Sale of AIB a significant milestone on State’s road to recovery

Business Week: Brexit talks begin, top 1000 companies, and repossessions increase

 

It’s almost a decade since the onset of the financial crash, and this week the State gave the world another sign it has jumped out of the hospital bed and onto the treadmill.

AIB, nationalised just before Christmas in 2010, returned to the main Irish and London stock markets, marking a “significant milestone” in the State’s recovery, Minister for Finance Paschal Donohoe said.

The sale of the initial 25 per cent stake raised about €3 billion as the deal was priced at €4.40 per share, the middle of a range that was outlined early last week. However, the cash is likely to go towards paying down the national debt due to EU fiscal rules.

It is nonetheless a boon for Fine Gael to be in office as the State takes another step towards recouping the €20.8 billion it poured into the bank during the darkest days of the crisis.

While many will have been relieved to see AIB take its first tentative steps back towards normality, the IPO has caused the odd headache elsewhere. Some investors have been selling down holdings in Bank of Ireland in recent weeks to generate funds to invest. Shares in the bank fell by as much as 10 per cent since AIB’s IPO was announced.

Separately, both AIB and Permanent TSB indicated that progress is being made on doling out compensation to mortgage customers who were overcharged.

AIB told the Oireachtas finance committee that by the end of March it had identified about 3,100 such customers, up from a previous figure of about 3,000. All affected customers have been contacted and about 2,600 of them have been compensated. The rest will be taken care of by the end of June.

For its part, Permanent TSB has “fully redressed” 92 per cent of 1,372 customers it identified in July 2015.

Brexit

For the State though, it might be a case of out of the frying pan and into the fire as talks formally began this week on the terms of Britain’s exit from the European Union.

The Economic and Social Research Institute (ESRI) delivered yet another stark warning that things could really go south for the Republic in the event the UK leaves without a favourable deal.

It projected we will have about €600 million less for spending and for tax cuts over a three-year period in the event of a hard Brexit. It’s very early days, but at least the talks got off “on the right foot”, according to Michel Barnier the EU chief negotiator.

The two sides agreed on the structure of the negotiations, dates and the priorities. Citizens’ rights, the UK’s financial settlement, and a “dialogue” on Ireland and the Border issues will all form part of the talks.

In the meantime, the race to win business from London continues. There was more bad news for Dublin as Japan’s Daiwa said it would set up a subsidiary in Frankfurt, making it one of the first big international brokerages to publicly choose Germany.

The Toyko-based firm had shortlisted Dublin among candidate cities to host European operations. Nomura, Japan’s biggest brokerage, also picked Frankfurt, while several other banks were said to be poised to make a similar move.

Michael D’Arcy, the new Minister of State with special responsibility for financial services, is now the point man for all this. He said he would be meeting Central Bank governor Philip Lane and IDA Ireland chief executive Martin Shanahan to get a handle on things.

He also said this week that he expects the uncertain result in the UK general election and consequent unstable government to delay decision-making in London’s company boardrooms.

“The expectation is that sometime around mid to late September or early October, companies will determine whether they will exit the UK, provide sub offices here, or establish corporate entities here directly themselves,” he said.

IDA Ireland head of international financial services Kieran Donoghue reckons we will see progress a little sooner – possibly from next month. He said he was “confident” the Republic will secure a number of wins.

Many firms, he said, have privately selected Ireland, but have to notify their home regulators and other parties before making public announcements. He did say the organisation had received about 100 inquiries since the vote a year ago.

For one, Lloyd’s of London insurer Chaucer secured approval from the Central Bank to set up a Dublin subsidiary. Another, JPMorgan, said it was seeking additional office space in Dublin.

It already agreed last month to pay about €125 million for a building under construction that could accommodate more than 1,000 workers, or twice the level of its current staff in Ireland. The US’s largest bank said it may lease or acquire about another 100,000sq ft, capable of accommodating about 720 people.

Of course, it’s not just the financial sector facing turmoil and uncertainty. Ireland’s energy landscape could be irrevocably altered if Britain were to exit the EU’s energy market as a result of Brexit, something the ESRI warned might happen.

Housing crisis

Another damning legacy of the financial crash is the ongoing housing crisis, and there were few words of solace from High Court master Edmund Honohan for policymakers this week.

Appearing before the Oireachtas finance committee, he warned of a fivefold increase in the number of repossessions as banks increasingly sell off distressed mortgages to vulture funds in the coming years.

As if to add insult to injury, the taxpayer will have to foot the bill, spending millions as county registrars are presented with court orders to carry out evictions.

“Evicting one occupier costs money,” he said. “The wholesale eviction of many thousands over the next four or five years is going to cost millions, and it is the taxpayer who will foot the bill.”

Indeed, KBC Bank Ireland’s chief executive said this week the bank may sell some impaired mortgages as it comes to the end of restructuring its loans and as banks face mounting regulatory pressure to draw a line under the issue.

Then there’s the problem many people are facing in terms of actually finding a home. Property developer Michael O’Flynn told The Irish Times he would support a tax on developers who are hoarding development land until house prices increase further.

However, he said such a levy would be difficult to police and should not be used to punish developers who are unable to build on their land because of issues surrounding planning, zoning or a lack of infrastructure.

O’Flynn also added his voice to the chorus of calls for a reduction in VAT from 13.5 per cent to 9 per cent. “I will drop the price of my houses and apartments if the cost of VAT is reduced,” he promised.

While house prices and rents continue to grow, driving many prospective buyers and renters out of the market, the ESRI, which had a busy week, insisted there is no housing bubble.

Top 1000

Finally, the annual Irish Times Top 1000 list of companies was published this week. It showed the State’s largest companies moved firmly into the black in 2016, as profits rose to €34 billion, up from €28 billion in 2016 and €22.4 billion in 2015.

The big winner was Medtronic, the Dublin headquartered medtech company, which was named the most profitable firm, raking in a massive €4.1 billion, and putting it comfortably ahead of the Central Bank in second place on €2.3 billion.

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