Sunday 19 November 2017

AIB 'well placed' to repay €20.8bn for state bailout

David Hodgkinson, Chairman of AIB
David Hodgkinson, Chairman of AIB
Peter Flanagan

Peter Flanagan

AIB is likely to pay back all of its bailout funds over the next decade, with the State now expected to make a profit from its investment in the bank, according to banking experts.

Last week at the bank's annual general meeting, chairman David Hodgkinson stirred controversy by claiming AIB will, "over time, repay the €20.8bn to the State".

His comments were echoed by Finance Minister Michael Noonan but have been criticised in some quarters for being unrealistic.

Now though, banking analysts at Merrion Stockbrokers believe the bank is "well placed" to pay back all the money.

"Assuming that the Irish economic recovery remains on track, AIB may be in a position to write-back a material portion of its bad debt charges over coming years," said Merrion's banking analyst Ciaran Callaghan in a note to clients.

"We note the possibility of structuring a mechanism whereby the State is able to claw back a large portion of any write-back in future years.

"This would allow the State to benefit from any future upside and at the same time to return the bank to majority private ownership."

Mr Callaghan cited the bank's planned restructuring as being well positioned to facilitate the lender's repayments to state coffers.

"The reorganisation involves a sub-division of shares and a potential capital reduction to increase distributable reserves.

"The (capital reduction) will facilitate a partial or full conversion of the 2009 preference shares worth €3.5bn and allow the bank to make future payments of cash dividends.

Mr Hodgkinson said he plans to repay its bailout funds "over time", with the first tranche possible after the ECB completes its stress tests of EU lenders later this year.

According to Mr Callaghan, AIB is on course to reimburse the State up to €6bn over coming years while AIB's equity valuation could be worth between up to €12bn to €15bn depending on the strategy adopted by the State to re-privatise the institution – something he would like to see happen sooner rather than later.

"Given the existing favourable market backdrop coupled with the demand for Irish assets, we believe an accelerated disposal strategy would be most desirable, with the bank likely to be in a strong position to approach investors post the FY 2014 results early next year," he said.

"By that stage underlying fundamentals and earnings generation should have demonstrated sustained improvement with residual risks also diminishing.

"We also note the potential for the State to retain an economic interest in AIB through a minority shareholding allowing the exchequer's cashflows to benefit from future dividends."

Irish Independent

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