Bulgaria losses pushing AIB to sell $2bn M&T
AIB's Bulgarian bank down 70% since August
Allied Irish shares may also have been hurt after Chief Financial Officer John O'Donnell confirmed on a conference call with analysts that the company won't pay a dividend for 2008. Photo: Leon Neal/AFP/Getty Images
AIB's Eugene Sheehy is under increasing pressure to sell off the bank's stake in M&T bank, after it emerged that Ireland's largest financial institution is sitting on a heavy paper loss on its investment in Bulgarian American Credit Bank (BacB).
AIB issued a profits warning last week, with some analysts forecasting that the bank's profits could fall by as much as 80 per cent on the back of worsening property loans. The bank has revealed that it may sell off non-core assets to bolster its balance sheet.
The slump in the value of BacB has limited AIB's options, intensifying the need to sell off M&T in the US. AIB has seen the value of its investment in the Bulgarian bank drop by 70 per cent since finalising the €216m purchase of a 49.99 per cent stake in August. AIB's shares are now worth less than €60m, representing a staggering €158m paper loss.
BacB's share price has plummeted in the last two months. AIB completed the transaction on August 28, paying 67 lev per share -- last Friday BacB stock tumbled to just 18 lev.
BacB's dependence on wholesale markets for funding and the unprecedented sell-off of emerging markets in recent months has hammered the bank shares. Sofix, the Bulgarian Stock market, has fallen 73 per cent this year.
AIB's unfortunate timing in buying into the Bulgarian bank at the top of the market, is mirrored by its decision not to offload its 24.3 per cent stake in US bank M&T earlier this year. AIB has seen the value of its M&T stake haemorrhage $500m in the last month alone.
M&T's share price has flopped on the expectation that the Buffalo bank may have to fund a $2bn purchase of AIB's 24.2 per cent shareholding. AIB's stake was worth $2.55bn at the beginning of October, but last Friday it had fallen to below $2bn.
It is understood that M&T, which sponsors underperforming American football team the Buffalo Bills, has the first option to buy AIB's 24.3 per cent shareholding. The option is valid for 20 days after the stake is up for sale.
AIB also has the option of selling its shareholding piecemeal, through some form of private placement where no-one single investor can buy more than 2 per cent. Warren Buffet, one of the world's richest men, owns almost 7 per cent of M&T through his Berkshire Hathaway company.
The sale of M&T will mark AIB's final exit from the USA. The bank picked up the shareholding in M&T as part of a deal to sell off its Allfirst banking business, which had been decimated by rogue trader John Rusnak's €690m losses in 2002.
"We cannot announce specific actions in advance. Suffice to say, we have assets and the disposal of assets can bring us up [to a higher capital ratio]," AIB finance chief John O'Donnell revealed in an analyst conference call after Wednesday's trading statement.
AIB is also planning to scrap its final cash dividend this year. This may save the bank as much as €500m.
M&T and AIB's Polish operations are the bank's two biggest overseas assets. Last week Mr Sheehy indicated that the bank sees its future with four key divisions, Ireland, the UK, Poland and its capital markets business. This was the clearest indication that M&T was to be sold off.
- Nick Webb
