Financial Services

AIB’s problems are manageable and won’t spook investors

Day-to-day trading is gathering momentum but a number of legacy issues are unresolved

AIB chairman Richard Pym speaking at the agm in the RDS Concert Hall, Dublin. Photograph: Dara Mac Dónaill

Ciarán Hancock's face
Ciarán Hancock
Fri Apr 28 2017 - 05:30

AIB chief executive Bernard Byrne had a spring in his step at the bank's agm on Thursday in spite of various criticisms from the floor about how it treats customers, governance and pensions.

He has every reason to be upbeat given that AIB has made a “strong” start to the year, with new lending up 10 per cent in the first quarter, and its stock of impaired loans declining by another €500 million.

AIB is also on the cusp of a return to the main stock markets in Dublin and London with the Government poised to press the button on the sale of a 25 per cent stake in the bank, sometime between mid-May and early July.

The stars are aligning for an IPO. Markets are at an all-time high, official forecasts for our economic growth this year have been upgraded, and AIB’s day-to-day trading is gathering momentum.

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A number of legacy issues remain to be resolved, as evidenced by the Central Bank’s €2.275 million fine this week for breaches relating to anti-money laundering legislation, its tracker mortgage redress programme, and the resolution of its remaining €8.6 billion in non-performing loans. But these are now manageable problems and won’t spook potential investors.

Byrne will be hoping that Emmanuel Macron isn't tripped up in the French presidential election run-off next month with Marine Le Pen. Her election would be the one event that could cause the markets to wobble.

Step aside

With Taoiseach Enda Kenny set to step aside in the near future, and a Cabinet reshuffle likely, Minister for Finance Michael Noonan might also be hoping that the share sale gets done in the coming weeks.

A major legacy from Noonan’s time in finance might well turn out to be the insertion of a clause in 2015 granting the State warrants that would allow it to purchase up to 9.99 per cent of AIB’s ordinary shares in future years at twice the price of the stock at the time of the IPO.

These warrants can be exercised within five days of AIB’s IPO and exercised at some point following the first anniversary of the share sale up to the 10th anniversary. If AIB’s share price flies over that period, the State could end up with a tidy return. Or it could seek to sell the option to a third party.

Byrne described it as “good protection for the State” in the event that the shares soar and an appropriate “upside-sharing mechanism” that was unlikely to concern investors in advance of its IPO. It might also help to close the gap on the near €17 billion in capital repayments that AIB still owes taxpayers.

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