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Government to sell 13.9% share in Bank of Ireland

The Irish Government's stake in Bank of Ireland is valued at almost €700 million while the sale of its existing shares is set to take place over the coming six months.

One of the prevailing legacies of the financial crash in Ireland was the Irish Government's decision to bail out the banks, the effects of which we're still living with.

However, tidings on that front are ever-so-slightly improving with news that the Government will begin to sell off its remaining stake in Bank of Ireland.

The announcement comes more than a decade after the Irish Government bailed out the lender, as well as existing banks AIB and Permanent TSB who it still owns majority shares in.

So what does the news mean and more importantly, what will it mean for you the consumer? We take a look.

What’s happening with the Government shares in Bank of Ireland?

The Government has announced plans to begin selling off its 13.9% stake in Bank of Ireland, worth approximately €676m at the time of writing.

The planned sale is set to take place over the next six months and will be managed by Citigroup through a pre-arranged trading plan. Citigroup was appointed following a mini-tender competition.

However, the Government has not stated whether it intends to sell its entire stake by the end of the year stating that the number of shares sold will depend on certain factors such as present market conditions.

The news marks the first major sale of the Government's holdings in Irish banks since 2017 when it cut its shares in AIB by almost 30%.

In a statement, the Government said that in order to ensure taxpayers’ interests are protected, shares won’t be sold below a certain price per share, which will be kept under review by the Department of Finance.

However the Minister for Finance Paschal Donohoe declined to give the minimum price the shares will be sold for or in fact how much of the 13.9% stake will be sold by the end of 2021.

As it stands taxpayers have already recouped all of the €4.8 billion that was used to bail out Bank of Ireland during the financial crash, with the bank having returned around €6 billion to date.

This makes Bank of Ireland the only lender to have returned all of the money it received as part of its agreed bailout.

The Government still owns 71% of shares in AIB and 75% of Permanent TSB.

What’s the reason behind the sale of shares in BOI?

Paschal Donohoe has signalled his confidence in the Irish economy as the reason for Government selling its shares at this point in time.

In an interview on Morning Ireland he said he’s “very confident about the future of the Irish economy and its ability to recover from Covid-19.”

Additionally, Donohoe remarked that Irish banks are “going to benefit across the coming period”, particularly after the harsh effects wrought by the pandemic. 

It’s also a possibility the announcement is simply an attempt to shore up the public finances ahead of October's budget, especially given the pressure the finances are under due to all the extra Covid-related spending.

Donohoe has rejected this suggestion however and has said “the main and only reason that we are doing this . . . is because I’m very confident about the future of the Irish economy.”

Bank of Ireland CEO Francesca McDonagh welcomed the announcement as a “positive step - for Irish taxpayers, the Irish economy, and Bank of Ireland" in a statement.

The announcement commences a process which will add to the returns already received, and also marks an important moment in normalising the relationship between the Irish State and Bank of Ireland.

What does this mean for the consumer?

On a day-to-day level the sale of the Government's shares in BOI shouldn't have any impact on customers of Bank of Ireland or consumers in general.

That being said, it could have an impact in other ways....

As it stands the three mainstream banks: AIB, Bank of Ireland and Permanent TSB, are all backed by the Government,  and with Ulster Bank and KBC planning exits, it wouldn't exactly look great for only Government-backed players to be carving up what's left.

In this way, the announcement should provide less resistance from the Competition Authority to Bank of Ireland's plan to acquire KBC's performing loan book.

The planned sale of Bank of Ireland shares by the State may also do well to reaffirm confidence in the bank's overall outlook.

While this doesn’t guarantee better prices for consumers in the short term, it does bode well for the future and the normalisation of banking in this country, especially once a hopeful economic recovery begins to take hold.

The Finance Minister said he had “no imminent plans” to sell shares in AIB or Permanent TSB just yet.

What do you think?

What do you make of the government’s decision to sell its shares in Bank of Ireland? Would you wait until the global economy has begun to recover? Let us know in the comments below!

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