Government may ‘test market’ before election for AIB valuation

EU will have to move to non-bank American funding model

 

The State does not have a long-term interest in holding State banks and “we will restore the banks to the private sector in due course”, Minister for Finance Michael Noonan has told the Dáil.

He said “the message isn’t so much that we’re going to sell the banks, the message is that the policy is we won’t continue with State banks in the medium term. We’ll get private investors in.”

Mr Noonan also believed the EU would have to move towards an American model of non-bank sources of investment funding. And he said of AIB that “the Government might look to test the market before the next election in order to establish a valuation for the bank”.

The Minister was responding to Independent TD Shane Ross during Dáil finance question time. Mr Ross suggested it was very dangerous to be putting the “two pillar banks out to sale to global and international predators at a time when we’re encouraging by our policy, a cartel”.

He added: “There are very few players in this market – and the danger of selling it to outside bodies is that there could be an international cartel rather than a local cartel.”

Mr Noonan told him they would test the market, but he believed banks in Ireland and across the EU “won’t be able to supply the liquidity that the economy needs across Europe and we’ll have to move towards an American model where there are non-bank sources of funding for investment and for growing the economy.

Speaking of the two pillar banks he said Bank of Ireland was the more advanced of the two. The State currently has a 14 per cent equity holding in the bank and the market value at 33c a share is €1.5 billion. “Any decision to sell this stake will be a question of price.”

He was also encouraged with AIB’s progress. He said the first priority was to see the bank return to profitability and address its legacy issues. “In time this should enable the State to be in a position to exit part of its investment in the bank, should we wish to do so.”

Mr Ross asked would the bank sale be subject to recapitalisation “or is it going to happen regardless”. The Minister said he did not believe Irish banks required extra capital, “but we would like to recover some of the capital that we had already invested in the recapitalisation of March/April 2011 and there are a number of things we’re pursuing in parallel and the movements don’t contradict each other”.

He suggested one model for getting the 2011 capital money back from EU sources “would be for a European institution to take some of the bank shares and to give us money in lieu”.

“Whether it’s a sale to the private sector or some kind of retroactive recapitalisation, the value of the shares is very, very important. It’s quite clear that enhancing the values of shares is quite important,” Mr Noonan said.