Monday 9 December 2019

Market tremors highlight risk of buying brokers as cycle nears end

AIB's approach for Investec's Irish unit has been greeted with surprise in business circles, and prompted some to question the wisdom of pursuing a broker nine years into a bull market.

While the bank is only assessing a potential purchase, this week's ructions across global stock markets offered a timely reminder that the current economic cycle is nearing an end.A relentless rise in asset valuations, buoyed by low interest rates, won't last forever.

On the flip side, AIB remains heavily capitalised and lacks the asset management footprint of other retail lenders - a valuable source of fees that provide a steady alternative to interest rate income.

AIB made no secret of its intentions on that front, highlighting in pre-stock market flotation meetings an intention to acquire non interest-generating assets.

AIB's massive capital reserves, amassed partly as a result of its high burden of non-performing loans, is expected to flow back out to investors via special distributions or share buybacks over the next two to three years. But as one analyst pointed out, the reserves still leave plenty for an acquisition.

Investec's corporate bank and its large private wealth management arm may ultimately be viewed by investors as a boon. Timing and price though are everything.

Irish Independent

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