Donohoe faces headwinds following up 5% AIB share sale

Taxpayers remain €5.5 billion underwater even allowing for market value of State’s remaining stake

The first big gig that awaited Paschal Donohoe when he was appointed Minister for Finance this month five years ago was to sign off on the final paperwork surrounding the sale of a 25 per cent stake in AIB in an initial public offering (IPO) that raised €3.4 billion.

Such was the demand for the stock at the time that investment banks managing the deal placed a further 2.8 per cent stake, reducing taxpayers’ holding to 71 per cent.

And institutional investors were left with a wink and a nod that Donohoe would soon come to them with more shares, with AIB’s then chief executive Bernard Byrne forecasting that most of the bank could be in private hands by the end of the decade.

Blame Brexit, a wobble in global equity markets in late 2018, muted Irish loan growth in recent times, or Covid-19. But the job of shifting more shares in AIB has only become harder in the intervening years. The stock ended last year down more than 50 per cent from its €4.40 IPO price.

While Dublin’s Iseq has slumped by almost 25 per cent so far this year in line with a sell-off across global equities, Irish banking stocks have been among the winners in a rising interest rates environment. As of last Friday, AIB’s shares were up 20 per cent from the end of 2021.

Donohoe sought in January to get the ball rolling again on lowering the State’s AIB stake by drip-feeding stock into the market – following a similar strategy employed at Bank of Ireland since mid-2021. In order to accelerate the process he moved this week to sell a 5 per cent block on the market, lowering taxpayers’ holding to 63.5 per cent.

Still, the €2.28 price at which each of the shares were sold are well off the IPO price and represent just 55 per cent of the bank’s so-called book value, which is the estimated value per share of AIB’s assets.

Department of Finance sources say it was important to gain momentum selling down the State’s remaining stake in an effort to expand the amount of tradable shares and boost investor interest in the stock.

The hope, they said, is that the Government will be able to continue to sell into a rising market in the coming years. A widely-feared global downturn could put paid to that.

This week’s block sale raised more than €300 million, bringing to €11.1 million the amount of cash that AIB has returned to the State since its €20.8 billion rescue. Even allowing for the market value of the State’s remaining stake, taxpayers remain €5.5 billion underwater.