Government may sell more AIB shares after value rises, Davy says

Bank’s shares surged last week after lender issued positive trading update

Davy analysts said market conditions for the sale of further shares in AIB next year were “favourable at present”.

Davy analysts said market conditions for the sale of further shares in AIB next year were “favourable at present”.

 

The Government may seek to sell further shares in AIB next year to capture some of the increase in the lender’s value since it floated on the main Dublin and London markets in June, according to analysts at Davy, one of the key co-ordinators of this year’s transaction.

Shares in AIB have risen by a quarter in value since the State’s initial public offering (IPO) of a 28.8 per cent stake in the lender at €4.40 a share.

While the programme for government does not currently allow for a further stake sale in AIB before the end of 2018, “we believe it should be revisited as there is a political risk to inaction”, said the Davy analysts Stephen Lyons and Diarmaid Sheridan in a report published on Tuesday.

“Market conditions are favourable at present and investors remain engaged in the AIB story. There is a risk that this may change, in which case the Government could miss out on the window for a prime selling opportunity.”

Further provisions

AIB shares surged last week after the lender issued a positive trading update and eased concerns that it will have to set aside “material” further provisions to the €190 million it has ringfenced in recent years to cover the cost of refunds, compensation and other costs relating to an industry-wide tracker-mortgage scandal.

Taxpayers, who committed €20.8 billion in bailout to AIB during the financial crisis, recouped €3.4 billion through the share sale in June. Before the IPO, the bank had returned €6.8 billion of cash to the State, including capital payments, interest and fees for government guarantees.

Meanwhile, the Davy analysts said that Bank of Ireland’s plans to return to paying dividends next year to shareholders for the first time since 2008 are “firmly on track” as the lender continues to generate capital reserves.

The State’s largest lender by assets moved late last month to boost its capital through a deal to sell risk related to a portfolio of $1.7 billion (€1.45 billion) of acquisition finance loans to a group of international investors.

The analysts said Bank of Ireland’s earnings and dividend growth potential should be helped in the coming years by a return to growth in bank’s loan book and savings that will flow from its sweeping €900 million technology overhaul programme.