Monday 21 August 2017

AIB will pay no tax for 30 years after IPO, brokers told

Crash losses mean deferred tax asset advantage may extend until 2047

'Last week, Noonan launched the long-awaited €3bn sale of shares in AIB, which will see the bank return to the stock exchange almost seven years after it was nationalised.' (stock photo)
'Last week, Noonan launched the long-awaited €3bn sale of shares in AIB, which will see the bank return to the stock exchange almost seven years after it was nationalised.' (stock photo)

Samantha McCaughren Business Editor

AIB will pay no tax on profits for up to 30 years due to the huge losses it racked up over the course of the financial crisis, stockbrokers and market analysts have been told.

In presentations given in recent days, the bank described how its deferred tax asset (DTA) of €3bn gives it advantages over many other listed banks. The DTA accounting practice allows companies to offset previous losses against future tax bills.

At one stage, there was cap on the amount of deferred assets which could be used by the bank. A cap introduced in 2009 applied to banks which had transferred assets into Nama and restricted their use of deferred tax assets to just 50pc of their corporation tax bill every year.

However, in Budget 2014, Finance Minister Michael Noonan scrapped the cap.

It was speculated at the time that AIB may not have to pay corporation tax for 20 years but in recent days, the bank's representatives have told the investment community in pre-IPO presentations that the use of the DTA may extend out as far as 2047.

Last week, Noonan launched the long-awaited €3bn sale of shares in AIB, which will see the bank return to the stock exchange almost seven years after it was nationalised.

The listing will result in the Government selling 25pc of the bank, which is almost entirely state-owned. The remaining shares, worth around €9bn, are expected to be sold off over time.

Institutional interest in the listing is expected to be strong but some market sources said they believed interest from retail investors may be weaker than they originally expected.

One broker said that he was adjusting his view of the 'scaleback'.

This relates to level at which a listing is oversubscribed. For example, if a float is three times oversubscribed, investors signing up for shares worth €300,000 would only receive shares worth €100,000. Brokers usually have a sense of this ahead of the listing to ensure clients get close to the amount they actually wish to buy.

In a note to private clients Barclays outlined why it believed that AIB has advantages over Bank of Ireland stock. It described AIB as a cheaper way to invest in the Irish economic recovery and any upside it delivers.

"AIB is a purer play on the Irish economy," said a note, which claimed that Bank of Ireland's current valuation looks "very full" with an expectation that its stock would see downside "as investors educate themselves on a cheaper play on the Celtic Tiger".

The AIB prospectus and price range are expected to be published in mid-June.

Sunday Indo Business

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