Irish bank shares rise on State's Bank of Ireland sale plan

Move marks the first loosening of State ownership in the banks since AIB’s partial share float in 2017

Thu, 24 Jun, 2021 - 21:28

Geoff Percival

Irish banking shares rose solidly in the wake of the Government making its first move in the gradual process of selling the State’s stakes in the country’s main lenders.

Shares in Bank of Ireland and Permanent TSB rose by over 3% a day after Finance Minister Paschal Donohoe announced the Government’s plan for a phased exit from its near 14% stake in Bank of Ireland.

AIB shares closed up by just under 1% having given away earlier gains.

While there are no immediate plans to sell down the State’s 71% stake in AIB and its 75% holding in Permanent TSB, the Bank of Ireland move marks the first loosening of State ownership in the banks since AIB’s partial share float in 2017.

Banking system normalised

“We believe the stake sale must be seen as an important step in the normalisation of the domestic banking system,” said Goodbody analyst Eamonn Hughes.

“This raises the obvious question that the journey must start at some stage now on AIB and PTSB,” Mr Hughes said, adding that the pending partial sale of the Bank of Ireland shareholding could also “change the narrative”, over time, on banking executive pay caps and a removal of the existing tax on bonuses.

“This should make the sector better-placed to attract talent and deliver better longer-term outturns,” he said.

“We note the minister’s comments that the stake sale and the pay caps and bonus policies for the sector are separate, but we wonder what happens and how that sits after it fully disposes of all of its Bank of Ireland shares,” he said.

Also noting Bank of Ireland’s initial share price drop following yesterday’s announcement, Mr Hughes said: “The feedback we were getting from investors was negative in terms of the potential supply of stock, but we think the wider strategic signalling of the exit from the stake is very positive for the medium and longer-term development of the sector.”

Constructive talks

Permanent TSB was boosted by chief executive Eamonn Crowley telling the Oireachtas finance committee that talks with Natwest over the purchase of parts of Ulster Bank’s retail and SME lending business in the Republic are “constructive” despite a memorandum of understanding not being arrived at as yet.

Mr Crowley said any deal would also not solely be paid for out of State funds.

AIB also announced an equal ownership life insurance, pensions, and savings joint-venture with Canada Life, which could get off the ground later this year depending on regulatory approval.

AIB is investing €90m into the venture in a bid to broaden its revenue streams.

UK inflation

Meanwhile, the Bank of England pushed back against speculation that a surge in UK inflation means it is preparing to boost interest rates, saying the country’s economy still needs support to recover from the pandemic.

Britain’s central bank warned against “premature tightening,” toughening its language on the need to maintain stimulus.

The remarks contrasted with a sharp increase in the bank’s outlook for inflation, which officials now see peaking at 3%, a half point higher than their forecast just six weeks ago.