bank of Ireland and PTSB’s shares have plunged 50%-54% since 2018

Minister for  Finance Paschal Donohoe: analysts hold out little prospect he will sell  off further bank shares in the foreseeable future. Photograph: Conor Healy

Minister for Finance Paschal Donohoe: analysts hold out little prospect he will sell off further bank shares in the foreseeable future. Photograph: Conor Healy

 

The Government has seen almost €6 billion wiped off the value of its stakes in the three surviving bailed-out banks in the past year, leaving a notional shortfall in its aim to recoup their rescue costs during the financial crisis.

AIB, Bank of Ireland and Permanent TSB (PTSB) have seen their shares slump by between 50 and 54 per cent over the past 12 months, with the sell-off accelerating in recent weeks as investors fret about the impact of lower-for-longer central bank rates on their income, the growing prospect of a non-deal Brexit, and slower-than-expected mortgage lending growth.

The Department of Public Enterprise and Reform said in a spending policy report published on Thursday that the Government “does not wish to hold its bank investments long term and, subject to market conditions, is committed to exit the investments in a manner that generates value for the taxpayer”.

Worst performers

However, with all three banks now trading at a deep discount to the value that they put on their own assets – leaving them among the worst performers in a beaten-down European banking sector – analysts hold out little prospect of the Minister for Finance Paschal Donohoe selling off further bank shares for the foreseeable future.

A decade after the State pumped €29 billion into the lenders, only €19 billion has been recovered through the collection of guarantee fees, interest and principal repayments on bailout bonds, and the sale of bank shares.

The remaining stakes in the banks are currently valued at a combined €5.38 billion – leaving a €4.62 billion paper shortfall in the State’s aim of clawing back the nominal amount pumped into the system during the crisis.

AIB, which is 71 per cent State-owned, is currently trading at less than half of its so-called book value and 46 per cent below its initial public offering price just over two years ago.

European sector

Bank of Ireland, in which taxpayers hold a 14 per cent stake, is changing hands at a 70 per cent discount, even after staging a small rally on Friday. Meanwhile, 75 per cent government-owned PTSB is trading 78 per cent below both its book value and IPO price in 2015.

The wider European banking sector is trading at a 35 per cent discount, having been heavily sold off in recent months, as rising recession signals grow across some of the world’s largest economies, and as market interest rates tumbled amid rising expectations the European Central Bank will unveil a massive stimulus package next month.

Banks’ lending margins are compressed in a low interest-rate environment.

Top executives at Irish banks accompanied first-half results in recent weeks by highlighting that credit growth remains subdued as small businesses hold off investing amid Brexit uncertainty and as central bank mortgage caps weigh on the home loans market.

Reuters estimates that the wider euro zone banking sector is now worth less than half a trillion dollars – about half the size of Microsoft.

At their 2007 peak, banks across the single currency region were worth $1.7 trillion, well above the value of their US peers. Today, they are just one-third the size of banks on the other side of the Atlantic.