Should the NTMA hold Irish Gov shares?

Sam Russell

The Minister for Finance was caught out today as the holder of shares in BofI getting advance information re KBC Bank ahead of other shareholders. I believe that put him in an advantages position than other shareholders.

This is not an unusual position for Ministers to find themselves in when the Ministerial duties gives them privileged information that a shareholder would not have access to and in a perfect world would not happen, but it is a natural conflict of his position as a Minister and the shareholder of the Gov asset.

Now it is not to his personal benefit, but it does go against SE rules.

The solution would be to transfer all these shareholdings to the NTMA which does significant asset management on the Gov's behalf. A small technical change, but it improves transparency. Is it necessary, or even worth the effort?

View

Sam Russell wrote: »

The Minister for Finance was caught out today as the holder of shares in BofI getting advance information re KBC Bank ahead of other shareholders. I believe that put him in an advantages position than other shareholders.

This is not an unusual position for Ministers to find themselves in when the Ministerial duties gives them privileged information that a shareholder would not have access to and in a perfect world would not happen, but it is a natural conflict of his position as a Minister and the shareholder of the Gov asset.

Now it is not to his personal benefit, but it does go against SE rules.

The solution would be to transfer all these shareholdings to the NTMA which does significant asset management on the Gov's behalf. A small technical change, but it improves transparency. Is it necessary, or even worth the effort?

To avoid the conflict of interest scenario, no Minister should be allowed to directly hold shares in any Irish company. This should be a resignation issue for the Minister concerned as the potential for conflict of interest was always there.

As Dick Spring once put it, the state can’t be a good referee if it’s also (one of) the team(s) on the pitch.

L1011

View wrote: »

To avoid the conflict of interest scenario, no Minister should be allowed to directly hold shares in any Irish company. This should be a resignation issue for the Minister concerned as the potential for conflict of interest was always there.

As Dick Spring once put it, the state can’t be a good referee if it’s also (one of) the team(s) on the pitch.

I think you've missed the point of the OP, which is that the state shares in semi state or listed companies are held in the person of the Minister

blackwhite

Sam Russell wrote: »

The Minister for Finance was caught out today as the holder of shares in BofI getting advance information re KBC Bank ahead of other shareholders. I believe that put him in an advantages position than other shareholders.

This is not an unusual position for Ministers to find themselves in when the Ministerial duties gives them privileged information that a shareholder would not have access to and in a perfect world would not happen, but it is a natural conflict of his position as a Minister and the shareholder of the Gov asset.

Now it is not to his personal benefit, but it does go against SE rules.

The solution would be to transfer all these shareholdings to the NTMA which does significant asset management on the Gov's behalf. A small technical change, but it improves transparency. Is it necessary, or even worth the effort?

There's nothing in Irish legislation, or in the ISE listing rules that prohibit a shareholder from possessing privileged information. The prohibitions relate to that shareholder taking actions on foot of that insider information. Once the Minister ensures that he doesn't engage in any trading of BoI shares at any time that he's in possession of privileged information, then there's no breach of the regulations.
On BOI's side, they'll have maintained an "insider list" detailing anyone who was aware of the transaction before it was made public, and should be informing anyone that they are prohibited from dealing in BoI shares until such time as the transaction is either announced or cancelled.


As a practical example - I work in a relatively senior role in an Irish plc. I'm also a shareholder in the business - some of my compensation package is even share-based.
By the nature of my job I will have often have access to information about the business that has not yet been released to the market. Because I have access to insider information, there's only a limited few weeks every year that I'm actually permitted to trade in the shares of the company - typically in the couple of weeks following a results announcement or publication of a trading update. And even in those periods if there's anything else underway (i.e. an acquisition, business expansion, etc.) that hasn't been publicly announced then a closed period will be enforced and I'll be notified that I'm not permitted to engage in share trading during that period.

The shares in AIB and BoI are already held in the ISIF which is managed by the NTMA.

That's where most of the money for these shares came from when it came to purchasing (ISIF was then called the Pension Reserve Fund), and since purchasing these shares was a policy decision, their disposal should remain a political one.

There's no sense in tying ourselves in knots over some vague pursuit of fair play, after this country was dragged through the mud to be landed with these shares, at a time when 'fairness' was dismissed as some utopian luxury.

It's absolutely right that the Minister should be overseeing the management of these shares, and if you ask me they should be retained at their current holdings.

Sam Russell

My concern would be that national policy would be dictated by the effect it would have on the holding of shares.

For example, the bank losses of eg AIB carried forward, if the current allowance against profits and so corporation tax has a large effect on the share price. If the budget curbed that by, say, only allowing 6 or 10 years for those losses to be used up, then the state would lose value, but gain in taxation.

