AIB confirms approach interest from 'third party'

 

Allied Irish Banks confirmed this afternoon that it has received an approach from a "third party" with regard to taking a share.

The bank’s statement follows a report in The Irish Timestoday that a major Canadian bank had made an approach to AIB, contingent on the removal of AIB’s development loans move to Nama, the National Asset Management Agency.

In its statement AIB said it noted “recent press comment regarding interest from a third party taking a minority stake in the Group and confirms that it has received such interest.”

It said discussions were at a preliminary stage and were “not expected to progress in the near term, at least until there is greater clarity on Nama among other issues”.

AIB said there was no certainty the discussions will lead to a proposal to invest or a transaction.

The news sent AIB shares sharply higher when the Dublin market opened, rising over 13 per cent, but these gains were pared during the day. The stock closed at €2.23, an increase of just over 6 per cent. 

The news also boosted other financial stocks with Bank of Ireland rising 3.6 per cent to €2.14 and Irish Life and Permanent rising 5.56 per cent to €3.95.

The conditional approach to the Government and AIB from the Canadian bank was received about a fortnight ago. The proposal is considered to be serious although it is predicated on the outcome of AIB’s engagement with Nama.

“We have maintained that after Nama, AIB and Bank of Ireland represent relatively clean propositions for further investment,” Bloxham Stockbrokers in Dublin said in a note today. "Some Canadians, with the strongest banking sector in the world, may share that view."

Fine Gael deputy leader and Finance spokesman, Richard Bruton claimed the Canadian interest showed foreign banks would use Nama to chase a quick profit.

“Once the taxpayers have cleaned up the banks’ mess and paid their bills, they can then go and make a tidy little profit while we, the taxpayers, will be left paying off their loans for decades,” he said.

He claimed nobody at the banks would have to pay for the bad decisions that have been made. He said banks would actually be rewarded because the taxpayer would make their business much more valuable.

“Who wouldn’t be interested in buying a cleaned up bank at rock bottom prices?” asked Mr Bruton.

Nama is being established by the Government to take over toxic development loans to developers.

Canada is the only state in the Group of Seven largest industrialised countries not to support its banks with guarantees, recapitalisations or the purchases of toxic assets. Among other factors, this has been attributed to stronger regulation, strict capital requirements, fiscal conservatism and the absence of tax-deductible mortgages.

Only the largest of Canada’s institutions, Royal Bank of Canada (RBC), has incurred a quarterly loss this year, its first since 1993. The other main Canadian lenders are Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, and Canadian Imperial Bank of Commerce.

RBC is known to have examined the Irish banking system in recent times. Last month, RBC chief executive Gordon Nixon said Irish banks stood out “as an example as having way too much leverage in relation to the size of the institutions”.

The Nama process will significantly derisk AIB. It remains unclear whether the Canadian bank has an interest in taking a majority or strategic minority stake in AIB, which has come under severe pressure on international markets as a result of its large exposure to the beleaguered Irish property market.

Although the Nama process is designed to stabilise the financial institutions so that they can recommence normal lending practices, the removal of loss-incurring “toxic” loan assets from their balance sheets would make them a more attractive investment proposition to private investors.