Monday 23 April 2018

New AIB chief says group being 'circled by investors'

AIB managing director Colm Doherty
AIB managing director Colm Doherty

Joe Brennan

Allied Irish Banks' new managing director Colm Doherty said the group is being circled by a number of strategic investors as it seeks to avoid State control by raising up to €4bn of equity this year.

He conceded, however, that the Government may end up taking shares in lieu of cash for an upcoming dividend payment in May on its €3.5bn investment last year.

A similar situation at Bank of Ireland last month left the State with a 15.7pc direct holding. Based on current prices, the State would end up with an even higher stake in AIB.

But Mr Doherty signalled that AIB will initially look to start selling foreign assets before going out cap-in-hand to shareholders for equity and, as a last resort, back to the Government.

"My own preference is only to issue equity after we have exhausted and implemented all of our 'self-help' options," Mr Doherty said.

The comments came as AIB unveiled a €2.3bn net loss for 2009 -- the first in its 43-year history -- after writing down a record €5.3bn of bad loans, mainly related to property and construction lending.


Still, the figures were better than the market expected, as a tight rein on costs -- even as AIB's net interest margin tightened to 1.92pc from 2.21pc in 2009, helped the group's operating profit jump 11pc to almost €3bn.

While AIB has been locked in talks with the European Commission on its restructuring plan, necessitated by its €3.5bn state bailout last May, Mr Doherty suggested he would not wait for a Brussels ruling before starting asset disposals.

"I don't see the benefit of waiting for the EU," Mr Doherty said, adding that he is sitting on a board-approved capital plan. "We know we need capital. We have a number of levers that we can pull."

AIB confirmed that it is planning a debt restructuring -- involving its so-called lower tier two bonds -- which will raise an estimated €300m-€350m of much-needed capital.

The managing director declined to disclose the identities of potential strategic investors, though it is known that Canadian Imperial Bank of Commerce (CIBC) has been in the mix since late last summer.

However, market commentators fear some potential strategic partners may be put off if AIB decided -- or was told by Brussels -- to sell its 70.3pc-owned Polish unit Bank Zachodni WBK, considered to be the jewel in the group's crown.

AIB's 'criticised loans' -- including impaired and vulnerable loans as well as those that are being carefully monitored -- reached €38.2bn, or 29pc of total loans by the end of the year.

"This is a bit lower than our €40bn forecast and implies much less deterioration in the second half than the first half," said Emer Lang, an analyst with Davy. Impaired loans of €17.5bn include €11bn of the €23.2bn of property loans AIB is transferring to NAMA.

"The group is not issuing any impairment guidance, but we are sticking to our through-the-economic-cycle charge of €14bn," said Ms Lang, adding that this equates to 12pc of the loan book over four years.

Mr Doherty said AIB remains in talks with the Financial Regulator over capital reserve targets that will ultimately dictate what level of equity the group needs to raise this year.

He said that the general consensus is that European banks need to hit an 8pc equity capital ratio -- a key level of a lender's financial stability -- by the end of 2012.

However, Ireland's State-guaranteed banks are concerned that the watchdog will set an 8pc target for this year. "Banks need to be given time to rebuild their capital bases. If you're given an extremely tight deadline, that doesn't serve anybody," Mr Doherty said.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business