Michael McGrath (Cork South Central, Fianna Fail)
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31. To ask the Minister for Finance his plans to proceed with the sale of a stake in a bank (details supplied) in the course of 2017; the factors that will influence his decision; and if he will make a statement on the matter. [1893/17]

Michael McGrath (Cork South Central, Fianna Fail)
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The purpose of the question is to seek clarity on the Minister's plans for a sale of a stake in Allied Irish Banks in 2017. Is it a Government objective to proceed with the sale of a stake this year? What factors will the Minister take into account in making a final decision on AIB and bringing a proposal to Government in the matter?

Michael Noonan (Limerick City, Fine Gael)
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The State's shareholding in Allied Irish Banks is a valuable asset and it is the Government's intention that the State will exit this and our other banking investments in a measured and careful manner.

The advice I have received confirms that an initial public offering, IPO, is the optimal route to recouping value from this investment. Officials in my Department along with our independent financial adviser, Rothschild, have done considerable preparatory work in this regard. In December of last year, following a competitive procurement process, three investment banks were appointed to act as global co-ordinators on a potential selling syndicate in preparation for a possible IPO. These banks have been appointed for an 18 month period and additional banks will be appointed to fill out the syndicate at an appropriate future date.

A number of factors will need be taken into consideration before a decision is made to proceed with an IPO. These include the operational performance of the bank, the preparedness of the bank for privatisation and whether market conditions are conducive to achieving our long-term objectives. As I have stated previously, my primary objective in the disposal of any AIB shares will be to maximise the return for the State in a manner that is consistent with recovering our full €20.7 billion investment.

The reorganisation of the bank's capital structure in 2015 and the maturing of the CoCo instrument in July of last year have given AIB a simplified market-facing balance sheet. I welcome the bank's continued strong performance, demonstrating sustainable profitability and strong capital generation over a number of consecutive reporting periods. The bank's chief executive officer has indicated publicly, and reiterated to me personally, that much of the internal preparation that would be required in advance of launching an IPO process has now been completed. I also note comments made recently by the bank's chairman indicating that AIB may be approaching a time when the board will be in a position to consider the payment of a prudent dividend, in consultation with the regulator, which would contribute to the bank's strong investment case.

In order for us to proceed with the sale of any of our banking assets, we need to be satisfied that the market is prepared to put a fair and reasonable value on the business, bearing in mind its current performance, its future prospects and the outlook for the economy. Officials in my Department continue to monitor market conditions and the performance of banking equities on an ongoing basis. While I cannot predict what market conditions will be like for bank shares over the coming year, it is our intention to be ready to execute a transaction if conditions allow. Given the improved state of the national accounts, progress made in reducing our national debt and positive market sentiment towards Ireland, we are not under any pressure to monetise our banking investments. As a result we have some flexibility around when we time our disposals in the market.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister for his reply. He indicated that it is intended to proceed with an IPO if market conditions allow and are favourable. I assume that is the Government's position. It would be a policy decision as to how much of the Government's stake in AIB it would sell. Has the Minister given consideration to that issue or is it a matter on which he will take advice? Does he have any estimate at this stage of-----

Michael Noonan (Limerick City, Fine Gael)
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It will be around 25% of the State's shareholding.

Michael McGrath (Cork South Central, Fianna Fail)
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Does the Minister have an estimate of the likely proceeds from the sale of such a stake? In some respects, the valuations available to us are meaningless because there is no active market in the trading of AIB shares because the State owns approximately 99.8% of them. Will the Minister confirm that the proceeds of such a sale would be used to pay down debt and that, as a financial transaction, he would not have any additional leeway under the fiscal rules to increase expenditure on the back of one-off proceeds from a sale?

Michael Noonan (Limerick City, Fine Gael)
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I thank the Deputy. At the end of 2015, the Irish Strategic Investment Fund valued the State's 99.9% shareholding in AIB at €12.2 billion. The value of shares in banks all over the world fell considerably thereafter, although, as the Deputy will be aware, there has been a recovery in recent months. For example, both Bank of Ireland and Permanent TSB, for which there are accurate quotations on the market, are now trading well above the lows experienced during 2016. The value of the former has appreciated by 52% and that of the latter by 81%. There is, therefore, an indication that we might achieve the kind of values we would require.

No final decision has been taken. We have appointed a syndicate and I am getting financial advice on an ongoing basis. A number of events will be necessary before we would proceed. There is the issue of a dividend, which must be sanctioned by the regulator in Frankfurt, and would probably enhance value somewhat. In addition, the annual returns of AIB, which are due out in March, will give an indication to the market of the profitability of the bank. I will keep the Deputy informed.

Michael McGrath (Cork South Central, Fianna Fail)
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There is a high degree of uncertainty in the markets and some volatility linked with international developments. There are also some question marks about the underlying health of certain European banks. We are all well aware, for example, of the problems with Italian banks and it is not yet clear how these will play out. At this remove, early in 2017, when will be the opportune time to make the assessment of the right time to proceed with an IPO for AIB? As the Minister noted, there are certain windows in the calendar year during which we will not have an opportunity to proceed with an IPO because of reporting requirements and so forth. If he does not make a decision early in the year, will he revise his assessment in the autumn and take advice from the professionals he has brought on board?

Michael Noonan (Limerick City, Fine Gael)
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On values, there was an increase in the value of small bank shares in the United States after the election of Donald Trump. In addition, the big factor on valuation now is whether interest rates have bottomed and will increase in the coming period. Obviously, increases in interest rates connect to the profitability of banks and there is an expectation in the markets of rising interest rates. Among other reasons, this is why bank shares are trading at a higher level than they did in 2016. There is a window from late May until June but it is hard to be precise on the opening and closed positions. There is another window in the autumn so it will be one or the other.