AIB’s riskiest bonds jump as bank denies whistleblower claims

AIB’s riskiest bonds have surged since the bank moved this week to draw a line under whistleblower allegations that it has overplayed progress on dealing with troubled loans.

The bank sold €500 million of additional Tier 1 (AT1) notes in December as part of a return to the subordinated bond market for the first time since the financial crisis.

These notes are viewed by analysts as giving the clearest market view of the bank, as AIB chairman Mr Pym said on Tuesday the market prices for its tiny amount of shares in issue "would appear to be quite distorted."

AIB’s AT1 bonds have jumped 3.4 per cent since the close of trading on Monday, to 90.5 cents on the euro.

Yield

The market interest rate, or yield, on the notes has fallen by 1 percentage point to about 10 per cent over the same period. The quoted yield is based on when the bank has its first opportunity to buy back the notes, in 2020.

Mr Pym told AIB shareholders on Tuesday the bank’s management “comprehensively reviewed” its reporting on non-performing loans and provisions, after it emerged last month that an anonymous whistleblower alleged to regulators that it had dressed up progress on distressed loans to flatter its performance.

Davy analyst Stephen Lyons said in a note to clients on Wednesday that Mr Pym's comments have helped deliver a bounce in the bonds.

“The recovery still has further to go in our view, as the bank readies itself for an initial public offering, more likely now in the first half of 2017, and we expect the market to increasingly focus again on AIB’s underlying and improving fundamentals,” Mr Lyons said.