Noonan says Brexit-fuelled fall in bank share prices ‘disappointing’

Minister for Finance Michael Noonan has described the steep falls in Irish bank share prices post the Brexit vote last week as "disappointing" given the country's exposure to the financial sector.

He has also reiterated that the Government has no plans to sell any of the State's holdings in AIB, Bank of Ireland or Permanent TSB in 2016 due to the current market volatility.

In reply to questions from Fianna Fáil’s finance spokesman Michael McGrath, Mr Noonan noted that the share prices of Bank of Ireland and Permanent TSB had fallen by 30 per cent and 26 per cent respectively in the four trading days to the close of business on June 29th.

“Clearly these moves suggest investors believe bank profitability in the coming years will be materially impacted,” he said. “Indeed, analysts have already moved to downgrade their earnings projections for UK and Irish banks and companies in many other sectors too.

“Given our substantial financial interest in the banking sector, these developments are disappointing and we are closely monitoring events.”

Mr Noonan said the “current volatility” meant that it was “more likely” to be 2017 when the State would next sell some bank shares.

No immediate impact

“The State had no plans to dispose of any of its bank shares in the coming months and no sale proceeds are included in the 2016 budget, so there is no immediate impact on our finances,” he said.

“In fact AIB is still scheduled to redeem [ON JULY 26TH]its contingent capital note of €1.6 billion, plus accrued interest.”

The State owns 99.9 per cent of AIB, 75 per cent of PTSB and 14 per cent of Bank of Ireland as a result of bailing out the sector from 2009 onwards.

Mr McGrath also asked the minister to outline the exposures of the three banks to the UK market. He was told that AIB’s UK activities accounted for about 12 per cent of its profit and revenue in 2015.

The bank told the minister that, ahead of the referendum, it had engaged in a “comprehensive programme of customer engagement” on the risks of Brexit to ensure that customers were “well prepared” if the UK voted to leave the EU.

Bank of Ireland told the minister that its business model in the UK was “resilient”.

Its total operating income for retail UK was €715 million, which equated to 22 per cent of group operating income. It also derives additional operating income from corporate and treasury but these are not separately disclosed.

Selling loans

PTSB no longer transacts new business in the UK, and has been deleveraging from its Capital Home Loans mortgage book. As at May 31st, PTSB held £2.5billion of UK Mortgages, which it considers to be non-core and intends to sell.

The minister told Mr McGrath that 80 per cent of PTSB’s British assets are directly funded in sterling while about 10 per cent of PTSB’s interest income for the last six months of 2015 was generated by the residual UK mortgage portfolio.