AIB faces valuation uncertainty as it prepares to offload foreign assets
Published 22/06/2010 | 05:00
Allied Irish Banks is on track to dispose of key foreign assets but faces "uncertainty" as to whether they will achieve expected valuations, as financial market upheavals continue, according to a top regulatory official.
Jonathan McMahon, assistant director general of financial supervision, said the Financial Regulator was "very involved" in AIB's disposal programme as it races to hit an end-of-year deadline to raise capital.
AIB has been directed to raise €7.4bn to reach an equity core tier one ratio -- a key measure of a lender's stability -- of 7pc by the end of the year. The regulator has applied a 45pc discount to all of AIB's NAMA-bound loans in coming up with the target.
The bank has already signalled the sale of its Polish division, Bank Zachodni WBK, as well as its 22.5pc stake in US regional lender M&T and AIB's UK unit.
The bank has also attracted an approach from Kerry-based financial services company Fexco for its Goodbody Stockbrokers business -- though a deal here is unlikely to add to AIB's capital base.
Mr McMahon said "engagement is close" with AIB on its sell-off programme. But while the bank "is on track to meet its disposal targets", its ability to realise valuations "will be affected" if uncertainty continues.
He said, on balance, that "some businesses are worth more than they thought and some are worth less".
Two months ago, analysts were pencilling in gains of as high as €5.5bn from the sale of the three foreign businesses.
Davy, for example, has since pulled its forecasts back to €4.6bn -- which would mean AIB would have to go cap-in-hand to the State and shareholders for €2.8bn. The lower the proceeds, the higher the stake the State is likely to end up with in the bank.
AIB had to hand over an 18.6pc holding to the National Pensions Reserve Fund last month as it was forced by an EU demand to pay a dividend in shares instead of cash.
Still, AIB's stock has jumped by almost a fifth in the last five trading sessions, amid bid speculation surrounding its M&T and Bank Zachodni stakes.
M&T soared again in New York trade yesterday -- reaching a 21-month high of almost $95 (€77) -- as investors reacted to another report on attempts by Spain's Santander to merge its US business with M&T.
A potential deal between both sides is seen as a way for AIB to sell its 22.5pc stake.
Santander and M&T disagree on who would control the combined firm. Their discussions on the deal broke down in May, with the Spanish bank seeking a deal that would allow it to control the combined bank.