Pearse Doherty (Donegal South West, Sinn Fein)
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5. To ask the Minister for Finance his plans for the State's stake in Allied Irish Banks; the discussions that have taken place on the issue; and the persons, companies or institutions involved in these discussions. [37264/14]

Pearse Doherty (Donegal South West, Sinn Fein)
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This is essentially the same question that was answered earlier. I have my own views and understand things can evolve. A script has been followed by the Minister and the Department in order to return AIB to profitability and everybody agrees that it was the intention of the bank to enter profitability at the end of the year. It is welcome that this aim has been achieved. The idea was to fatten the bank and sell it. When he appeared before the finance committee last year, Mr. David Duffy spoke about meeting people in America and so on and being ready if the Government decided to sell shares. That has always been on the cards. I agree that we should not examine this matter before the retroactive recapitalisation issue is dealt with. We have not even passed the legislation to deal with it. The Minister committed at the finance committee to make an application and the signals being sent to the Minister's colleagues on the board of governors of the European Stability Mechanism are that there is a greater option being pursued outside retroactive recapitalisation. It weakens the argument. As the Minister did not indicate it yesterday, will he say in Parliament today that he will make an application for retroactive recapitalisation of AIB and the other banks in which we hold shares?

Michael Noonan (Limerick City, Fine Gael)
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The taxpayer has made a very substantial investment in AIB and it is critical that we carefully examine all possibilities to ensure this investment is protected and enhanced, with a view to ultimately generating a return for the State. Officials from the shareholding management unit in my Department are charged with this responsibility and continue to engage with the bank on a regular basis on a range of issues, including the financial performance of the bank, strategic objectives and its capital structure.

In recent months the Department of Finance has been engaged in a process to appoint panels of financial advisers to assist in the receipt of timely advice relating to the future disposal of the State's banking sector investments and other ad hocassignments that may arise from time to time. The Department has had the need for advice in the past and will continue to have a requirement in the future and the appointment of these panels is prudent planning to ensure the State is in a position to receive necessary advice in a timely and cost-efficient manner. I have said previously in respect of AIB that we may wish to "test the market" next year, but the creation of these panels should not be seen as a signal that a transaction is imminent or will happen at all. There are three panels for the provision of the following services. Panel No. 1 deals with capital markets, strategic, mergers and acquisitions and restructuring advice; panel No. 2 deals with general financial advice; and panel No. 3 deals with capital markets distribution services. The process which is in line with the open procedure of EU procurement legislation is well advanced and the Department expects to be in a position to publish the list of successful tenderers to each panel shortly.

With respect to the State's holdings in the banks, Government policy remains unchanged in that we do not wish to hold these investments in the banks in the long term and, subject to market conditions, are willing to exit in a manner that maximises value for the taxpayer.

Additional information not given on the floor of the House

We have already exited some of our debt investments with the sale of the Bank of Ireland contingent convertible notes and preference shares, in addition to the sale of Irish Life. Holding our equity investments longer enables the State to benefit from the economic recovery and, fortunately, given the significant cash resources we hold, we are not under pressure to exit the remaining investments.

With regard to AIB, the return to profitability is very good news from the perspective of the taxpayer, as a profitable bank is a more valuable bank, which will over time allow the State to maximise the return on its investment. The latest valuation of the AIB shares was carried out by the National Pensions Reserve Fund Commission at the end of 2013 and it valued the State's ordinary and preference shareholding at €10 billion. Including the contingent capital, this brings the value of the State's shareholding to €11.6 billion. Since the last valuation of the State's holding, bank stocks in many eurozone countries have performed well. AIB posted a profit in mid-2014. I am confident, therefore, that the value of AIB has also increased.

Pearse Doherty (Donegal South West, Sinn Fein)
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There is a need for an open and frank discussion on the future of AIB. The best outcome would be full retroactive recapitalisation by the ESM, fulfilling the promise of the "game changer" and "seismic shift". If it was rejected, genuine questions must be asked about what to do with AIB, now that it has returned to profitability. Could we use it to bring in revenue for the State and use our shareholding to ensure we will have a banking sector that is fit for purpose?

I have a simple question which I asked earlier today and yesterday. The Minister indicates that the policy remains unchanged. I take that statement at face value. In June the Minister indicated to the finance committee that he would apply for retroactive recapitalisation of AIB. He stated:

Of course we will apply.What does the Deputy think we have been talking about for the last five minutes in reply to Deputy McGrath? Of course we will apply, but the timing is a question of the best approach.

Michael Noonan (Limerick City, Fine Gael)
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The policy has not changed since I spoke at the finance committee in June. I wanted to widen the debate and still want to do so. Many people think retroactive recapitalisation of the banks is simply a matter of sending a letter to the European Union and that the money will be returned.

The construct was always that there would be an exchange of shares in the Irish banks with the ESM in return for money.

Pearse Doherty (Donegal South West, Sinn Fein)
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It actually states that the rules will be made up by the Government at a later stage.

Michael Noonan (Limerick City, Fine Gael)
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No. When the conversation commenced - I do not propose to go into the detail on this - in terms of the general primary colour and shape of the model, that was the idea. It was never a case of money for nothing. Obviously, there are considerations that arise from that, including whether, if one thought one could get more money on the market, one go down that road or pursue that. On the other hand, while the people running the European Stability Mechanism may be brilliant at raising money on the markets, there is nothing within their experience to suggest that they could run banks, because that is not what they do. All I am saying is that we are pursuing this along the lines outlined by me at the finance committee when we last spoke about this issue, and also that there is an alternative that might be of more benefit to the Irish taxpayer. We will pursue all options, but the bottom line must be which will achieve more money for the taxpayer.

Pearse Doherty (Donegal South West, Sinn Fein)
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Although the Minister has not said so, I take it, because he said there is no policy change, that the intention is still to apply and seek the maximum benefit from the ESM, which I accept will mean handing over our shares in AIB to the ESM.

The Minister said that all options were being pursued. We need a frank and honest debate on this issue. There are at least three options: the ESM option, which is the best option if we can fulfil the promise made in June 2012; the option of selling to the markets, which should be examined and considered; and the option of the State retaining its equity in AIB and ensuring the profits made by AIB as it returns to profitability - we hope its profitability will increase into the future - benefit the State and are used to ensure bank lending to particular sectors as required.

The Minister said that the policy was not to hold onto the State's equity in AIB long-term, but will he at least examine the benefits of our having a State-owned profitable bank and what that would mean for the Irish banking sector and the Exchequer?

Michael Noonan (Limerick City, Fine Gael)
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As stated, that is not the policy. Government policy is to progressively sell the State's shares in AIB. We do not believe a State bank is the best model for the Irish economy in the medium to long term. There is a fourth alternative. We could sell part of AIB and retain a significant chunk of it in the hands of the State for a long time so that we would have an influence over banking policy through what is emerging as the primary bank. There are other alternatives. We are taking decisions as we move along, with no hard and fast position having yet been taken, other than that we do not want a nationalised banking system as a permanent feature. We regarded the intervention by the State in the banks as a rescue operation, and a very expensive rescue operation. We want a significant private holding in AIB in due course. That does not mean we would not retain a significant proportion of the bank. I am prepared to discuss all of this with the Deputy at the finance committee, because there is not as yet any firm policy position on these issues.