Business Irish

Wednesday 16 October 2019

We'd rather be dead than raise equity, says Sheehy

AIB chief all but rules out asking for investment from State

AIB is widely expected by observers to offload its 24pc stake in US lender M&T Bank. Photo: Sion Touhig/Getty Images
AIB is widely expected by observers to offload its 24pc stake in US lender M&T Bank. Photo: Sion Touhig/Getty Images

Joe Brennan

Eugene Sheehy, the chief executive of Allied Irish Banks, all but ruled out going cap in hand to raise cash from shareholders or asking for State investment -- even as the lender's bad loan losses soar over the coming years.

"We'd rather die than raise equity," Mr Sheehy said in a presentation to about 450 well-heeled private clients of Goodbody Stockbrokers in Dublin yesterday.

The banking boss said that AIB has a number of "options for self help", which will not require the raising of fresh equity. Analysts largely believe the country's biggest bank will, as a first step, scrap its dividends over the next few years. Last year's payout amounted to almost €700m.

Dividend

The group's decision in July to hike its interim dividend by 10pc was viewed by investors at the time as supporting its claim that it would not have to raise additional cash from shareholders. However, market participants have since questioned the move, in light of Bank of Ireland subsequently halving its shareholder payout.

AIB is widely expected by observers to offload its 24pc stake in US lender M&T Bank, which is currently worth almost $2bn, within the next year.

Under the 2002 merger agreement between AIB's former US subsidiary Allfirst and M&T, the Irish group has two options to offload its 24pc holding, noted Davy analyst Scott Rankin.

"AIB is permitted to dispose of its shares without needing M&T approval, but the structure employed must ensure that the shares are widely distributed -- for example, in a private placement scenario no one party can buy more than 2pc," said Mr Scott.

"However, AIB can also sell to one bidder; but it must first give M&T the right of first refusal, which is valid for 20 days."

AIB may have to write off €4.5bn of bad loans before the end of 2010, according to Goodbody Stockbroker analysts. They forecast that the four publicly-quoted banks (including AIB) face up to €11.2bn of bad debt losses over the same period.

However, Goodbody believes that AIB's core tier one ratio -- a keenly-followed gauge of a lender's financial stability -- should nudge up from its current 6.2pc to 7pc over the next few years as dividends are slashed, M&T is sold and lending is curtailed.

This will bring AIB's ratio close to the 7.5pc level that analysts expect to be the "magic number" by the time the Government's €500bn banking guarantee runs out in two years' time.

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