Progress and outlook for the Irish economy and banking sector, Brexit and the recent IPO of AIB – Speech to the ACCA Business Leaders’ Forum

14th September, 2017


Good morning everyone – it is my pleasure to be here with you in the Westbury Hotel this morning for the ACCA Business Leaders’ Forum.


As was outlined earlier I intend to speak for about 15 minutes or so and then open it up to Questions and Answers.


I will do my best to answer your questions but don’t expect me to tell you too much of what is in store in terms of Budget 2018- unless you promise to keep it just between us.




To start, my remarks by how we are doing as a country and an economy, the strong growth in the economy last year, of 5.1 per cent, has continued into this year with annual GDP growth of 6.1 per cent recorded in the first quarter of this year. 


The Central Statistics Office will be publishing the Quarterly National Accounts for the second quarter of 2017 this Friday so we will be analysing the latest data carefully.

Growth is now increasingly driven by domestic factors, following an initially export-led recovery, as both consumer and business confidence continue to recover.


We are predicting continued growth next year, which will be spread across the economy rather than concentrated in a small number of sectors as during the Celtic Tiger years.


When it comes to economic growth, of course, the most important aspect is employment and the data shows that 69,000 jobs were created in the first quarter of this year alone and employment has increased by 231,000 jobs since the low-point in 2012.


Given the pace of employment growth, the economy is now approaching full employment.


In parallel, the unemployment rate has fallen from over 15 per cent in 2012 to 6.3 per cent now.


Importantly, employment growth remains broad based with gains reported in 11 out of 14 sectors.




This is the positive backdrop against which next month’s Budget has led, perhaps understandably, to a level of expectation amongst many that simply cannot be met.


As I said in remarks to the Kennedy Summer School just last week, Budget 2018 will see, for the first time in over ten years, Ireland achieve a balanced budget so that we can be more prepared for the risks that we face, not least of which is Brexit.


I said that we must – and will- invest taxpayers’ money carefully and with continued reform to deliver the best capital projects, services and targeted income supports.


But I also said that unlike in the Celtic Tiger period, I would do nothing in this Budget that will have to be completely undone in future years owing to the fact that it is unsustainable.


Because the failed policies of economic shock and awe- the awe of an attractive, lucrative, feel-good tax cuts followed by the shock of a penal, unbearable tax hike just a few years later- are over.


So the Budget next month will be ambitious, but it will be about sustainable, incremental change that will prepare us well for the future, while building the Republic of Opportunity that the Taoiseach has spoken passionately about.




Having a vibrant competitive banking sector is vital to preparing for the future.


And we should not overlook the huge progress made by our banking sector, as there is a symbiotic relationship between banks and the economy.


We need our banks to support the growth in the economy and we need our economy to grow to ensure the continued viability of our banks.


If we cast our minds back to the period prior to the financial crisis, there is little doubt that with the benefit of hindsight our market, which is small in European terms, was overbanked.


The easy availability of funding from around the world enabled many banks to sacrifice lending standards and pursue unsustainable lending growth in a race for market share and profits.


Over-confidence and a lack of oversight and challenge both internally and externally also contributed to the boom and subsequent bust.


It is obviously more complicated than that but broadly speaking this is what happened.


The crash, when it happened here, unfortunately broke international records and not in a good way.


Needless to say that we are all still living with the consequences.



Ireland was forced to take decisive action to address our banking collapse with the cumulative investment of €64 billion into the sector; the establishment of NAMA to deal with problem land and development loans; the merging and downsizing of banks; and the liquidation of IBRC.


The banks themselves also took action with significant deleveraging, branch closures, and in many cases the forced sale of foreign businesses.


Banks cut headcount and branches as they sought to realign costs with significantly reduced income and in recognition of changing consumer behaviour.


Staff were redeployed to deal with mortgage arrears and problem loans.


Boards and executive management teams were significantly changed over a period of several years.


The result of this collective effort is that our banking system is now smaller, simpler and stronger with both Bank of Ireland and AIB profitable since 2014.


I welcome the fact that AIB is back paying dividends and that Bank of Ireland recently signalled that it intends to resume payment of dividends.


