Shares in Bank of Ireland have fallen by as much as 10 per cent since the Government announced plans late last month to proceed with a flotation of AIB.
Dealers have put the weakness down to some large investors taking money off the table to be able to invest in the initial public offering (IPO) of AIB, which is expected to price later this week and value the State-controlled lender at up to €13.3 billion.
"The upcoming AIB has been a headwind for Bank of Ireland's share price in recent weeks," analysts at Cantor Fitzgerald said in a note to clients on Monday.
“Investors looking to diversify their exposure to the Irish banks would primarily have to do so by selling down holdings in Bank of Ireland.”
Bank of Ireland was alone among banks bailed out by taxpayers during the crisis from succumbing to Government control during the crisis.
A group of North American investors, including New York billionaire Wilbur Ross, Fairfax Financial and Fidelity Investments, made a €1.1 billion rescue investment in the bank in 2011. Mr Ross has since sold his entire stake, making a €500 million profit, while Fairfax has disposed of most of its holding, and Fidelity much of its exposure.
Bank of Ireland is the most directly exposed of the Irish banks to Brexit given that about 40 per cent its loan book is in the UK.
AIB, which generates about 12 per cent of its income in the UK, offers the biggest exposure to the Irish economy, which is set, according to European Commission forecasts, to be the fastest growing in the euro zone in 2017, for the third year running.
Second choice
“Bank of Ireland’s stock is neither cheap nor expensive at the moment, but probably second choice for Republic of Ireland exposure and the bank faces lots of Brexit risk,” said a fund manager who asked not to be named.
However, AIB’s loan book is most exposed to any impact on the domestic economy caused by Brexit.
Shares in Bank of Ireland have fallen by as much as 10 per cent to 22.1 cent since the Government’s statement on May 30th that it was proceeding with the AIB flotation. However, the stock rallied 2.3 per cent on Monday, marking its first advance in five sessions, to 22.7 cent.
Still, the stock remains down 7.4 per cent from where it traded before the AIB announcement. Over the same period, Permanent TSB had edged 0.4 per cent higher, UK banks have advanced 0.3 per cent, while the sector across the euro zone slipped 1.9 per cent.
Bank of Ireland is 14 per cent State owned, while taxpayers will continue to hold at least 71.2 per cent of AIB after the bank’s initial public offering, which is expected to price on Friday.
Expeditiously
Separately, an application to merge Bank of Ireland Private Banking into Bank of Ireland will be heard at the Commercial Court next month as the group seeks to simplify its organisational structure.
Bank of Ireland chief financial officer Andrew Keating said in an affidavit that in the interests of commercial certainty it was important the transaction be concluded expeditiously. As it was critical that the banks, their employees and customers have certainty on the completion timeline, the application was made to the fast-track Commercial Court.
He said the value of the business being transferred was significant. As of December 31st 2016, Bank of Ireland had total assets of some €80.8 billion and liabilities of some €72.7 billion, giving a net asset value of €8.1 billion. The private banking arm had some €41.5 million assets and €6.4 million liabilities, giving a net asset value of €35.1 million.
