Richard Curran: It doesn't matter who buys AIB shares, just how much they pay
As D-Day approaches for the pricing of the AIB flotation, it appears demand for the stock is relatively high and so around 28pc of the State's shareholding will be sold in its IPO.
Of course demand for stock is one thing, at what price is a key question for how big a cheque the State will receive for selling its first tranche of shares.
Reports last week suggested that AIB chief executive Bernard Byrne had set his sights on mainly fund managers with long-term perspective, rather than hedge funds, as investors. The idea being, hedge funds might pay more but would only have a short-term interest in the bank.
What is wrong with that? Surely the idea is to secure an IPO which creates a market for the stock, together with a liquid valuation, that also delivers the best possible price to the exchequer. There is nothing wrong with having some hedge funds in there at all, as long as they are willing to pay top dollar for it. Let's say they buy the shares at IPO, and then look to offload them relatively quickly. In theory this could drag the share price down or cause it to fluctuate. So what?
If the share price is low, then the State should delay any sell-down of further stock. In the meantime AIB should be selling to a variety of investors who are willing to pay the best price right now. After all, we are only talking about 25pc to 28pc of the shareholding, not the entire bank.
If anything, international bank stocks have become pretty boring investments since the crash. They are more about a steady long term play where investors want certainty about the dividend rather than expect some kind of exponential growth.
Looking at the AIB investor presentation, that is most likely what they will get. It emphasises the reduction in non-performing loans, the growth story of the Irish economy and the bank's strong market positions. There is plenty of room for upside.
But the flip side is that AIB still has around €9bn of non-performing loans, the growth story of the economy is by no means certain, and there are signs that in the mortgage market some competition is starting to take effect. Bank of Ireland decided to reduce its fixed rate mortgage offerings during the week by up to 0.35 percentage points. Analysts attributed this to market pressure.
AIB has done well in hacking down non-performing loan numbers. Yet, 16,500 of its 39,000 mortgages on forbearance were in "arrears capitalisation". This is where the bank simply adds on the arrears to the total amount owed and it doesn't really represent a solution at all.
On the plus side for AIB, more people are being released out of negative equity and interested in buying again. More people are in jobs and incomes are rising. The bank will be well placed to capitalise on that mortgage potential.
However, as long as the Central Bank lending criteria restricts mortgage lending to 3.5 times salary and retains strong rules on loan-to-value, there is a ceiling on the growth of that mortgage market. More people are chasing not enough houses, but many still cannot afford to get a mortgage at current house prices. That is why the Central Bank does not see it as a housing bubble.
All of these factors should cool the heat of the mortgage story but it still should deliver some decent returns for AIB given its market position. It may explain why AIB is emphasising the growth in its corporate and SME loan book in its presentation rather than overplaying the mortgage potential.
After the shock of the crash, many households and businesses remain somewhat risk averse. They have been paying down debt.
AIB's net loans to customers at the end of 2016 were €60bn, down from €63.3bn a year earlier. If currency movements are taken out, it was up by just €600m.
This apparent modest growth came despite over €8bn of new lending. This is as much about the legacy of the crash and risk aversion, and it does not mean AIB's profits won't grow. That growth may be steady as she goes, rather than anything too explosive.
Price gouging will cost tourism sector dearly in the end
The British public seem less worried about Brexit than we are, but fewer of them are visiting Ireland because it has become more expensive. It isn't just about the fall in sterling. The latest tourist figures show that in the first three months of this year, there were 55,000 fewer trips from visitors from Great Britain than in the same period in 2016.
Taking an average spend per visitor into account, this is a big hit to the sector. The problem is it could get a whole lot worse. To some extent, the performance of other markets, such as the US, has left the industry with a solid story to tell but the trend is worrying. Sterling is likely to fall further before it goes up with any great consistency thereby making Ireland even more expensive to visit.
British visitors are our number one market. UK inflation is running at 2.9pc while incomes are rising at an average of 2pc, thereby eroding the real standard of living for our nearest neighbours. What is also troubling is the fact the average length of stay is down and average spend in the country per visitor is lower. This isn't just from British visitors. In the first quarter of 2017, we had more visitors but the industry took in less money. The figures suggest issues beyond sterling and Brexit are at play. It is about the cost of our tourism product. More people came because Ireland is still on the up as an "in" destination but they are cutting their trips shorter, presumably because it has become more expensive.
Why would Europeans and Americans reduce the number of nights spent here on average, when currency has not been a factor for them in any significant way? Old style price rip-offs be creeping back in.
DUP shows Theresa May how all politics is local
All politics is local, is how the old saying goes. And it was never so true as with the DUP negotiations with Theresa May on forming a new government in Westminster. As thousands of people in Britain did Google searches to find out who the DUP were, media heads across the water were trying to establish exactly what the party's position was on a hard or soft Brexit. Would the DUP try to influence May in favour of a softer Brexit, such as staying in the customs union?
Details of one stumbling block emerged during the week. It wasn't whether a Norwegian or Swiss type relationship with the EU should be sought. Neither was about the role of the European Court of Justice during any transitional arrangements.
No, it was about convincing May to drop the airport travel tax out of Belfast. Known as the Air Passenger Duty of £13 each way, the DUP were apparently concerned that the tax in the South had been abolished. This gave the South an edge and many Northerners have been flying out of Dublin. It's tricky because if powers to set the tax are given to Stormont, the same will be sought from Cardiff administration.
Sunday Indo Business