AIB raises further €750m from bond sale as ECB signals end of aid scheme

ALLIED IRISH Banks (AIB) has raised a further €750 million in the sale of another unguaranteed bond as the European Central Bank (ECB) signalled it would end exceptional measures introduced to aid euro zone bank funding.

In a further sign of easing for Irish bank funding, AIB became the first Irish bank to raise a senior unsecured with a five-year maturity since the guaranteed was introduced in September 2008.

The deal was priced at 285 basis points, or 2.85 percentage points, over the so-called benchmark mid-swaps rate in the bond markets.

This was above the 250 basis points over mid-swaps the bank paid for a €1 billion three-year unguaranteed bond in September.

The bank said that the five-year bond was 1.8 times over-subscribed “with in excess of 150 international investors reflecting a well diversified geographic profile”.

The positive reaction of the international markets by investing in longer-term unsecured and unguaranteed bonds of AIB is a further indicator of the growing positive attitude of the international credit markets towards Irish banks,” said Colm Doherty, head of AIB Capital Markets.

“It is a very positive indicator for future unguaranteed issuance from the Irish financial system.”

AIB completed its bond sale as the ECB president Jean-Claude Trichet signalled that an offer of unlimited emergency one-year liquidity planned for December would be the last on offer to banks across the euro zone system.

He left open the possibility that the interest rate charged for the funds would be higher than in previous offers this year – or linked to future ECB official policy rates.

With the ECB expected to take a range of decisions next month on future liquidity-boosting operations, the central bank’s strategy appears to be at a turning point.

Mr Trichet stepped up his appeals to euro zone governments to draw up “ambitious” fiscal exit strategies. Massive government borrowing could trigger rapid changes in market mood and hit growth prospects by driving up interest rates, he warned.

Speaking after the ECB left its main interest rate unchanged at 1 per cent, Mr Trichet agreed its strategy of providing unlimited liquidity to euro zone banks risked creating asset bubbles and excessive bank profits if left too long.

He was also noticeably more upbeat on euro zone economic prospects, saying recent data pointed to “an improvement” in the second half of this year.

Mr Trichet insisted the ECB would “be gradual in our phasing out” of the exceptional measures it has taken since the collapse of Lehman Brothers last year.

Even after ending the 12-month liquidity offers, the ECB will continue to match in full banks’ demand for liquidity in its regular weekly operations.

The offers of unlimited 12-month liquidity, at the 1 per cent policy interest rate, have dominated the so-called “enhanced credit support” strategy, and in June saw the ECB pumping €442 billion in one-year loans into the banking system – the largest amount ever provided in a single market operation.

– Additional reporting Financial Times