monitoring the overall strategic direction of the banks
developing and executing plans to optimise the value of the State’s investments
Bank of Ireland (BOI)
The State’s initial investment in Bank of Ireland dates back to early 2009 when the Minister for Finance directed the National Pension Reserve Fund (NPRF) to make an investment of €3.5 billion in preference shares issued by the bank.
In 2010, the State converted €1.7 billion of this investment into ordinary shares and, in 2011, invested another €0.2 billion in equity (via the NPRF), and a net of a €1.05 billion disposal of shares to a consortium of North American institutional investors.
Finally, the Minister also directly invested €1.0 billion in Bank of Ireland Contingent Capital Notes (CoCos) in July 2011.
The total investment in Bank of Ireland was €4.7 billion. Since the State first invested in Bank of Ireland, the SFAD’s priority has been to protect this investment for the benefit of the taxpayer.
To date, the State has exited both its CoCo and preference share investments at a profit. It has now generated a net positive cash return from the State’s overall support for and investment in the bank.
In addition, the State’s 14% equity stake in Bank of Ireland had a market value of about €1.1 billion at mid-year 2017.
By virtue of its different ownership position, the Minister for Finance’s role and level of oversight with BOI is more limited than at Allied Irish Bank (AIB).
Consistent with Government Policy, SFAD’s role is to advise the Minister on the timing and nature of ultimately exiting the State’s remaining 14% equity stake in the bank.
The State will exit this investment in the bank in a measured fashion, over time, and in a manner than maximises the return to the taxpayer.
In 2017, the Shareholding and Financial Advisory Division (SFAD) planned and implemented an Initial Public Offering (IPO) of a portion of the State’s shares in AIB, listing the stock on the premium segment of the Irish and London stock exchanges.
The IPO resulted in the sale of 28.75% of the banks ordinary shares (including a greenshoe mechanism) and recouped €3.4 billion for the Irish exchequer. The State now retains about 71% of the bank’s Ordinary Shares.
The IPO of AIB, and return of value to the taxpayer was possible following considerable progress made by the bank since the financial crisis, returning to sustainable profitability since 2014 and reducing its impaired loans from peak by 70% while building up a strong capital base.
The reorganisation of the bank’s capital at the end of 2015, marked a significant milestone as it modernised the bank’s capital structure and facilitated the consolidation the bank’s shares.
It also allowed for the return of €1.7 billion to the State, which was followed by the redemption of the Contingent Capital (CoCo) instrument in July of 2016, which returned a further €1.6 billion.
The State’s total investment in AIB amounted to about €20.75 billion and dates back to 2009 when the Minister for Finance directed the National Pension Reserve Fund (NPRF) to make an investment of €3.5 billion in preference shares issued by the bank.
Subsequent to this, the NPRF was further directed to invest €8.7 billion in two tranches (December 2010 and July 2011) while a capital contribution totaling €6.1 billion was also made by the NPRF and the Minister.
During the crisis, AIB also acquired EBS, which itself had previously been recapitalised and taken over by the State.
The SFAD’s priority is to protect the State’s investment in AIB while planning a phased exit over time that maximises the recovery to the taxpayer.
Under the Relationship Framework Agreement in place between the State and the bank, strategic and day-to-day management decisions are a matter for the board and management of the organisation.
In 2011, the State invested €2.3 billion in cash in return for ordinary shares and invested €0.4 billion in contingent capital notes in Irish Life and Permanent (now Permanent TSB).
The State subsequently acquired Irish Life, the life assurance subsidiary of Irish Life and Permanent for a cost of €1.3 billion in 2012.
The acquisition of Irish Life completed the recapitalisation of €4.0 billion required, following the The Prudential Capital Assessment Review (PCAR) stress test performed by the Central Bank in 2011 and which resulted in the State owning 99.2% of PTSB.
The Shareholding and Financial Advisory Division's (SFAD) objective is to protect the State’s investment in Permanent TSB (PTSB), while planning an exit program which maximises the return for the taxpayer.
The Minister for Finance has high level oversight over the direction of the bank, but under the Relationship Framework between the State and the bank, day to day management decisions are a matter for the board and management of the organisation.
Consistent with government policy, SFAD’s role is to ultimately return the bank to private ownership in a manner which maximises value for taxpayers.
Permanent TSB (PTSB)
In July 2013, the State sold Irish Life to Great-West Lifeco for €1.3bn. Prior to the close of the sale, the State had received a dividend of €40 million.
Following the results of the SSM Comprehensive Assessment in late 2014, PTSB was required to raise new capital.
In May 2015, PTSB completed a capital raise of €402 million equity by way of a Placing to new institutional investors and an Open Offer to existing shareholders along with €125 million Additional Tier 1 debt issuance, in total raising €527 million new capital.
In April 2015 the European Commission approved the PTSB Restructuring Plan, which was an essential prerequisite to the capital raise.
As part of the capital raise, the Minister was requested by the bank to sell shares to enable PTSB meet the free float requirements of the main market listings on the Irish Stock Exchange and London Stock Exchange.
As a result the Minister sold shares with a value of €97 million through a secondary offering. At the same time, PTSB repurchased the contingent capital notes for which the State received €410.5 million plus accrued interest.
The State has now received €1.8 billion of capital receipts from the sale/repurchase of its investment in 2011-2012 and retains a 74.92% shareholding in PTSB.