AIB may buy back €500m of State shares in 2021

AIB may pay a €300 million special dividend to shareholders next year and buy back €500 million of the State's shares in the bank in 2021 as it works through excess capital on its balance sheet after years of restructuring, according to analysts at Davy.

Davy analysts Stephen Lyons and Diarmaid Sheridan had expected that AIB would move next year to repurchase some of the government's remaining 71 per cent stake next year.

However, the recent slump in the bank’s share price, has pushed out the timeline of a special buyback, they said.

AIB’s shares have fallen 42 per cent in the past 12 months to €2.85 amid concerns over Brexit and the impact of lower-for-longer Central Bank rates on earnings across the sector. The stock is now trading at just 55 per cent of its net asset value (NAV), according to Bloomberg data, and a 37 per cent discount to its €4.50 initial public offering price (IPO) in 2017.

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Analysts estimated at the time of AIB’s IPO, in which the stake sold a 28.9 per cent stake, that the bank was sitting on at least €3 billion of surplus capital, However, the consensus view is that this has fallen to about €1.2 billion, partly down to regulators demanding banks hold more capital in reserve to withstand future shock losses.

The Davy analysts estimate that AIB’s surplus cash will amount to €1.5 -€2 billion over the next two years, before any special dividends or share buybacks. “While lower, surplus capital is not gone and its return should begin next year,” they said.