The prospect of the Government triggering an AIB share sale in the first half of this year has been increased by a surge in the value of the bank's riskiest bonds in recent months, amid improving sentiment towards the lender and the wider banking sector, according to analysts.
AIB sold €500 million of Additional Tier 1 (AT1) notes in December 2015 as part of a return to the subordinated bond markets for the first time since the financial crisis. With 99.8 per cent of AIB’s shares in the hands of the State, analysts say these bonds give the clearest market view of AIB. Holders of such securities stand at the front of the line, after equity, to suffer losses if a bank runs into financial trouble.
The AIB bonds have soared from a low of being worth a little over 80 cent on the euro last February to 90 cent in mid-October and €1.01 – above par – last week.
"Given the fact that the share price does not give you an effective barometer of how the bank is trading, the AT1s are the best way to read sentiment towards the bank," said Ryan McGrath, head of fixed-income strategy at Cantor Fitzgerald in Dublin. "I think the bank's results in March will be the next catalyst for an IPO."
Minister for Finance Michael Noonan said last Tuesday that the Government could instigate an AIB share sale as early as May or June, but also possibly in the autumn, as it seeks to recoup its €20.8 billion bailout of the bank during the financial crisis. The bank was taken into State control in late 2010.
Stocks rally
Banking stocks have rallied following the election of US president Donald Trump in November, as speculation around his spending plans has stoked inflation and inflation expectations as well as bond prices, which help financial companies’ earnings.
AIB's nearest rival, Bank of Ireland, has seen its share price jump 25 per cent to 25c since the November 8th vote and, crucially, is now trading above the value at which its assets are carried on its balance sheet. The wider European banking sector is also trading around "book value".
A bond trader, who asked not to be identified, said that some of the demand for AIB’s most junior bonds may be coming from big investors who would be keen to be in a position to buy the bank’s shares when they return to market.
“Investors will want to position themselves ahead of the [initial public offering] as being seen to be supportive of the bank across the capital structure,” he said.
