Business Irish

Friday 27 April 2018

AIB Investec bid may shake out new firm

AIB chief executive Bernard Byrne has highlighted the need for non-interest income and is set to preside over the Investec deal
AIB chief executive Bernard Byrne has highlighted the need for non-interest income and is set to preside over the Investec deal

Gretchen Friemann

A wave of consolidation and spin-outs could reshape Ireland's corporate finance sector as Davy pitches for greater growth, while its chief domestic rivals, Goodbody and Investec, look destined to change hands within months.

AIB is in exclusive due diligence talks for the Irish operations of South African-owned Investec, with sources claiming a deal may be announced within the next few weeks.

It is understood AIB intends to pay less than €100m for the business with the likely price-tag set at about €70m.

Under the terms of the deal, sources claim AIB will extract Investec's corporate banking arm, which specialises in providing loans to bigger mid-market companies, as well as its private wealth division, which has €2bn in assets under management.

However, a question remains over the highly regarded Investec investment banking unit, led by Liam Booth and Conor McCarthy.

According to sources, a stand-alone advisory boutique that would compete with the likes of IBI Corporate Finance, could be carved out of Investec pre-sale. Investec declined to comment on the speculation.

The South African bank gained significant scale in Ireland after it snapped up NCB stockbrokers in 2012.

As has been widely flagged, Goodbody itself is now the target of an offer from a group of Chinese investors, backed by the state there.

These deals flow from the upswing in the economy, but also from the imminent conclusion of the €158.8m sale of the Irish Stock Exchange to Euronext.

The nation's largest brokers all controlled major stakes in the Dublin bourse and are in line for substantial windfalls once the deal concludes.

Davy stands to reap a profit of €60-€70m while Goodbody will bank close to €50m.

Investec also owned a significant stake in the ISE, inherited from NCB. Yet the wave of activity also underscores the drastic changes in the stockbroking industry and exposes the scars left by the crash.

A decade ago this was a crowded space with close to a dozen players offering stockbroking services.

The field shrunk dramatically as fresh listings dried up, low market volatility hobbled trading opportunities and a more onerous regulatory burden ramped up costs. As one source pointed out, if these firms "can't achieve scale they pack up and go home".

Brexit is viewed as a key factor behind the decision to sell Investec.

Its Irish banking unit is authorised in the UK, where its immediate parent is based.

The Irish wealth management and investment business, Investec Capital & Investments (Ireland), is regulated in Dublin.

For AIB, a deal means a chance to resurrect fee-generating corporate banking and wealth management businesses exited post-crash.

AIB CEO Bernard Byrne has pointed to the need to build non-interest income at the bank.

It's a strategy that chimes with the Central Bank's own view that Irish lenders are too reliant on income delivered directly through interest charges.

Analysis

Irish Independent

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