Monday 11 December 2017

€3.5bn AIB owes State 'unlikely to be repaid'

Donal O'Donovan

Donal O'Donovan

Goodbody stockbrokers has warned that Allied Irish Bank is unlikely to repay €3.5bn owed to the State.

The country's second-largest bank borrowed €3.5bn from the State during the financial crisis.

That money is now likely to converted into ordinary shares in the bank rather than repaid.

In a note to investors, Goodbody stockbrokers analyst Eamonn Hughes said yesterday that he thinks AIB's €3.5bn of "preference shares" which are held by the National Pension Reserve Fund on behalf of the State will convert to equity in the bank.

A decision on how and when that will happen will be made before next May, he said.

The taxpayer has already pumped €20.7bn into the failed bank since the financial crisis began.

That makes it the most expensive bank to be saved after Anglo Irish Bank.

The €3.5bn that will be lost to the State's coffers is more than all the money that Finance Minister Michael Noonan must find in October's Budget.

The National Pension Reserve Fund bought preference shares in AIB and Bank of Ireland in 2009 as part of the bank bailout.

Goodbody first outlined its view on the capital needs of the banks including AIB in a note that was circulated to clients in May, but the note has never been published.

Yesterday's gloomy forecast follows reports from rating agency Fitch which said on Monday that AIB and Bank of Ireland could require more cash from the State when the lender's financial strength is assessed in so-called European Union "stress tests" next year.

Bank of Ireland shares took a hammering on the markets yesterday, plunging more than 7pc to post their worst one-day slide in more than a year.


The fall followed a 5pc decline on Monday after the worrying Fitch report and separate reports from analysts at Goldman Sachs and HSBC which both urged investors to sell Bank of Ireland shares.

Goldman Sachs said it could be three years before Bank of Ireland posts a profit. The bank is usually considered the best domestic lender, so the predictions do not bode well for other Irish banks.

Bank of Ireland was hammered on the equity market and weaker on the bond markets yesterday in the wake of the news.


Irish Independent

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