Business Week: Noonan gets ready to pull trigger on AIB float

Almost a decade after the financial crash, AIB this week indicated that it was to become the first of the State's bailed-out banks to pay a dividend to shareholders.

AIB is 99.9 per cent owned by the State, so that means a return of about €250 million for the exchequer, which pumped €20.8 billion into the institution during the bailout.

Bank of Ireland, which is 14 per cent State-owned, said last week it would resume a dividend payment next year, while Permanent TSB, which is 75 per cent controlled by the Government, has yet to put a date on a payment.

So, the stage is set for Minister for Finance Michael Noonan to finally pull the trigger on AIB's long-awaited IPO. The bank's chief executive Bernard Byrne said it was "now ready" for a stock market flotation of its shares whenever Noonan sees fit.

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The Minister indicated that the “particularly significant” dividend for the State meant 2017 was the “appropriate time” to move on the IPO. The Government has indicated it will float 25 per cent of the bank on the Dublin and London markets.

Details of the dividend payment were included in AIB’s full-year results, which showed a pre-tax profit of €1.7 billion for 2016. This was down about 10 per cent on the previous year.

AIB also revealed how remuneration paid to its directors last year fell by more than 6 per cent to just under €2.5 million, despite increases in the base salaries paid to both Byrne and chief financial officer Mark Bourke.

Byrne’s total remuneration last year rose by 2 per cent to €600,000. His basic salary increased by 4.3 per cent to €500,000, the maximum allowed under the Government’s salary cap.

Bourke’s total remuneration increased by 3.5 per cent to €590,000, which included a €17,000 increase in his basic salary to €467,000.

Separately, Bourke said AIB had so far paid out €93 million to the holders of 2,600 mortgage accounts who were denied a tracker interest rate in recent years.

The bank also said another 400 mortgage accounts had been identified as having been denied the correct tracker rate, and these customers were in the process of being placed on the correct rate, after which the bank would look at financial redress.

Noonan accuses Brussels of ‘bad practice’

"I can't dance to two different tunes," was Michael Noonan's put-down to the European Commission as he departed from his script at a function this week to launch a stinging attack on the commission over its plans for corporate tax reform.

Accusing it of reneging on previous agreements and “bad practice”, he also appeared to suggest he would delay progress on the proposals for common rules on calculating corporation tax, known as the common consolidated corporate tax base (CCCTB).

He said the commission’s plans could derail existing international agreements to prevent tax avoidance by multinational companies. “The commission is departing from what was agreed internationally at OECD level and I think that’s bad practice,” he said.

Noonan's humour is unlikely to have improved with the publication of another Oxfam report into the State's corporation tax practices. It said multinationals were continuing to route billions of euro in profit through Ireland to avoid tax.

It also suggested that Government measures aimed at tackling tax avoidance were failing and that incentives and tax relief for the aircraft leasing industry alone cost the Irish taxpayer about €577 million in lost corporate taxes every year.

Things were looking up a bit later in the week though, as exchequer returns for February showed the Government’s finances remained on target for the year. Revenue collected €7.5 billion for the first two months, 1.6 per cent or €44 million ahead of profile. However, both income tax and corporation tax underperformed.

You could certainly be forgiven for thinking the State is awash with money, as the Wealth Report 2017 from estate agent Knight Frank showed almost 5,000 Irish people became millionaires last year. That was thanks to a combination of rising asset and property values. What’s more, the rich are going to get even richer as almost 25,000 more Irish people will be millionaires by 2026.

Brexit cloud gets more ominous

The Brexit-shaped cloud hanging over Irish exporters and the food industry was there for all to see this week as Minister for Agriculture Michael Creed led a trade mission to Saudi Arabia and other Arab states in a bid to identify new markets for Irish produce.

He said the Republic’s €20 billion food and beverage industry was turning to the Middle East for sales as the United Kingdom, its biggest buyer, prepared to leave the European Union. As part of that, the Government reached an agreement this week to sell processed, cooked, minced and bone-in beef to Saudi Arabia.

The State’s biggest markets in the Middle East are Saudi Arabia, at about €135 million a year, and the United Arab Emirates, at about €60 million, with cheese and other dairy products leading sales in both.

Separately, a report by the Oireachtas committee on agriculture said Brexit may mean the Government’s plan to nearly double the value of the Republic’s food output over the next decade may no longer be feasible.

“Brexit may require fundamental changes in the structure and future of Irish agriculture,” it said. As such, targets “may no longer reflect what is possible or even what is best for the Irish agri-food and fisheries sectors”.

As if anyone needed reminding, Moody’s also published a report in which it said the Republic would be the country most affected by Brexit. “While these risks are not exclusive to Ireland, we believe it is the European country most exposed to them,” Moody’s said.

Furthermore, the Republic will be particularly exposed if the UK fails to reach a comprehensive free trade deal with the EU, and trade is governed by World Trade Organisation rules.

While the State may benefit from increased foreign direct investment, Moody’s warned that the issue of available housing to buy or rent could mean the State would be unable to take full advantage of the opportunity.

Help to Buy scheme drives up prices

As part of the Government’s plan to solve the housing crisis, it has introduced the Help to Buy scheme and sought to increase supply. The Central Bank has also weighed in by relaxing its rules on mortgage lending.

Figures this week showed mortgage approvals jumped by 41 per cent in the three months to the end of January as first-time buyers looked to take advantage of those moves. However, the increased activity also seems to be translating into higher prices.

The average loan size in January 2017 was €211,859, up by 9.1 per cent year-on-year, and the second highest level after December 2015, since the series began in 2011.

The Help to Buy scheme could be driving prices up for the first-time buyer cohort, or they may be using the funds from the scheme to opt for more expensive properties.

A report by Dublin architect Mel Reynolds, who gathered data for the Central Statistics Office on housing from 1975-2015, said the move to accelerate supply would not solve the crisis, but instead lead to more young people being priced out of the market.

He said that over the last 40 years, increasing the supply of new private sector homes has never once led to a reduction in property prices here. Even at the height of the boom when a record 92,000 homes were built, property prices rose 14 per cent.