AIB investors monitoring its bad loan progress
AIB is unlikely to confirm that Lone Star, Cerberus and Goldman Sachs are in the final round of bidding for its €3.7bn Project Redwood loan sale when it presents annual results today, but investors are looking for evidence of further substantial reductions in its non-performing exposures (NPE).
Despite the political explosions surrounding Permanent TSB's mortgages sale, the markets as well as regulators want to see progress from AIB on tackling its bad loans.
As this newspaper first reported last week, the race for AIB's Redwood portfolio of non-core loans has been whittled down to the three contenders mentioned.
The bank has imposed tough restrictions on Redwood - which is made up of a range of soured exposures but excludes home loans - limiting the bidding to regulated entities amid deepening political unease at the distressed debt funds' widening market reach. Permanent TSB is battling a public outcry at its decision to offload 18,000 owner occupied and buy-to-let mortgages to comply with Frankfurt's tougher regulatory regime for European banks.
Yet AIB's CEO Bernard Byrne is unlikely to match the recent cascade of candour from PTSB boss Jeremy Masding by providing any insight into the Redwood loans earmarked for sale.
Mr Byrne is expected to downplay any prospect of home loan sales although he may stop short of ruling out that option.
Instead the market is expecting management to highlight the 'cure' rate of its troubled loan exposure, 18pc of the overall loan book - more than three times higher than the European average. According to sources, AIB's 'cure' rate has been boosted by the widespread media coverage of its loan portfolio sales, because the prospect of being included in the sale has pushed some borrowers into a greater level of engagement with the bank.
However, Goodbody analyst Eamonn Hughes pointed out the pace of NPE reductions has been swift, with AIB's "run-rate" resulting in non-performing exposures falling by about €500m every three months in 2017.
He predicts the full-year 2017 results will show a continuation of this trend and expects NPEs to shrink to about €11bn, equivalent to 17pc of the total loan book. By THE end of 2019 he anticipates AIB's soured exposures will have more than halved to about 6-7pc of the overall loan book. While this target will be accelerated by loan portfolio sales, like Redwood, he claims the NPE reduction rate so far indicates the "machine is working" as AIB's treatment or forebearance measures on problematic exposures helps cleanse the balance sheet.
But Goodbody's sanguine outlook is not shared by analysts at Macquarie, which characterise AIB's ambition of reducing NPEs to 5pc in the medium term as "ambitious".
Macquarie predicts that AIB's non-core loan portfolio disposals will chip 0.4pc to 1.3pc off its common equity tier 1 ratio, a key measure of a bank's ability to withstand a downturn.
AIB's hefty capital buffers, which at 17.6pc are well above target, generated much of the excitement in the run-up to last year's €3.4bn flotation.
Macquarie thinks that narrative of AIB having "surplus capital" that could come back to shareholders as dividends has been overdone.
It says the lender "remains in a process of rehabilitation that will only be complete when it has demonstrated it can durably improve sustainable returns, has cleansed its balance sheet of NPEs and has returned fully to private ownership".