Santander in pole position for €1.2bn AIB stake in M&T
Discussions on knife edge as Spanish consider bid
Banco Santander, the Spanish bank that is valued at €75bn, is thought to be in pole position to buy cash-strapped AIB's stake in the US bank M&T.
Discussions are on a knife edge, but Santander is believed to have edged in front of Canadian bank Toronto Dominion in the race to purchase AIB's 22.5 per cent stake in the east-coast bank.
M&T shareholder Warren Buffet is also rumoured to have looked into buying the stake. At close of trading on Friday, AIB's shareholding was worth about €1.2bn.
Santander is also said to be negotiating directly with M&T bank over a merger with its own US subsidiary Sovereign in a move to create the ninth-largest bank in the US.
Talks with the US Federal Reserve are believed to have taken place in a bid to secure regulatory approval.
Santander has adopted a massively risky expansion programme as the global economy gasps for air. Last month, the bank agreed to buy AIB's 70 per cent stake in Polish Bank Zachodni for€3.1bn.
It has also bought 318 branches and assets from Royal Bank of Scotland, $4bn worth of car loans from HSBC and a stake in a Mexican bank.
The Spanish bank is thought to be planning to float its UK businesses, although market volatility may delay this until early in 2011.
AIB desperately needs to raise €7.4bn by the end of December to meet regulatory requirements. After selling its Polish and US assets, it is also likely to try to raise up to €3.5bn through a rights issue and the sale of other assets, including its investment management division and other overseas banking businesses, according to analysts.
Last week, AIB agreed to sell Goodbody Stockbrokers to Fexco for €24m.
Failure to raise enough money from sales or a rights issue will force AIB to turn to Brian Lenihan for a further bailout and will lead to it being majority-owned by the State.
Outside of Poland, AIB's foray into Eastern Europe and the Baltics has been an utter disaster. Former CEO Eugene Sheehy blew €216m to buy a 49.9 per cent stake in Bulgarian Bank BACB as the markets were crashing in February 2008. That stake is now worth just €33m. It also owns AM Credit in the Baltics.
Last week, it emerged that AIB's UK operations, including its First Trust operations in Northern Ireland, were being eyed up as a potential target by NBNK Investments, a group seeking to create a brand-new high-street banking business in Britain.
Former EU commissioner Charlie McCreevy is one of the board members of NBNK. AIB is thought to have received other expressions of interest for its UK businesses.
However, last week's grim economic news puts further pressure on the crippled bank, as a return to recession may lead to more businesses and homeowners defaulting on their loans, which in turn would lead to further losses.
One banking insider raised questions about how AIB could ultimately become profitable. Its customers are likely to be hit hard as banks end free banking and transaction fees are introduced.
Mortgage rates will also have to increase, while deposit rates for savers will fall.