AIB gets window to sell off $2.2bn holding in M&T
Investors betting on slump in US lender badly stung after 7pc rise in share price
Allied Irish Bank will see a window of opportunity open from this afternoon to flog its $2.2bn (€1.6bn) stake in M&T as the US regional lender reports figures.
The report takes M&T out of a so-called 'closed period', when companies are restricted in relation to market-moving activities or statements. These periods last from when a financial period ends and when the figures are reported.
M&T's chairman and chief executive Robert Wilmers is a non-executive director on AIB's board, and would be fully appraised of the timing of a sale of the 22.5pc stake in his bank. AIB boss Colm Doherty and his two predecessors Eugene Sheehy and Michael Buckley also sit on M&T's board.
Analysts estimate AIB could unlock more than €900m of capital through the disposal.
AIB officially flagged the sale of the M&T holding -- as well as its UK and Polish interests -- almost three weeks' ago, when it emerged that Financial Regulator Matthew Elderfield had demanded it raise €7.4bn by the end of this year to reach new regulatory capital targets.
"AIB has told us for some time that it has levers it can pull to raise capital. Well, the M&T stake is most likely to be the first," said a senior Dublin stockbroker, who declined to be identified.
The period in which AIB could dispose of the stake will close again in 10 weeks' time, when M&T's second quarter ends and the bank enters a new 'closed period'.
Observers expect AIB will look to place the stock among a large number of institutions at about a 10pc discount to the market price. It would most likely be managed by Wall Street bank Morgan Stanley, alongside AIB Corporate Finance.
Under the 2003 merger agreement between AIB's former US subsidiary Allfirst and M&T, AIB does not have to get M&T approval if it arranges to sell the shares to a raft of investors and where no party ends up with more than 2pc of the stock.
If AIB plans to sell the stock to one party, it must give M&T management first refusal, which is valid for 20 days. The group could also opt for a 'tender offer' to M&T shareholders or a buyback by M&T -- both of which are considered unlikely.
US investor Warren Buffett's Berkshire Hathaway owns a further 6pc of the bank.
Shares in M&T have jumped as much as 7pc since AIB publicly conceded its stake would be sold. This is of concern to a large number of investors that have been betting heavily on the stock falling in value -- or 'short selling'. It is estimated that almost 13pc of the stock is in the hands of short sellers. Their strategy is to borrow stock and sell it in the hope it will drop in value -- before buying it back and returning it to the original owners.
If it works, they pocket the difference. But if the stock rises, these investors face massive losses.