Saturday 24 February 2018

AIB to announce first post-crash dividend

Bernard Byrne ceo of AIB which is to announce results today
Bernard Byrne ceo of AIB which is to announce results today
Donal O'Donovan

Donal O'Donovan

The decision by Bank of Ireland to defer payment of a shareholder dividend for 2016 is a positive for the business "given current macroeconomic uncertainties," Moody's analyst Irakli Pipia says in research note.

On February 24 management at the partially State-owned lender said they would hold off on what would have been the first dividend paid to Bank of Ireland shareholders since the financial crash, citing concerns about the potential impact of volatile bond market on its pension deficit, and therefore the bank's capital levels.

In a generally positive note on the bank Moody said Bank of Ireland's cost of credit risk "will stabilise at a level somewhat higher" than where it is now.

That's potentially bad news for borrowers if it translates into higher interest rate charges.

Meanwhile, AIB will announce its first dividend since the crash when it reports financial results for 2016 today.

The results are important because they are the last before the almost entirely State-owned lender is due to sell 25pc of its shares in a stock market listing probably in May or June.

"Paying a dividend is important from the perspective of the IPO (listing)," said Owne Callan, an analyst at specialist bank Investec.

"It does two things: one is making AIB attractive to income stock investors, two is to speak to the credibility of the non-performing loan position.

"A dividend would suggest management and the regulator are comfortable with that," he said.

Having at least one bailed-out bank pay a dividend would also be positive for the State coffers. It will get the vast bulk of any cash paid out by AIB in a dividend, in addition to around €3bn that is expected to be raised from the sale of a 25pc stake in the bank.

For today's results, investors will focus on the pace of recovery in AIB's bad loans, particularly after Bank of Ireland's surprisingly strong pace of recovery, Callan said.

AIB's pension liability is likely to have benefited, like Bank of Ireland's, from a positive swing on bond markets last year, but remains subject to market volatility outside the control of management, led by ceo Bernard Byrne.

The value of the State's holding in AIB was at €11.3bn at the end of December - down €900m since the previous year, in line with a general decline in Euro area bank stocks.

The Government owns more than 99pc of AIB after pumping around €21bn into the bank to save it from collapse after the financial crisis.

Results today are expected to show continued profit generation at the bank, in keeping with other Irish lenders.

AIB's business is overwhelmingly focused on the Irish market, which grew strongly last year.

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