Is this a valid concern?

View

View wrote: »

This should be a resignation issue for the Minister concerned as the potential for conflict of interest was always there.

I don't think (m)any would agree with you there. As long as an individual holds their position when in possession of bad news, neither reducing nor increasing their holding then they have not profited from their privileged position.
Many of us here are banned from trading shares in our respective firms during blackout periods. Nobody would dream of suggesting that we liquidate our holdings or resign.

Peregrinus

Sam Russell wrote: »

My concern would be that national policy would be dictated by the effect it would have on the holding of shares.

For example, the bank losses of eg AIB carried forward, if the current allowance against profits and so corporation tax has a large effect on the share price. If the budget curbed that by, say, only allowing 6 or 10 years for those losses to be used up, then the state would lose value, but gain in taxation.

Is this a valid concern?

The effect of budgetary measures on state shareholdings should be a wash - any reduction in value of the shares will reflect the cost to the company of the tax measures, and of course that's the cost of the extra amount they pay to the state. (And vice versa for measures which reduce tax.) So they should balance out.

So that shouldn't affect the state's choices about tax measures one way or the other - they will make the same choice as if they didn't hold the shares. The state's choice will be influenced by the tax effect on companies that they don't own, and by the wider economic effect. Which is as it should be.

Sam Russell

Peregrinus wrote: »

The effect of budgetary measures on state shareholdings should be a wash - any reduction in value of the shares will reflect the cost to the company of the tax measures, and of course that's the cost of the extra amount they pay to the state. (And vice versa for measures which reduce tax.) So they should balance out.

So that shouldn't affect the state's choices about tax measures one way or the other - they will make the same choice as if they didn't hold the shares. The state's choice will be influenced by the tax effect on companies that they don't own, and by the wider economic effect. Which is as it should be.

Well, in the case of AIB, the state was selling 25% (IIRC) so an announcement that they intended to reduce loss rollover to 10 years would have effected the sale price and therefore the Gov take on the sale. That was a once off, and not a wash through.

When the Gov sells shares, it is not a few at a time - it is all or a lot of them.

Peregrinus

Sam Russell wrote: »

Well, in the case of AIB, the state was selling 25% (IIRC) so an announcement that they intended to reduce loss rollover to 10 years would have effected the sale price and therefore the Gov take on the sale. That was a once off, and not a wash through.

Doesn't matter. The reason people would pay less for the shares is because the Bank would have to pay higher taxes in the future. And the amount less that they would pay reflects the amount more of taxes for which the bank would be liable.

So the state gets less for the shares, but more in taxes - a wash.

Sam Russell

Peregrinus wrote: »

Doesn't matter. The reason people would pay less for the shares is because the Bank would have to pay higher taxes in the future. And the amount less that they would pay reflects the amount more of taxes for which the bank would be liable.

So the state gets less for the shares, but more in taxes - a wash.

Yes, but more jam to day, less jam tomorrow is better option for a short-termist politician.

Peregrinus

Sam Russell wrote: »

Yes, but more jam to day, less jam tomorrow is better option for a short-termist politician.

If the market is working properly, the lesser amount that the shares will fetch represents the discounted present value of the future stream of additional tax payments. It's a wash for both parties, even if one of them doesn't understand that.

The J Stands for Jay

blackwhite wrote: »

There's nothing in Irish legislation, or in the ISE listing rules that prohibit a shareholder from possessing privileged information. The prohibitions relate to that shareholder taking actions on foot of that insider information. Once the Minister ensures that he doesn't engage in any trading of BoI shares at any time that he's in possession of privileged information, then there's no breach of the regulations.
On BOI's side, they'll have maintained an "insider list" detailing anyone who was aware of the transaction before it was made public, and should be informing anyone that they are prohibited from dealing in BoI shares until such time as the transaction is either announced or cancelled.


As a practical example - I work in a relatively senior role in an Irish plc. I'm also a shareholder in the business - some of my compensation package is even share-based.
By the nature of my job I will have often have access to information about the business that has not yet been released to the market. Because I have access to insider information, there's only a limited few weeks every year that I'm actually permitted to trade in the shares of the company - typically in the couple of weeks following a results announcement or publication of a trading update. And even in those periods if there's anything else underway (i.e. an acquisition, business expansion, etc.) that hasn't been publicly announced then a closed period will be enforced and I'll be notified that I'm not permitted to engage in share trading during that period.

I'm a lowly member of staff for a foreign plc, and all staff are able to avail of share schemes. All staff have closed periods during which we can't buy or sell shares, in the lead up to results announcements. So, even staff with little to no insider information are not allowed to trade. There's likely bigger closed periods for actual insiders.