AIB chiefs to resign as State becomes majority shareholder

 

FALLOUT:AIB’S MANAGING DIRECTOR Colm Doherty and executive chairman Dan O’Connor are to step down as the bank undertakes a €5.4 billion capital raising exercise that will see the State become its majority shareholder.

Early yesterday morning, it was revealed that AIB would require an additional €3 billion to meet a revised capital adequacy target set down by the Financial Regulator.

AIB had only been informed of this new requirement on Wednesday. It was deemed necessary by the regulator due to the hefty discounts being applied to AIB loans transferring to the National Asset Management Agency (Nama).

Mr Doherty, who took up the role as managing director last November, will leave before the end of the year. Mr O’Connor is to step down in the coming weeks.

The announcement came after the Central Bank said the amount of equity capital the bank needed had risen from €7.4 billion to €10.4 billion.

About €5 billion of this will come from the disposal of assets, with the balance from an equity capital raising exercise that will begin in November. This is expected to be completed before December 31st. The State has agreed to meet the full €5.4 billion costs of this capital raising through the National Pension Reserve Fund, but the bank will seek to raise funds privately to lessen the hit for taxpayers.

The State is set to put up to €3 billion into AIB in this capital raising exercise. It provided the bank with €3.5 billion last year.

The State could end up owning 92 or 93 per cent of shares in AIB, but it is understood that if €1 billion is raised privately, this stake would fall to about 75 per cent.

AIB intends to retain a stock market listing, which requires that no shareholder holds more than 75 per cent of voting rights.

If the State’s “economic interest” topped 90 per cent, there would have to be a mechanism for the State to hold shares without having voting rights.

Minister for Finance Brian Lenihan said the State would have to invest in the bank, and that “progressive” changes would be made at management and board level in AIB. “It will, I believe, result in a substantial gain to the taxpayer over time as the bank is restored to its proper position,” he said.

The bank has already begun to sell off some assets as part of the capital raising plan. Earlier this month, it said it was selling its Polish interests to Santander, which will raise about €2.5 billion.

It is also seeking to sell its 22.5 per cent share in US bank MT, and its UK assets, including First Trust Bank in Northern Ireland. The expectation is that AIB could raise €750 million from the sale of its 22.5 per cent stake in MT Bank in the United States and €1.2 billion from the disposal of its UK assets.

The Irish Bank Officials’ Association said these asset disposals should now be cancelled.

“The bank should now reconsider its disposal strategy before any more assets are sold – and especially the plan to sell of First Trust Bank in Northern Ireland and Allied Irish Bank (GB) – which makes even less commercial sense now than it did when first announced at the beginning of the summer,” its general secretary Larry Broderick said.

Last week, AIB held analyst roadshows in Dublin and London about its €7.4 billion capital raising. These were said to be “bullish” presentations.

Shares in AIB closed 8 per cent down yesterday at 51 cent. This is just one cent above the 50 cent level that has been earmarked for a rights issue.