Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

61. To ask the Minister for Finance the risks facing the economy as a result of the recent falls in stock prices on the Stock Exchange here and globally; the potential impacts on banks here including the capitalisation of the banks and the value of the shareholding of the State in each; and if he will make a statement on the matter. [4291/20]

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

68. To ask the Minister for Finance the relationship, direct or otherwise, between the share price of a bank and the capitalisation of that bank; and if he will make a statement on the matter. [4322/20]

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I propose to take Questions Nos. 61 and 68 together.

As the Deputy will know, we are now in the midst of a severe recession, both globally and domestically. Jobs and our people, have borne the brunt of the unprecedented economic decline. But we can and we will recover. Our economy can grow again next year, employment can grow, unemployment can fall, and our public finances can improve. This is because, as the experience of the last financial crisis and Great Recession shows, our economy and labour market are very resilient and have real underlying strengths that this crisis will not have altered.

In fact, none of the imbalances that characterised our economy before the last recession – unsustainable credit growth, borrowing from abroad through a balance of payments deficit – are evident at present.

Similarly, the three banks in which the state has a shareholding (AIB, Bank of Ireland and PTSB) entered this crisis in a good position with strong capital and liquidity positions – a stark contrast to the previous recession. There are now significant capital and liquidity buffers in place in Irish banks which puts them in a strong position to continue to lend to the economy and to aid the recovery.

Both myself and my officials have engaged and will continue to engage extensively with the Banking and Payments Federation (BPFI) and the banks directly in relation to supports for personal and business customers affected by the COVID-19 crisis. Officials in the department are alert to issues raised directly by the public and these inform the department’s ongoing engagement process and policy formation.

All the banks have continued to evolve and expand the supports they have available and I would expect that this process continues. Consequently given the size of the economic shock and the uncertainty around the short to medium term outlook, management teams across every bank in Europe are withdrawing previously issued guidance on earnings for the year and setting out new plans. Our banks are no different.

In regard to the value of the State's shareholdings, we have obviously seen a large drop as share prices everywhere have fallen. However it should also be noted that Irish bank share prices have been under-performing for at least 18 months i.e. before the onset of the current COVID-19 health and economic crisis.

It is therefore clear that in these challenging times, recovering all of the €29bn that the state invested in the three remaining banks is not realistic in the short term and perhaps not the medium term either.

With regard to the factors influencing the shares since the current crisis began, I have been informed that feedback from investors and analysts identifies a few likely contributing factors:

1. The large state shareholding: Feedback from investors and advisory firms indicates market concern that banks across Europe with a large state shareholding could be subject to political pressures. Therefore there is some correlation between share price performance and state shareholdings. In Ireland's case we have legally binding Relationship Frameworks which ensure that commercial decisions are matters for the board and management of the banks in which we have a shareholding.

2. A low level of trading volumes: in the current turbulent environment investors have a preference for highly liquid stocks that they can trade in and out of rapidly.

As regards the fall in the Irish and international stock markets more generally, aside from the knock on wealth and confidence effects, it will likely be more difficult and expensive for some companies to raise equity finance in the months ahead. This is why it is so important that our banking system support its customers appropriately so we can all navigate the current crisis successfully.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

62. To ask the Minister for Finance the value of the shareholding of the State in each of the State-supported banks since 2016 in six month intervals and in the case of a bank (details supplied) including the last sale of shares to the market in tabular form; and if he will make a statement on the matter. [4292/20]

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The information requested by the Deputy is set out in the following table.

* AIB only returned to the Dublin and London stock exchanges on 23 June 2017 following IPO.

The last sale of shares in AIB took place during the IPO in late June, 2017. It resulted in the sale of 28.75% of the banks ordinary shares and recouped €3.4 billion for the Irish exchequer. The State now retains c. 71% of the bank’s Ordinary Shares.

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

63. To ask the Minister for Finance his views on the recent results published by banks (details supplied) and the prospect for the shareholding of the State in those banks; and if he will make a statement on the matter. [4293/20]

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The annual 2019 results for AIB and Bank of Ireland which were announced in March showed two profitable banks that were supporting our economic growth with strong and sustainable lending. Both banks made additional large strides in reducing NPEs further last year and continuing on their paths of digital transformation.

However, as the Deputy will be aware, the economic landscape has since been transformed and these results no longer reflect the true picture on the ground for the banks and their customers. Bank of Ireland published its Q1 2020 update on 11 May which showed them recording a loss in the quarter and my officials are currently evaluating and analysing all the information released by the bank. AIB will publish its Q1 2020 on 12 May.

Clearly there are tough times ahead for both the banks and particularly their customers but fortunately the banks are in strong position in terms of liquidity and capital to weather the storm and support the economy. With bank share prices having dropped dramatically all around Europe, our investments are worth a fraction of what they were worth only 12 to 18 months ago and any plans to sell more of the State's shares in the banks are now on hold.