Finance Minister Brian Lenihan today insisted a 15% shareholding taken by the state in Bank of Ireland today makes perfect sense.
The 184 million shares will go into the national pension fund after the European Union stalled plans for a €250m cash dividend.
Mr Lenihan said the stock deal was part of the Government’s €3.5bn recapitalisation plan if the banks could not pay.
“We have had the Bank of Ireland as an institution of this country for more than two centuries,” the minister said.
“Banking has gone through a very difficult period. It will revive, and whatever the value and the increased value the taxpayer has in the bank will benefit pensioners in the future in Ireland.
“In terms of the sense of this arrangement, it makes perfect sense that the state should get a return of this kind.”
The state now holds a 15.7% stake in Bank of Ireland – 184 million shares. This is on top of the 25% voting rights it took following recapitalisation last February.
The bank’s share price dipped by more than 10% in early morning trades but settled at about €1.17.
The transfer, which requires Bank of Ireland to issue new ordinary shares and therefore affects other shareholding values, is the result of a European Commission ban on the bank making certain interest payments. The state had been due a €250m cash dividend for recapitalisation.
But Mr Lenihan said the shareholding should be seen as an investment for the state.
“It’s not an issue of realising the shares next week or cash needed for expenditure next month,” the minister told RTÉ Radio.
“It is a pension fund that is not being realised for several decades and the pensioners of the country will have the benefit of this in their pension fund.”
The European Union is expected to make its decision on Ireland’s bank restructuring plan in the coming weeks.
Mr Lenihan also said a dividend was due from Allied Irish Banks in May on the back of recapitalisation and he insisted the Government would have a far clearer picture by then of how the banks were progressing.
The first tranche of loans transferred to the bad-bank Nama should be fully valued and the size of discounts should be known by then.
Joan Burton, Labour Party finance spokeswoman, said the Government’s bank strategy was running aground and dismissed the minister’s claim that shares were as good as cash.
“As they say, a bird in the hand is worth two in the bush,” she said.
“The Government is hiding behind the delay in EU approval of the banks’ restructuring plans.
“It is clear, however, that the delay in EU approval arises because, despite the minister’s rhetoric, the Irish banks are in an extremely weakened state.”
Fine Gael finance spokesman Richard Bruton accused Mr Lenihan of making up banking policy, claiming huge numbers of businesses are being starved of credit.
“This is not a credible basis for economic recovery,” Mr Bruton said.
“Ireland needs a thriving small and medium enterprise sector to drag itself out of recession and back into sustainable growth.
“Every lost business is a lost opportunity, and throws yet more people on to the dole queues. But the banks are still hoarding capital and trying to protect their own independence.”
Fine Gael again called for the Government to consider its proposal for a National Recovery Bank.
Governor of the Central Bank Professor Patrick Honohan played down the importance of the share deal, describing it as an untidy part of the bank restructuring process.
“I use the word untidy because it’s not very important,” Prof Honohan said.
“If something is untidy it can be tidied up. This is a relatively small transaction which could have been deferred and put as part of the overall recapitalisation of the banks and restructuring of their balance sheets.”
Joe McHugh, Fine Gael TD, called for rogue bankers directly responsible for the financial crisis to be jailed.
“Those people who were formerly loan assessors became sales representatives. This country witnessed astonishing collusion at the highest level between bankers, regulators, property developers and government,” Mr McHugh said.
“Today, the thousands of ordinary people who foresaw the collapse are burdened with a massive public debt that will take generations to clear.
“These ordinary people want those responsible for the collapse to be put behind bars.”