Canadians still have an eye on AIB's stake in US lender
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Thursday November 19 2009
Allied Irish Banks, which needs to raise billions of euro to bolster its capital reserves over the next few years, is continuing to be circled by Canadian Imperial Bank of Commerce (CIBC), according to sources.
However, it is believed that CIBC, which first emerged as an interested party last August, is more interested in AIB's 24pc stake in US bank M&T than in taking a strategic holding in the group itself.
AIB reiterated in its latest trading update yesterday that its three main potential sources of capital included tapping investors for equity; selling a strategic stake; or selling off assets.
Raise €2bn
It said in mid-September that it aimed to raise €2bn through any combination of these avenues over 12 to 18 months.
This, analysts estimate, would only leave it with an equity tier one ratio -- a key measure of a lender's financial stability -- of between 4pc and 5pc at the end of the process.
But AIB left investors with little doubt yesterday that it was planning to raise in excess of the €2bn target, after saying: "Market expectations and regulatory requirements for banks to hold higher levels of capital continue to evolve and in that context we are reviewing the quantum and ratios appropriate for AIB."
Bank of Ireland boss Richie Boucher went one step further recently by acknowledging that the emerging market consensus was that banks would need to build up equity tier one ratios of 8pc over the medium term.
Analysts at Goodbody Stockbrokers think AIB needs to raise €3.5bn over the next three years, in addition to selling its M&T stake, to bring the bank's equity capital ratio to 8pc by the end of 2014.
A sale of the M&T stake, which has a market value of about €1.2bn, would currently release about €500m to €600m of capital for the group.
Even if AIB were still intent on holding onto its M&T stake, the general view in the market is that it will be forced by the European Commission to dispose of the holding in return its €3.5bn state bailout this year.
AIB filed a mandatory restructuring plan with Brussels last Friday, but said yesterday it was "premature at this very preliminary stage" to speculate on what sanctions the commission would impose.
It is expected that Brussels will start making serious noises about measures it wants Irish banks to take towards the end of the first quarter of next year.
The possibility of CIBC taking over AIB's M&T stake to increase its foothold in the US would receive a mixed reaction in Canada, where the financial system has fared far better during the global financial crisis than in most jurisdictions.
Shareholders
"Canadian banks are going to come under increasing pressure from shareholders and analysts to capitalise on what's seen as a once-in-a-generation opportunity to buy US retail banks," Brad Smith, analyst with Blackmont Capital in Toronoto, told the Irish Independent.
But he added: "We think that's a big mistake. We don't think they have any clear advantage in the competitive US market.
"It would not amount to good use of capital from a risk-reward perspective."
Meanwhile, NCB Stockbrokers analyst Ciaran Callaghan said yesterday that it was also possible that AIB's prized 70.2pc-owned Polish unit Bank Zachodni WBK could be put on the market as part of the group's "drive to increase capital ratios".
- Joe Brennan
Irish Independent
