Monday 11 December 2017

State to receive overvalued AIB shares instead of cash

Laura Noonan

Laura Noonan

AIB is set to use its massively-overvalued shares to pay a €280m dividend to the State instead of using hard cash -- but the Department of Finance last night insisted the move would have no impact on the national accounts or finances.

The bank, which is 99.8pc state-owned, yesterday issued a stock market announcement disclosing that it will once again pay a €280m dividend due to the State with shares instead of cash.

Companies using shares to pay dividends typically issue new shares that have the same value as the forgone cash dividends. But AIB's share price is massively overvalued, because it never fully adjusted for its €13bn bailout last summer.

AIB is trading at 7.5c a share, implying a market capitalisation of just under €38.5bn, a valuation deemed as "ridiculous" by many observers.

The National Treasury Management Agency has hired Goodbody's to assign a more "appropriate" value to AIB's shares than its market price, and has provisionally valued them at 1c apiece.

The terms of the 'shares for dividend' deal announced yesterday will see the State forced to accept shares valued at their average price over the 30 days trading before the dividend falls due on May 13.

This price is likely to see the State accepting shares valued at between 7c and 10c, well above their intrinsic value, which will ultimately mean that the new shares are worth less than the €280m in cash due to the NTMA.

A spokesman for the Department of Finance last night insisted that Eurostat rules meant that receiving the AIB dividend in cash or shares would be treated in the same way, so there would be no impact for the national finances.

He also said there would be no cashflow impact, even though the Government is not getting cash. The cash would flow, in the first instance, to the NTMA rather than the State.

Meanwhile, former EBS boss Fergus Murphy is reportedly in line to replace AIB's retiring head of corporate, institutional and commercial banking Jerry McCrohan.

Approval

Mr Murphy, who is directing AIB's transformation project, is understood to have been identified by new chief executive David Duffy as a runner for the post several months ago.

Mr McCrohan's retirement was announced last week. In an email to staff, Mr Duffy said Mr McCrohan's successor "will be announced in the coming weeks. In the meantime Jerry has agreed to stay on in his present role.

"Jerry's successor will be announced in the coming weeks subject to Central Bank Fitness and Probity approvals," Mr Duffy said.

The Central Bank has looked at Mr Murphy's role at EBS as part of a review of whether bank bosses who had been in place before the crisis and remain on had contributed to their institutions' demise.

Earlier this year, it decided to close the file on Mr Murphy, who had only been at EBS since January 2008, when the bank's boomtime exposures had already been built up.

Before joining EBS Mr Murphy was briefly head of ACC bank. Before that, he worked for ACC's parent Rabobank which he joined in 1993, and where his jobs included head of the Asian region of Rabobank International.

(Additional reporting, Bloom- berg)

Irish Independent

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