AIB may return €5bn to return to shareholders over next three years

Election may doom lifting of salary cap as highly profitable lender surpasses IPO price for first time in over five years

AIB chief executive Colin Hunt on Wednesday called 2023 the best financial performance in the bank’s history, allowing the bank to propose €1.7 billion to shareholders, led by the State.

But while net interest income and earnings are expected to dip to €3.65 billion this year from €3.84 billion in 2023 as the European Central Bank starts to ease official rates, the good times will keep rolling for investors on the cash distributions front.

In fairness, those who piled into the company when it went through an initial public offering (IPO) in 2017 have been waiting much longer-than-expected for it to deliver on a pitch at the time that massive distributions were on the way. The effects of Brexit, lower-for-longer rates and muted loan demand put paid to those hopes until recently.

Davy analyst Diarmaid Sheridan had been pencilling in about €1.4 billion of dividends and share buy-backs over the next three years.


But with AIB’s guidance that it wants to get its key capital reserves pot – or common Tier 1 equity ratio – down to 14.5 per cent from 15.8 per cent in December, and its forecast that it expects to generate an average of about 2.5 percentage points of capital a year between 2024 and 2026 as it remains highly profitable, Sheridan reckons he will need to increase his capital distribution estimate by a further €800 million to €900 million over the period.

(The 15.8 per cent figure for December was after the bank had accounted for the €1.7 billion ring-fenced for investors in the coming months.)

The market lapped up the distribution story on Wednesday – with the stock rising 5 per cent to €4.56, breaching its €4.40 IPO price for the first time since late 2018.

Some €1 billion of the surplus capital being distributed will be used to buy back government shares in the lender, which should reduce the stake from 39.98 per cent to about 34 per cent. Minister for Finance Michael McGrath should sell a further 10 per cent stake by way of two placings if form over the past two years continues. Meanwhile, he will also continue to drip feed stock onto the market in small lots.

It is highly plausible that the stake could be down at around 20 per cent by the end of the year. Will that convince McGrath to ease pay restrictions, as the bank continues to lobby for? Unlikely when there’s an election around the corner.