State nest egg takes hit after collapse in bank shares due to Covid

PASCHAL Donohoe’s Covid-19 nest egg has been seriously dented by the collapse in the value of the State’s bank shareholdings and the growing possibility of an unruly Brexit.

The Finance Minister and the Government are planning to launch a major economic stimulus next week.

But the government is already leaking cash before it starts spending it.

The coalition’s coronavirus nest egg technically includes the banking shares in AIB, Bank of Ireland and PTSB.

However, the value of this legacy feature of Ireland’s bailout

‘The simple message is that we’re skint’

has fallen from about €7.5bn at the start of the year to around €2.5bn now.

Responding to queries from his new ministerial partner Michael McGrath prior to the formation of the new government, the Finance Minister revealed that the value of the AIB portfolio fell from €6.2bn to almost €2.1bn when the coronavirus shut the State down.

The worth of Bank of Ireland shares fell from €754m to €207m. And the struggling PTSB portfolio fell from €381m. to €163.5m.

Mr Donohoe noted of our banking portfolio: ‘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 bank’s ordinary shares and recouped €3.4bn for the Irish exchequer.’

The Finance Minister noted ‘the State now retains c. 71% of the bank’s ordinary shares’ and that ‘clearly there are tough times ahead for both the banks and particularly their customers but fortunately the banks are in a strong position in terms of liquidity and capital to weather the storm and support the economy.’

The problem for the minister though is that ‘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.’

Mr Donohoe has also warned that a hard Brexit would seriously impact the Exchequer to the tune of a further €3bn at a minimum.

He was responding to queries by Social Democrat TD Cian O’Callaghan on the projected ongoing cost to the Exchequer of a disorderly Brexit.

Mr Donohoe noted that ‘Budget 2020 was framed on the assumption of a disorderly Brexit’ and that ‘while the fiscal and economic circumstances have changed dramatically, the magnitude of the projected “fiscal swing” forecast under such a scenario may be indicative of the potential impact of the transition period ending without a trade arrangement.’

The Finance Minister warned that under a disorderly Brexit the forecast for 2020 projected a general government deficit of €2bn compared with the general government surplus of €1.2bn.’

Mr Donohoe warned that while this €3bn negative ‘swing’ was broadly indicative of the fiscal cost of a disorderly Brexit last October, ‘since then the fiscal and economic situation has evolved significantly’.

At best, October’s forecast, he noted was ‘an indication of the scale of the economic and fiscal impact of the transition period ending without a trade deal’. Trade negotiations, he said, ‘between the EU and UK are ongoing and the outcome is highly uncertain’.

Commenting on the figures one FG source noted that ‘behind all the elegant phrases and big words the message from Paschal is the simple one of “we’re skint!”’

Mr Donohoe added: ‘The full set of economic and fiscal forecasts will be updated by my Department as part of the Budget 2021 process.’