AIB delays bail-in rules overhaul as IPO nears

The setting up of a holding company will now not happen until later this year

Unpublished reports suggest AIB could be worth €11 billion-€14 billion. Photograph: Peter Muhly/AFP/Getty Images

Unpublished reports suggest AIB could be worth €11 billion-€14 billion. Photograph: Peter Muhly/AFP/Getty Images

 

AIB has delayed a massive restructuring aimed at meeting new European rules on minimising future government bailouts, according to sources.

The bank had worked concurrently in the early months of this year on plans for a stock market flotation and the complicated task of setting up a holding company at the top of its corporate structure, designed to give taxpayers and depositors maximum protection in the event of another crisis.

However, sources said the setting up of a holding company – involving reams of documentation, and shareholder and court approval – will now be delayed until later this year.

Rival Bank of Ireland will complete the establishment of its holding company, which cost €10.5 million in legal, investment banking and other professional fees, on June 23rd.

The new corporate structures are being set up following consultation with the euro zone’s Single Resolution Board, which is responsible for overhauling or even winding down ailing banks in future if necessary.

The holding companies in future would issue senior and junior debt that could be “bailed in” if needed, before state support would be called upon. Deposits, however, would be held in the existing operating banks, where they would enjoy greater protection. Irish banks inflicted €15 billion losses on junior bondholders as taxpayers picked up a gross €64 billion rescue tab between 2009 and 2011.

However, senior bondholders were protected because of opposition from the European Central Bank and the fact there was no legal framework to “burn” them without also hitting depositors.

Noonan’s plans

Minister for Finance Michael Noonan’s announcement last Tuesday of plans to sell a 25 per cent initial stake in AIB is aimed at accelerating the recovery of €20.8 billion pumped into the bank during the financial crisis. The bank has since returned €6.8 billion to the State, including capital repayments, interest and guarantee fees.

Unpublished reports by analysts with investment banks working on the deal largely suggest that AIB could be worth €11 billion-€14 billion. The midpoint of the range, at €12.5 billion, points to an IPO price of €4.60 per share and €3.1 billion of proceeds for the Government from the stake sale.

Analysts and fund managers predict that the stock will be priced to provide upside for the initial investors in order to ensure there is decent appetite for further share placings in the coming years.

AIB chief executive Bernard Byrne said last week it is “conceivable” from a markets point of view that the bank, which was seized by the State in December 2010, could be outside majority Government ownership within the next three to five years, although all timings will be the decision of the minister for finance of the day.

Mr Byrne also said the bank’s aim to mostly fix its remaining €8.6 billion of bad loans may include the sale of some loans to overseas buyers of distressed debt and companies seeking to take part in the Government’s expanded “mortgage-to-rent” scheme. It may also result in a greater level of repossessions against borrowers who refuse to engage with the bank.

Meanwhile, the Sunday Independent reported over the weekend that AIB’s ability to use losses racked up during the financial crisis to cut future tax bills could see the bank avoid having to pay corporate tax for up to 30 years. It had previously been assumed that the bank’s level of so-called deferred tax assets would shield it from the Revenue Commissioners for 20 years.

Still, had AIB not been allowed to use deferred tax assets as part of a calculation for its capital reserves during the crisis, the Government would have had to inject an additional €4 billion into the bank.