Business Irish

Wednesday 21 February 2018

AIB stakes sold for €4.5bn now worth over €9bn

Polish bank and US lender M&T double in value

Banks will be left with no option but to cut extortionate variable mortgage rates after AIB buckled and said it was now likely to reduce its rates within two months.
Banks will be left with no option but to cut extortionate variable mortgage rates after AIB buckled and said it was now likely to reduce its rates within two months.
Gavin McLoughlin

Gavin McLoughlin

Bank stakes sold off by AIB during the financial crisis are now worth twice what the State-owned bank got for them.

In November 2011, the bank sold a 22.5pc stake in US lender M&T bank for around €1.5bn. Today that stake is worth €3.4bn as its share price has risen.

The State-owned bank disposed of a 70pc stake in Polish lender Bank Zachodni WBK for €2.9bn in 2011. Today that stake is worth €6.3bn.

The current value of those lenders includes acquisitions that have come about since AIB announced its plans to sell in March 2010. Zachodni merged with Polish lender Kredyt Bank in 2013 in a deal that valued the latter at around €1bn, funded by Zachodni's new parent Santander.

M&T Bank agreed to buy financial services holding company Wilmington Trust in late 2010, for around €270m, days before AIB completed its disposal of the M&T stock.

The valuable stakes were disposed of in a fire-sale to enable the bank to meet capital requirements imposed on it by the Financial Regulator.

An AIB spokeswoman described the sales as "a self-help measure".

In a 2010 press release announcing the intention to sell, AIB said it welcomed a commitment by the Government to provide more capital if the sale did not generate enough cash. If the Government had provided the capital instead of allowing the stakes in M&T and Bank Zachodni to be sold, the State would now be sitting on billions in profit.

The decision to sell the assets was taken before the bank was nationalised.

The move saw the company sell the stakes to focus on core assets, but the money raised still wasn't enough to plug the massive hole on the bank's balance sheet, and then finance minister Brian Lenihan was forced to pump €3.7bn into the bank in December of that year.

"Nobody envisaged that the markets would perform so well in the next coming years and would recover so quickly, so I don't think they can be blamed," Cantor FitzGerald Ireland chief economist and head of financial research Fiona Hayes told the Sunday Independent.

"It's unfortunate but at least the Government didn't rush to start selling its stakes before AIB started to return to profit, before they could get a decent valuation," she said.

"They held on to a lot of non-performing loans, they held on to a lot of assets that have been allowed to recover. That whole process of simplifying the net European banking structure, concentrating on its home market and concentrating on core activities has not just been the Irish banks."

"The whole banking system has gone back to what it should have been: a more conservative, traditional banking model and not getting involved in markets that they shouldn't be, that are outside their geographic or natural knowledge base," Ms Hayes added.

AIB is now close to a return to private ownership. Finance Minister Michael Noonan has said the Government may be able to start selling off its 99pc stake as soon as October.

The bank is due to appoint a new chief executive shortly, with David Duffy departing for Scottish bank Clydesdale.

Director of retail and business banking Bernard Byrne is thought to be favourite, with chief financial officer Mark Bourke also said to be in the frame. AIB returned to profitability last year, Taxpayers have pumped €21bn into it.

Sunday Indo Business

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