Business Irish

Sunday 31 August 2014

AIB restructuring plan gets the green light

Donal O'Donovan

Published 08/05/2014 | 02:30

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Joaquin Almunia

AIB will have to cap its holding of Irish government bonds and distribute advertisements for its competitors in order to comply with EU state aid rules.

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The European Commission yesterday approved a restructuring plan for AIB, saying it believed the blueprint could return the bailed-out lender to profitability.

Approval was required because of state aid received by AIB and its subsidiary EBS since 2009. Under the terms of the approval, the bank is barred from engaging in takeovers, or from paying any discretionary interest on debts such as the preference shares the bank owes to the Government.

Restructuring of customer loans and mortgages must be based on economic and commercial criteria, the EU said.

The bank has also committed to repay its state bailout – subject to operating performance.

The bank must also take specific actions to boost competition in the banking sector, including to support any new entrants to the market here.

The restructuring plan covers the period from 2014 to 2017.

EU backing for the AIB plan, which was presented for approval by the Government back in 2012, had been expected. Competition authorities previously approved Bank of Ireland's restructuring plan, leaving Permanent TSB as the remaining bailed-out Irish lender still waiting for its plan to be signed off for authorities.

"Its restructuring plan sets out the right measures for this bank to return to profitability without unduly distorting competition in the Single Market.

ATTRACT

"In particular, AIB will implement market opening measures over the next three years to attract new entrants to the concentrated Irish banking market," EU Commission vice president Joaquin Almunia, pictured, said.

Banking analyst Ciaran Callaghan at Merrion Stockbrokers said approval had been expected but that the timing, ahead of bank stress tests due to take place in the autumn, was important.

"Approval ahead of the stress tests gives further confidence that the AIB balance sheet is seen as robust," he said.

He said the decision was a further positive step towards the re-privatisation of the lender.

Since the banking crash, AIB has dramatically simplified its structure, including selling €21bn of non-core loans and exiting businesses in Poland and the US, so there was relatively little EU authorities could demand.

A specific cap on the bank's holding of government bonds is an unusual condition imposed under yesterday's decision.

At the end of December, the bank held €10bn of such assets, which are regarded as low-risk by bank supervisors and therefore attractive for the bank itself.

However, having a state-owned lender investing in scale in government bonds is seen by some as intensifying the already problematic links between the sovereign and the bank.

Lending to the government rather than to households and businesses is arguably of less value to the wider economy.

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