Wednesday 21 August 2019

AIB 'formulating plan' to return capital to investors

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Donal O'Donovan

Donal O'Donovan

AIB's management is formulating proposals to return capital to shareholders including the State, but is "agnostic" on how that could happen.

The bailed-out bank has built up a huge capital buffer since its €21bn State rescue through aggressive deleveraging, including loan sales and retained profits.

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The bank's core tier one capital, a standard measure of financial strength, is 17.3pc of assets and is well above even the high levels demanded by regulators since the crash.

Investors have long expected the bank to return some of that cash, however that situation is complicated by AIB's high stock of bad loans, at 7.5pc of all lending.

Regulators are unlikely to allow a big payout to shareholders until that is below the eurozone average of less than 5pc - unlikely before the end of the year.

That shareholder payday - the bulk of which will go to the State as 72pc owner of AIB - could potentially be through a share buy-back or special dividend. "We are formulating our plans now," chief executive Colin Hunt said yesterday.

However, any decision will have to be approved by the bank's board, he added. AIB reported a profit of €567m in the first half of the year, before tax and exceptional items.

Higher costs and payouts including a €61m customer refund and costs linked to the tracker mortgage scandal weighed on the bottom line, however.

Including exceptional items, the pre-tax profit was €436m.

The net interest margin (NIM) for 2019 was 2.46pc, down versus the first half of 2018.

NIM is the difference between a bank's interest costs and interest income. The fall reflects a widening of the spread between loans and deposits, offset by a combination of factors such as the rising cost to the bank of holding cash.

Pressure on the bank's bottom line is set to remain a feature, as the European Central Bank looks set to cut at least some of its main interest rates next month.

AIB is paying no interest on current accounts, and charging big corporate customers for parking cash to cope with the fact that it is charged to keep cash overnight at the ECB.

Any cut to the main ECB refinancing rate will benefit AIB's tracker mortgage customers.

The rate has been at zero since 2016 but speculation is mounting it will be cut below zero. That will be passed on to tracker customers, regardless of how low it gets, chief financial officer Donal Galvin said. "I don't believe there are any floors on the (tracker) contract," he said.

Irish Independent

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