Minister for Finance Paschal Donohoe opened up a new front to accelerate a recovery of AIB’s crisis-era bailout bill on Tuesday, unveiling a plan to sell part of the State’s 71.1 per cent remaining stake in the bank over the next six months on the stock market.Taxpayers have so far only recouped €10.8 billion of the bank’s €20.8 billion rescue bill.
The Minister has hired Bank of America’s Merrill Lynch International unit to carry out “a measured and orderly sell down of shares” in AIB over an initial six-month period, starting from the middle of January, the Department of Finance said.
Mr Donohoe has instructed the US bank to target a sale of up to 15 per cent of the expected total trading volume in AIB shares over the duration of the so-called share trading programme. This would limit the impact on the lender’s share value from a major seller being in the market.
John Cronin, an analyst with AIB-owned stockbroker Goodbody, estimates the State’s holding could fall to 69 per cent over the period, while Davy analyst Diarmaid Sheridan sees it declining to as low as 68 per cent.
The blueprint is similar to the one currently being used to sell down the State’s holding in Bank of Ireland, which is likely to see that bank return to full private ownership by the middle of next year. The Bank of Ireland position has fallen from 13.9 per cent in June to below 8 per cent , according to a stock exchange filing on Tuesday.
It is also designed to take advantage of rally by Irish financial stocks this year, fuelled by shrinking competition in the market, a recovery by the domestic economy from the Covid-19 crisis, and the prospect of central bank rate hikes over the medium term, which should boost interest margins across the sector internationally.
The Iseq Financial index, dominated by the three remaining domestic banks, has surged by 36 per cent since Ulster Bank announced in February that it was quitting the Irish market. Belgian’s KBC Group followed up two months later with its plan to retreat from the Republic.
“The bank’s financial performance has improved significantly while investor appetite for banks is also recovering, so these conditions provide a supportive environment to reduce our shareholding in the bank over time,” Mr Donohoe said of AIB.
Market trading activity in AIB is thinner than Bank of Ireland, as most of its stock remains in the Government’s hands. As a result, Mr Donohoe said he expects “the pace of share sales to be slower than what we’ve seen at Bank of Ireland” and will amount to “multi-year journey”.
AIB chief executive Colin Hunt said the Minister’s decision was “an important development in the process of returning the State’s investment in the group”.
The department said the plan to drip-feed AIB shares into the market over the next six months does not preclude the bank from returning cash through a targeted buyback and cancellation of some taxpayer shares. The Government may also place larger chunks of shares in the market through so-called accelerated bookbuilds, it said.
AIB secured permission from minority investors in April to buy back an almost 5 per cent stake from taxpayers over 12 months. However, bank executives recently played down the prospect of using that avenue to return cash to the Government next year.
Chief financial officer Donal Galvin told analysts on a call in early November that while AIB plans to restart normal dividends early next year, it will be unlikely to start returning excess capital to shareholders until 2023.
That’s because the group will be concentrating next year on bedding in its recent acquisition of Goodbody Stockbrokers, investing in a life and pensions joint venture with Canada Life, and completing its planned purchase of €4.2 billion of corporate and commercial loans from Ulster Bank, he said.
AIB is also in talks to buy Ulster Bank’s €6.5 billion tracker-mortgage book, which would use up additional capital, according to sources.
“Distributing surplus capital will be a key milestone for the company but is likely not to arise until [the bank’s full-year] 2022 results [in early 2023], post execution of the Ulster Bank portfolio acquisition,” said Davy analyst Diarmaid Sheridan.
Mr Cronin said that a reduction in the State’s stake may “change the narrative in time” on pay restrictions and bonus banks that remain in place across bailed-out Irish banks.