Don’t believe the Government spin, we will never get our bank bailout money back

Pearse Doherty, the Sinn Féin finance spokesman, was in London a few weeks ago talking to City fund managers and other UK-based investors with an interest in Ireland. The event was organised by Davy and reflects the reality that Doherty’s party could lead the next government. The purpose – from a Davy perspective – was presumably to reassure their clients that Sinn Féin in power won’t tip over the apple cart as far as the economy goes. He seems to have done a reasonable job, if a record of the meeting doing the rounds is anything to go by. No doubt the investors may have disagreed with much of what Doherty said but he is right about one thing; the State should not be in any hurry to divest from AIB.

Sinn Féin’s position may be informed more by a desire to capitalise on the public’s atavistic contempt for bankers fomented by the banking collapse but that does not mean it is wrong. The narrative around the sell-down of the State’s stake in AIB is essentially one of getting back the money pumped into the banks by the taxpayer. This was how the Minister for Finance, Michael McGrath, chose to frame the announcement earlier this month by the bank that it was buying back some of the shares held by the Government. He said that when the €1 billion or so the Government got for these shares was combined with the latest €273 million annual dividend, due this week, “the total amount returned to the State from our investment in AIB will reach [approximately] €14.9 billion”.

[ Ireland should have told ECB to ‘bugger off’ during bailout talks, Varoufakis says ]

There is a lot to quibble with here. Not least the head-wrecking mathematics of share buybacks when the biggest shareholder is also the seller; to a certain extent was the Government simply robbing Peter to pay Paul?

It is well past time for the Government to stop treating the bank bailout as some sort of accounting exercise in which we somehow break even

But the real point is that the Government didn’t invest in AIB; it was forced to bail out AIB and the rest of the system. The country was bankrupted in the process and had to be rescued by the International Monetary Fund, the EU and the European Central Bank.

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The simple fact is that we will never get our money back and the true cost of the bailout far exceeds the money put into the banks.

The total amount sunk into AIB, Bank of Ireland and Permanent TSB was €29.5 billion, of which AIB gobbled up €20.8 billion. The Government has recouped €14.9 billion from AIB including the recent transaction. Its remaining stake of just under 33 per cent might be worth €5 billion on a good day. The Government got €6.7 billion back from selling its entire Bank of Ireland stake having put in €4.7 billion and about €2.8 billion of the €4 billion put into Permanent TSB of which it owns just under 60 per cent. The total cost of the bank bailout was €64 billion, of which the bulk was incinerated in Anglo Irish Bank. It was all borrowed money and the cost of servicing this debt runs at about €700 million a year more than a decade later.

[ Fifteen years after bailout, taxpayers now €800m under water on surviving Irish banks ]

But the real cost of the bailout and ensuing national bankruptcy simply can’t be quantified in monetary terms. How do you put a cost on the lives blighted by the years of austerity that followed? And we are still paying for it in terms of the damage done to public services and, above all, an utterly dysfunctional housing market.

It is well past time for the Government to stop treating the bank bailout as some sort of accounting exercise in which we somehow break even.

We are still paying for the bank bailout in terms of the damage done to public services and an utterly dysfunctional housing market

Once you get past this mental block, the question of whether to hold on to the stake in AIB is either an ideological one – as is the case with Sinn Féin – or an investment one. The ideological case is weak. A minority shareholding does not give you that much control. It allows you block a takeover but most other actions requiring shareholder approval only need a simple majority. A Sinn Féin-led government’s ability to leverage a minority stake in AIB would be limited. In any case, AIB and the other banks are regulated independently by the Central Bank and, by extension, the ECB.

[ State cuts its stake in AIB to 32.6% following €1bn buyback ]

The investment case is more interesting. The State currently does not need the money it would raise from selling out of AIB so the rationale has to be that the money could be put to better use. In all likelihood, the money from the sale of the remaining stake would end up in one of the State’s rainy-day funds, probably the Irish Strategic Investment Fund which has about €4 billion invested in the markets. What this boils down to is whether the return on the State’s stake in a bank that enjoys a duopoly in a banking market skewed very much in its favour exceeds the return on the Irish Strategic Investment Fund.

The ISIF returned 1.7 per cent in the first six months of 2023 – the most recently published figures. AIB shares are up almost 26 per cent in the last 12 months.