Of course both Ulster Bank and KBC Ireland have undergone uncertain periods too whereby the intentions of their parents to their Irish subsidiaries was not always clear.

It is therefore very welcome that both banks have indicated that they are here to stay and grow.


Permanent TSB is also an important bank in terms of its presence in the mortgage and deposit market. It has significantly simplified and de-risked its business and operations over recent years and should benefit as housing activity increases.


The sector has come a long way from the days when it was reliant on Central Bank funding and State support for its survival.


However, I recognise that we have not solved every problem.


For instance, there are still many customers who struggle with excessive debts and those that find it challenging to access the credit that they need at a price they believe makes sense. I would encourage such customers to engage with their lender if they have not already done so.


Hence there is still more work to do by all involved.




The same is true of the wider economy.


Despite the sustained growth in the economy and the continued strength in the underlying economic fundamentals it is important that we remain cognisant of the challenges which may impact on our economy.


In particular the UK’s decision to leave the EU and the ongoing changes in US policy may significantly impact the Irish economy.    


The recent appreciation of the euro-sterling bilateral rate will, if sustained, pose significant challenges, particularly for agri-food, tourism and areas of our economy that are sensitive to cross-border trade.


As the depreciation in sterling most likely reflects a structural change in the UK economy, it is essential that the policy response is also structural in nature and, it goes without saying, in line with EU State aid rules. 


Continued market diversification must be part of the policy response, so that dependence on and exposure to the UK market is reduced.


The Government’s trade strategy – Ireland Connected – published earlier this year, sets out a number of measures specifically addressing Brexit related issues, including diversification of markets for indigenous exporters.


In addition to the potential challenges posed by external factors, we must also remain conscious of domestic challenges.


The ongoing issues in the housing market have imposed not just a hugely significant social cost on society but may begin to inhibit the competiveness of the Irish economy, by restricting the mobility of labour and potentially discouraging companies from moving here.  



Given these challenges it is vital that;


  • the public finances remain on a sustainable path;
  • we maintain our focus on competitiveness, and;
  • we address the lack of housing supply along with other infrastructural bottlenecks.


As we approach full employment, it is important that we learn from the mistakes of the past and ensure that budgetary policy does not contribute to the overheating of the Irish economy.


The Government is acutely aware of this.  




Finally, I thought it would be of interest to comment on the recent IPO of AIB.


As I referred to earlier, this was the second largest IPO in the world, and the largest in Europe, this year.


It was also the largest IPO on the London Stock Exchange since 2011.


Therefore in global equity capital market terms this was a very significant transaction which showcased Ireland and the Irish banking sector to a global audience of sophisticated institutional investors.


The sale of shares raised €3.4 billion for the State and was used for debt reduction as we borrowed most of the money we invested in the banks in the first place.


Therefore we have €3.4 billion less debt which, using our average debt funding cost of 3%, implies an annual interest saving of about €100 million.


This IPO was almost two years in the making and was only possible due to the progress made by the economy and the bank itself along with market conditions as these factors all contribute to valuation.


The bank, my officials and our selling syndicate carried out over 1,400 investor meetings globally. 


The quality of the order book was very high and allocations were made to approximately 350 global institutional investors with the Top 15 investors all categorised as either “long-only” investors or sovereign wealth funds.


As you know, we also provided for a retail offer.


This was important to the Government as we felt it only fair and equitable that taxpayers were afforded the opportunity to buy stock at the same price as the institutional investors.


One of the many lessons from the financial crisis is that share prices can go down as well as up so the retail offer was conducted through several stockbroking firms so that professional advice was available if required.

The size and quality of the order book enabled us to secure an excellent valuation for the State and a successful start and top class share register positions us well for future sell-downs of AIB in the coming years.


Taking our three investments in AIB, Bank of Ireland and PTSB in aggregate, I am confident that we will recover in full the taxpayer investment of €29 billion over time.




I could touch on many more topics but I thought that these particular topics would be of most interest to you this morning.


I am happy to take questions at this juncture.


Thank you.