THOUGH little more than a closing footnote in a long career — he joined the Dáil in 1981— Finance Minister Michael Noonan will take some satisfaction in the fact that, on his last day as a minister, his warnings that AIB shares were overvalued have been vindicated.
At one stage yesterday the shares fell by more than 28% as punters considered the price range the State proposes to sell stock at in the coming weeks. Shares spiked last month at €9.20 but Mr Noonan has said the State will sell up to 28.8% of the bank at between €3.90 and €4.90 a share. Not exactly Eircom but hardly Facebook either.
The price will define how much of the €64bn — €20.8bn for AIB — we coughed up to rescue banks in 2008 might be recovered. Optimistic estimates suggest half of that, confirming that the banks are always on the winning side of these transactions. The price will be decided by the unquestionable force of our time — the market — but there are several things about this sale that will not be decided by the market.
The Government has decided to sell the shares even though their best estimate suggests we will get, on today’s terms, around twice the profits generated by the bank over the last year for almost a third of the bank. This hardly seems good business and certainly is not a convincing disposal of public resources.
That assessment stands despite a wave-of-the-hand dismissal by Mr Noonan to a suggestion that the State should retain the bank as a commercial concern. Why not? It makes little or no difference to those working in the bank, but, over time, profits from AIB paid to the public purse would be an appropriate recognition of the €20.8bn package put in place at such sacrifice.
Time enough to consider a sale when that ransom has been recovered.
That sacrifice is not the only burden imposed on this society by banks. Compared to European norms, Irish lending rates are high — despite yesterday’s Bank of Ireland mortgage rate cut. Deposit rates are lower too. The gap between rates for mortgages and what Irish banks pay to fund these loans gives Irish banks the fourth-highest margin in the EU.
That exploitation is made even more unattractive as the old duopoly — AIB and Bank of Ireland — tighten their grip on the market. Hardly an expression of the kind of commercial competition free-market champions insist is so good for us all.
This happy arrangement, for the banks at least, is unlikely to change anytime soon. That the Government seems to have decided that the proceeds of the AIB sale will be used to pay down debt owed to banks, debt incurred to rescue other banks, rubs more salt into the wound.
These arguments will be dismissed in boardrooms but politicians should listen. Donald Trump was elected, partially at least, because he convinced supporters he would resolve these rich-get-richer issues.
The discontent behind Brexit fed from the same trough. The humiliation of Theresa May sprung from the same well. Just yesterday former British prime minister John Major, hardly a radical, warned that these issues cannot be ignored any longer. Leo Varadkar should heed these lessons and act accordingly if he hopes to have a political career anything as long as that of Mr Noonan.
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