Wednesday 28 September 2016

No payouts on AIB or BoI shares 'until 2018 at earliest' - analyst

Published 01/08/2016 | 02:30

Dividend payouts to shareholders at Bank of Ireland or AIB are unlikely to take place until 2018 at the earliest. (Stock picture)
Dividend payouts to shareholders at Bank of Ireland or AIB are unlikely to take place until 2018 at the earliest. (Stock picture)

Dividend payouts to shareholders at Bank of Ireland or AIB are unlikely to take place until 2018 at the earliest, it has been claimed.

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It comes as European tests show the two banks remain among the most vulnerable in Europe to a financial shock.

Bank of Ireland chief Richie Boucher. Photo: Steve Humphreys
Bank of Ireland chief Richie Boucher. Photo: Steve Humphreys

The State's two biggest banks are likely to continue to build capital amid the risk posed to the Irish economy from Brexit, Darren McKinley, senior equity analyst with Merrion Capital, said.

European-wide stress tests gauging how banks would survive a recession revealed that both AIB and Bank of Ireland fared poorly.

The tests measured lenders' ability to weather a severe recession over three years, and AIB was the second-worst performer in the so-called adverse scenario. Bank of Ireland, the only other Irish bank tested, fared better but was the fourth-weakest out of 51 banks tested.

Both lenders would see significant capital eroded in the event of a severe downturn, the tests showed.

AIB chief executive Bernard Byrne
AIB chief executive Bernard Byrne

Read more: Ireland's biggest banks 'among most vulnerable in Europe' to financial shock

The banks and the Department of Finance said the tests did not reflect the current strength of the banks, as they were based on an end-of-2015 position.

Mr McKinley said the banks were well capitalised, and balance sheets were improving, but said the risks posed by Brexit meant dividend payouts would be pushed out.

"My thinking is that the first dividend for any of the banks will be March 2018 on the back of full year 2017 results, and that would be at the earliest," Mr McKinley said.

Bank of Ireland has already cast doubts on the timing of its dividend to shareholders, with the Brexit vote partly to blame.

Chief executive Richie Boucher stressed the lender was still committed to a shareholder payout, but said the certainty he had earlier this year concerning the timing of 2017 was not as strong. AIB chief Bernard Byrne said earlier this week that the State-owned lender would begin talks with the Department of Finance about devising a dividend policy.

The stress tests looked at the capital that banks would be left with after a crash using a standard measure called core equity tier 1 (CET1).

Under a severe scenario, AIB would be left with CET1 of 4.3, below the 5.5 level analysts see as adequate.

Bank of Ireland's CET1 in a stress scenario of 6.1 is also well below the average.

Bank of Ireland and AIB both dismissed the tests as a snapshot in time, as it reflected the position at the end of last year.

AIB said the tests did not reflect "current or future improved financial performance".

Bank of Ireland said its capital position was strong and it continued to generate capital.

The two Irish banks both published positive financial results this week, showing significant profits. But the test results will come as a blow, almost nine years after the start of the financial crisis.

Mr McKinley said capital continues to build in the banks, and non-performing loans continue to fall.

And he said a part sale of the Government's stake in AIB would still go ahead, although potentially not until late spring or early summer of next year.

"I think AIB can continue to go for a flotation, but it would be March, April, May next year at the earliest.

"The Brexit concern is more of an issue at the moment. With Brexit, the probability of that stress test becoming a reality is more plausible," he said.

Meanwhile, a spokesman for the Department of Finance said Fianna Fáil's push to cap variable mortgage rates was premature in light of the results.

Irish Independent

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