AIB posts rosy results but bad-debt challenge remains

AIB chairman Richard Pym informed shareholders yesterday the outlook for the bank had not been as rosy in years. He knows better, though, than to buy its shares – for the moment, at least.

The British banker, who joined AIB two years ago, said he plans to buy a “significant amount” of shares when the Government finally sells down its 99.8 per cent stake in the company.

With Minister for Finance Michael Noonan recently signalling that a 25 per cent AIB stake sale – or what's being touted as an initial public offering – is likely to be delayed until 2017, Pym has a bit of time to dip into his piggy bank.

“I will certainly not be buying shares in advance of an IPO,” Pym said.

He noted, with a tone of understatement, that AIB’s market value, even after a restructuring of its capital base and massive shrinkage of the number of shares in issue last year, “would appear to be quite distorted”.

While the National Treasury Management Agency put a €11.7 billion value on AIB at the end of last year, the latest market dealings in the bank's tiny amount of tradable stock puts a €19.2 billion price on it.

The bank said in a trading update yesterday it posted “strong” profits in the first quarter. There was little in the update to support the “market” view as to why it is worth considerably more than what the NTMA has pencilled in.

The first quarter saw impaired loans at the State- owned bank fall by €1 billion to €12 billion, marking a 59 per cent reduction from their peak in 2013. AIB also released €109 million of provisions previously set aside for impaired loans.

Impaired loans

However, these figures would suggest there has been a considerable slowdown in progress.

Impaired loans declined from €1.7 billion for the same period last year, when provision write-backs came to €300 million.

But one of the biggest areas of frustration for investor types is the fact that AIB continues to refuse to divulge the minimum capital level the European Central Bank has slapped on it for 2016.

Bank of Ireland revealed earlier this year that it was given a 10.25 per cent minimum target under the Central Bank's so-called supervisory review and evaluation process, while Permanent TSB disclosed its minimum target was set at 11.45 per cent.

AIB says it won’t reveal its target until it’s ready to push the button on an IPO, only serving to fuel speculation about how high the figure actually is.

Then again, maybe the hope is that the figure will have fallen in the meantime, as the ECB prepares to review its capital targets for the banks again later this year.