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State loses €4bn as Brexit chaos batters bank shares

A plunge in shares has wiped €4bn off the value of the State’s stake in bailed-out banks this year.

The massive drop in value raises a serious question mark over the Government’s policy of holding on to the bank stakes for so long.

Shares in AIB, Bank of Ireland and Permanent TSB have been battered, with the markets rattled by Brexit and fears of a full scale US-China trade war.

The plunge means the prospect of recovering the costs of rescuing those banks is becoming more difficult.

Owen Callan, who analyses the banking sector for Investec, said the banks’ shares “were a long way” from high points seen a year ago.

“It’s going to be quite a long time, I would think, before we’re likely to revisit the highs,” he said.

The value of the State’s 71pc shareholding in AIB is down €3.61bn this year.

The 14pc stake in Bank of Ireland has lost around €300m and the 75pc stake in Permanent TSB has lost €200m.

The timing of a sale is up to the Government, which has always said it would use the proceeds from a share sale to pay down Ireland’s large national debt, rather than on areas like health or housing.

A Department of Finance spokesman said officials “continue to monitor market developments on an ongoing basis”.

Finance Minister Paschal Donohoe has previously said that for a sale to go ahead, he would “need to be satisfied” that the State would get a fair price for its shares.

“I believe that over the medium term we will recoup all of the money that we invested in these banks during the financial crisis,” Mr Donohoe said earlier this year.

Figures compiled for the Irish Independent in October said the State was down almost €42bn on its attempts to save the banks. Those figures were compiled by adding together the costs of all bank bailouts, and subtracting any money that had been returned to the State.

Though the State will not see a return of the cash pumped into Anglo Irish Bank and Irish Nationwide, it hopes to recoup and even make a profit on the money invested to save AIB, Bank of Ireland and Permanent TSB.

Value

As of yesterday evening, the State’s holding in those three banks was valued at a cumulative total of €8.32bn.

However, on the last day of trading on the Irish Stock Exchange in 2017, the total across all three banks was €12.4bn.

A provision in the Programme for Government said the sale of more than 25pc of a bank by the end of this year was not allowed.

A Department of Finance spokesman said no decision had yet been made on whether a similar provision might be included in any new agreement.

Mr Callan, of Investec, said that the main drag on the banks’ shares had been European and global issues, rather than events in Ireland.

But he said domestic Irish issues are negatively affecting banks too, with the housing crisis hampering their ability to grow revenues by lending more mortgages.

“We are seeing a bit of a slowdown in the growth in the mortgage market… it’s simply just that the houses aren’t being completed and aren’t coming to the market at a fast enough pace,” he said.

He added that the Central Bank limits on the amount mortgage hunters can borrow are also having an impact on banks’ growth.

In addition, expectations that Irish economic growth will be slower next year may hamper the banks too.

Much of investor sentiment is driven by events in the US, the world’s largest economy. It is currently battling with China over trade.

US President Donald Trump has repeatedly railed against China’s trade surplus with the US.

That means China sells more goods to the US than it buys from it.

Mr Trump wants China to buy more US goods to help boost the American economy.

Article Source: http://tinyurl.com/kbwqb42

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