AIB HAS agreed the forced sale of its prized Polish bank, raising a third of the €7.4 billion that it must find by the end of the year to plug the capital hole in its finances and avoid majority State ownership.
Spain’s largest bank, Santander, bought AIB’s 70 per cent stake in Bank Zachodni, Poland’s third-largest bank, for €2.9 billion and the bank’s share in a Polish asset management firm for €150 million.
The sales boosted AIB’s capital by €2.5 billion, leaving €4.9 billion left to raise to shore up the bank’s cash reserves following the property crash and reach the Financial Regulator’s capital target by the end of this year.
The shortfall amounts to about eight times the bank’s market value.
AIB is also selling a stake in US bank MT, its British business and First Trust bank in Northern Ireland.
The bank has also said that it intends to raise further cash by selling new shares through a rights issue to shareholders and investors.
If AIB fails to raise the remaining cash, the Government will increase its interest from its existing 18 per cent stake by converting the remainder of last year’s €3.5 billion State bailout into a full shareholding.
This may lead to the State taking a majority stake in the bank – perhaps as much as 75 per cent – which would lead to the Government taking control of a fourth Irish financial institution.
Minister for Finance Brian Lenihan welcomed the sale of the Polish bank in a statement last night.
AIB’s managing director Colm Doherty said yesterday he didn’t know whether the Government would end up with a majority stake.
The bank was “trying to minimise the amount of money the State has to put into AIB”, he said, and the sale of the Polish bank was the first step in this plan.
“This is a good start. We have got a very, very fine price for this business. We have more announcements to make over the next four weeks and I hope we can achieve that,” said Mr Doherty.
He added that there was “a lot of interest” in AIB’s stake in MT and the UK banking division.
Santander, the world’s fourth most profitable bank, was reported to be interested in both but Mr Doherty declined to comment on the Spanish bank’s intentions.
He acknowledged that the financial markets were “difficult” at present but he believed AIB’s share price would rise with the sale of the overseas business improving the prospects for a successful rights issue.
The bank had also received “positive feedback” from investors interested in buying AIB shares and had appointed underwriters to support the rights issue, he said.
The price paid for the Polish bank – which Mr Doherty has described as AIB’s “jewel in the crown” – was “a very fulsome price”, he said, adding that it was €500 million higher than what had been generally expected.
AIB had to sell its profitable asset, which was worth €4 billion at its peak three years ago, to cover losses on loans moving to the National Asset Management Agency.
The bank was a reluctant seller after 15 years in the Polish market.
Bank Zachodni was regarded as an investment that would grow significantly in value, given the prospects for Poland’s burgeoning economy.
AIB shares remained largely unchanged on the Irish Stock Exchange after news of the deal emerged. The bank rose 7 per cent on the New York Stock Exchange following its 5pm announcement of the deal after the Dublin market closed.
Meanwhile, the Financial Regulator said Irish Life Permanent – the only domestic bank not requiring a cash injection from the Government – had to raise €145 million by the end of May 2011.
The regulator set the capital target after carrying out a stress test on the company’s banking division, Permanent TSB, the largest mortgage lender during the boom.
The bank has been propped up by Irish Life, the group’s profitable pensions and investments company.
ILP intends to raise €925 million by its own means for Permanent TSB to offload the loss-making lender into a new bank in a potential merger with EBS building society.
The company is one of four parties to have submitted a bid for the State-controlled building society.
