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Too many doubts to make stricken bank attractive to markets

YESTERDAY the latest man to take the hot seat at AIB presented his first set of results to analysts and investors.

David Hodgkinson's account of AIB's performance won praise for the unexpected level of detail included, and the Briton succeeded in quashing fears that AIB's exit from the main stock exchange index would herald a new era of non-disclosure.

Market types were also pleasently surprised by the bank's pre-provision profits of €963m, particularly since the recent stress tests had the bank making pre-provision losses in 2011, 2012 and 2013.

But still it wasn't enough. Analysts and investors bemoaned the remaining knowledge gaps. And AIB's share price slumped another 12pc (though admittedly that's just 3 cent in today's terms).

"The provisions they've made look conservative; there's a sense that the worst is over, that this will be the final capital injection," says Davy's analyst Stephen Lyons. "But there's still not enough there to make an investment case on the equity side."

Over at Goodbody, analyst Eamonn Hughes also feels there are too many unanswered questions to build a case for buying the share.

Remaining uncertainties include the synergies from merging with EBS, the "generous" 2,000-strong redundancy programme and the future operating profits. The main uncertainty though, is the future level of government ownership in the bank. AIB's €13.3bn capital target includes another €11.9bn in equity (the remainder is made up of a €1.4bn debt instrument from the State for losses beyond 2013).

The bank's finance boss Bernard Byrne yesterday said it was "very important" that the state underwrite the €11.9bn since he didn't think there would be "likely access" to private investment.

The other 'market' option for raising cash is a liability management exercise, where AIB could make gains on some debt instruments.

Byrne was coy on this, saying only that the minister had "indicated" that liability management would be a "feature for the second". "We expect that to be true, but we have no further detail on timing."

If there is no capital raised through private sources, AIB will be 98pc owned by the State when the next €11.9bn goes in. If AIB takes aggressive action on the liability management side, analysts say the State's take could fall down to about 85pc.

Irish Independent