The sale of PTSB and the Savings and Investment Union
Locations
The Irish government's recent announcement that it is looking to sell its stake in PTSB and the renewed drive by the EU to achieve a Savings and Investment Union would on the face of it have very little in common. But in fact, there are interesting connectors that is worth understanding when looking at the make up of PTSB itself and what the EU are looking to achieve.
PTSB
The sale of the Irish government's 57.4% shareholding in PTSB will see its exit from the last bail out investment into the domestic banking system as a result of the financial crisis of 2009-2011 and seeing it finally return to full market ownership.
The pros and cons of this have been well documented over the last numbers of weeks since the announcement but I want to focus on one area in particular. Namely the preponderance of Irish citizens to hold large amounts of cash in their deposit accounts at not just PTSB, but all the major clearing banks. Whilst this makes PTSB a very attractive acquisition proposition for any potential buyer, conversely this is largely negative for the EU and its renewed drive to achieve full banking union though its Savings and Investment Union initiative.
The Savings and Investment Union ("SIU")
If you've not heard of the Savings and Investment Union, it's likely you'll start to hear more about it soon and into the future. Unfortunately, the EU Commission website's explanation that "The savings and investments union is a horizontal enabler that will create a financing ecosystem to benefit investments in the EU’s strategic objectives" doesn't exactly help explain it very well.
In simpler terms what this is in fact, is just a nifty bit of re-marketing of what used to be known as the Capital Markets Union to try and make it more relevant to you, me and the man/woman on the street. Because what the EU is keen to do here is encourage citizens to start using their money currently sitting in deposit or savings accounts at their local bank and start investing it. And we're not talking about small amounts here.
The EU believes some €10trn is locked up in bank deposit/savings accounts across Europe that could be put to better use, as they see it, and this where the PTSB sale comes in. It's exactly this profile of bank and the money it has sitting in its accounts that the EU is extremely keen to see utilised in a more efficient way.
SIU Aims
What the EU has been trying to do for many years now and is kick starting again under a new name is a more fluid, single market across banking and capital markets. To ultimately make it far easier for money and investments to flow across the EU member states.
This comes in many guises and some are very technical indeed, such as joining up listing rules to make it easier to register debt instruments on stock exchange across the EU.
But the key one, and what the EU believes can be a game changer, is working out how to encourage retail investors, that's you and me, to invest some of this latent €10trn into vehicles such as pension funds, exchange traded funds ("ETFs"), bonds and stocks and shares to name just a number of examples.
Incentives to encourage this include harmonising tax treatments of investments (something in Ireland we'd probably encourage when it comes to ETFs for example) and joining up insolvency processes across the EU, all of which has and is proving difficult to agree on.
But from the EU's point of view its worth trying to solve these issues. As Mario Draghi, yes him again, has pointed out, there is a significant investment gap in the EU which is stifling research and development and the expansion of EU businesses making them less competitive and less able to generate the well paid jobs the EU needs to generate greater wealth for its citizens. In addition, on a wider context, leaving such large amounts of capital untapped also means the EU cannot achieve its strategic priorities of decarbonisation, greater spending on defence, and investment in technology and sourcing rare earth minerals to name a few to bolster its geopolitical standing. Guiding at least a fraction of the €10trn deposits would lead to more cash being available for EU businesses to utilise and in turn lead to longer term, higher returns for investors providing, so it hoped, a win win situation all round.
PTSB and the SIU
It remains to be seen how successful the EU will be in its renewed drive to achieve the SIU and achieve access to the vast sums it believes are available to help the EU achieve its aims. It had not achieved so previously and the roadblocks to doing so are exactly those areas national governments feel uneasy about seeing their control reduced around.
But the upside can be significant and the sale of PTSB and its cash deposits, though seemingly unrelated, can play an interesting part in this new EU process to achieve great unity and opportunity across its financial markets.
Written by: Aaron McGarry