Deal on debt to generate less than €15bn

Ireland is likely to get little more than €15bn for the banks it has pumped €28bn of taxpayers’ money into as part of a deal the Government hopes to agree later this year with the EU’s bailout fund.

Another €31bn for the defunct Anglo Irish Bank will most likely remain on the State’s books but the crippling annual repayments of €3.1bn are likely to be spread over a longer time.

Finance Minister Michael Noonan said he did not want to predict how much of the €64bn spent on the banks he would be able to offload onto the EU’s new rescue fund, the ESM.

“I don’t want to predict it, but we will be ambitious in our ask,” he said after eurozone finance ministers agreed that the ESM could take over the bank debt.

It is expected the fund will in effect buy out the State’s share in the banks, which is close to 100% of Allied Irish Bank and Permanent TSB, and a 15% stake in Bank of Ireland, putting almost all the country’s banks into foreign ownership.

Economist Seamus Coffey of UCC said the ESM will not replace the amount of money the State put in to save the banks, but will base their payment on what they are currently worth.

The National Pension Reserve Fund, used to effectively buy the shares in Allied Irish Bank and Bank of Ireland, estimates the State’s share is now worth €9.4bn. It is not publicly known what Permanent TSB is worth as it is owned by the Department of Finance, which does not have to publish figures.

At the height of the boom in 2006/07 Allied Irish Bank was valued at €24bn and Bank of Ireland at €18.8bn. By 2011 their shares and those of Permanent TSB had lost 99% of their value and last year they were reduced to junk status by the credit rating agencies.

The State is expected to use whatever money it gets to reduce the national debt that is heading towards €186bn next year. If it receives around €15bn, it would cut the debt from 120% of GDP to about 110%, Mr Coffey said.

Mr Noonan said the aim is to make the debt more sustainable. “That is what the markets look at — their test of allowing you back at low interest rates is the sustainability of your position, but it is too early to put an absolute target figure on it.

“I’m sure, like in all negotiations, we won’t get everything we ask for, but we would hope to make significant progress,” he said.

The Government’s negotiations will also focus on the €31bn Anglo promissory notes and €17bn of interest due on them. The Government is hoping that the money will be replaced with longer-term funding at a lower rate of interest.

Brussels-based economist Daniel Gros said that if the State held onto the banks they would most likely increase in value and become profitable again, repaying the State the money put into them.

But the problem, said Mr Coffee, is that the State cannot afford the level of repayments — due to increase to €7.5bn just to service the debt next year. While it is true that the ESM could make a profit from selling off the banks, they would also be liable for any losses.