May is turning out to be a good month for AIB and its chief executive David Duffy. The State-owned bank announced yesterday that it returned to profit in the first quarter of this year and indicated that it has held discussions with the Department of Finance about its capital structure and how it might return some funds to the State in the near future.
Most analysts had expected that it would be the second half of this year before AIB returned to the black but careful cost management, reduced impairment costs, and a general pick-up in economic activity all helped it to reach this milestone early. This news followed last week's announcement that it had received the green light from the European Commission for its restructuring plan. Duffy described it as a "milestone" for the bank, which has been in the horrors for more than five years.
Before any moves are made to attract private investors to the bank, AIB has to negotiate the stress tests and asset quality reviews being run this year by the European Banking Authority and the European Central Bank. Those results won't be known until November, although there's a growing sense that the bank won't have to raise additional capital on foot of the tests.
The next step would probably involve dealing with the State’s preference shares and contingent capital notes, or CoCos as they are more commonly called.
AIB’s ordinary share capital structure also needs to be restructured. As the bank pointed out in its release, AIB is trading on a valuation multiple of about eight times its net asset value at December 31st. This compares with a median for comparable European banks of around one times NAV.
It's something of a running joke that AIB, which has received a €20.8 billion bailout from the State, is the most valuable bank in Europe with a market value of circa €59 billion.
This is a paper valuation, rendered meaningless by the fact that the State owns 99.8 per cent of the stock and trades on the junior ESM market in Dublin.
While AIB appears to be on the right track a long journey still lies ahead before taxpayers get some bailout cash back.
