The rush to sell AIB shares risks leaving billions behind
The legacy of both men will be mixed — some very good stuff, some pretty bad stuff, and mostly lots of mediocre stuff. Perhaps that might be considered a very good outcome when viewed in the context of political governance in Ireland in recent decades. In my opinion, we should aspire to something better — in fact, we deserve something better.
No administration in recent years was given such a strong mandate to fundamentally reform so many aspects of Irish life and economic governance as the Fine Gael-Labour coalition were in 2011. After the debacle that befell the country from 2008 onwards, sensible people were crying out for reform and change but, when facing an open goal, the Government put the ball over the bar. The debacle over water charges, which most sensible people agreed with, is quite typical of Ireland’s political malaise. Water is a story of gross incompetence, as is the ongoing crisis in housing and health.
The economy is obviously now in strong recovery mode, but the real test will come as the economic cycle evolves. The risk is that, as the cycle matures, many of the old failings will reappear and, at some stage, we will just end up in a similar mess, with slightly different characteristics.
In opposition, Mr Noonan was hugely and impressively critical of the National Asset Management Agency (Nama) but, when given the power to influence that organisation, he chose not to do so in any positive way. The attitude to bank bondholder debt falls into the same category.
On the upside, the Taoiseach, in particular, did much to restore Ireland’s tarnished international reputation. However, it is important to remember that the Irish economy is being lifted by Ireland’s entrepreneurs and workers, rather than by our political classes.
This week, Mr Kenny and Mr Noonan moved with undue haste to cement their legacy by the setting in motion of the sale of 25% of the State’s stake in AIB.
Not surprisingly, this decision has given rise to the type of ideological spat that characterises policy making in Ireland. The left believes that the often-inefficient State should retain control, while the right believes that the also often-inefficient private sector should be given control. There is also a spat over what should be done with the proceeds of the sale, which “experts” estimate should be in the region of €3bn. Some want to see the national debt paid down, while others believe that sale proceeds should be invested in infrastructure.
I believe the more relevant argument is whether this is the correct time to sell a bank? Market participants correctly point to the fact that global equity markets are riding the crest of a wave at the moment, with global banking stocks proving quite attractive to investors. If one believes that what goes up must come down, then this could be a good time to sell part of AIB.
However, the more fundamental question is if the price AIB might realise in current conditions would reflect its long-term economic value, which is a concept made infamous by Nama.
The fact is that the Irish banking model is still broken and is not functioning as a banking market should. It is moving in the right direction, but is not there yet. Furthermore, the economy is still clawing its way back from the abyss and, based on predictions from the Economic and Social Research Institute and others, the medium-term outlook appears quite promising, notwithstanding the obvious challenges posed by Brexit.
Perhaps in two, five, or even 10 years, AIB could be worth considerably more than at present. I believe that by selling too quickly, Nama left billions behind, and I fear the same thing could now happen with AIB. There is nothing wrong with the State continuing to own a bank until it reclaims all of the losses.
Obviously, nothing is certain in life, but I wonder why the last act of Mr Noonan’s career is to flog the taxpayers’ banking assets?
