At 10am today, AIB will host an extraordinary general meeting to seek shareholder approval for a capital reorganisation.
The outcome is a foregone conclusion given that the single supervisory mechanism in Frankfurt has already approved the plan and that the State holds 99.8 per cent of the equity and also supports the proposal.
But the meeting is necessary to formally rubber-stamp the changes, which were announced last month.
In the round, it provides for the partial redemption of the 2009 preference shares held by the Government, which will result in the repayment of €1.7 billion of capital to the State. The balance will be converted into more ordinary shares for taxpayers at 1.7 cent apiece.
It has also been agreed that the €1.6 billion in contingent capital notes will be repaid on maturity next July.
More importantly, it clears the path for the bank to IPO next year, with Minister for Finance Michael Noonan indicating that 25 per cent of the company will most likely be offered to institutions, subject to market conditions. That could net the State €3 or €4 billion.
We might get more details on the timing and size of payments when the Minister attends a joint AIB-Strategic Banking Corporation of Ireland event tomorrow morning.
AIB also plans to consolidate its shares on a one-for- 250 basis, reducing the number in issue to about 2.7 billion as part of a wider plan to put a realistic valuation on its overpriced shares.
Much of the correction has happened with the share price almost halving in value since mid-November to its current level of 3.8 cent. But this is still more than 2 cent a share ahead of the rate being used for the conversion of the Government’s surplus preference shares into ordinary ones.
AIB is still valued at €18.8 billion, while Bank of Ireland, which has repaid its bailout money and is considered to be in better shape overall, has a value of just shy of €11 billion.
The share reorganisation will no doubt generate some ire from the floor. Investors who put their money in before the 2008 crash remain sore about having their investments wiped out and this won’t lift their mood.
Those who foolishly bought the stock in the past couple of years will feel suckered. They have only themselves to blame as both the Minister and the bank repeatedly warned that the share price was overvalued.
Strategic direction
AIB’s chairman
Richard Pym
is not expected to give a fresh trading update. However, the extraordinary general meeting does afford shareholders the opportunity to look to the future and quiz Pym about the bank’s strategic direction. For example, in the past year, AIB has cut its standard variable rate (SVR) three times, reducing it by 0.75 per cent to its current level of 3.65 per cent. It’s good news for customers but not great for the bank’s profitability, with analysts putting the hit at about €125 million.
Meanwhile, its biggest rival, Bank of Ireland, has held firm on the SVR for its back book of mortgages, protecting its margins in the face of significant political pressure.
How will the Central Bank’s new rules on mortgage lending, and the supply constraints evident in house building impact on the bank in the next few years?
Capitalising on recovery
After years of hollowing out its cost base, has the bank the necessary skills and staff resources to capitalise on the spectacular rebound in the Irish economy?
How much is required to bring its IT systems up to snuff at a time when lower-cost digital banks are beginning to emerge globally and threatening to eat their lunch?
Whenever they come to market, AIB’s shares will be attractive to investors who want a pure play on the Irish economy. But what about diversification away from Ireland?
Time was that AIB had substantial businesses in Poland (once its jewel in the crown) and the United States. These days, its diversification is limited to a modest presence in retail and business banking in the UK.
Its gross loans there last year amounted to £9.5 billion (€13.1 billion), compared with €47.2 billion in Ireland.
Contrast this with Bank of Ireland where its UK loan book amounted to £26 billion compared with €37 billion in Ireland. Its partnership with the Post Office has given it access to three million customers and deposits of £16 billion.
For the full year of 2015, Goodbody stockbrokers has forecast profit for AIB of just under €1.6 billion, aided by €900 million from provision writebacks. The underlying profit is slated to come in at about €630 million. What will be the trend in future years?
Those who turn up at the RDS today are probably too war-weary to ask about the future. It’s hardly going to be material to their bank balances. But international institutions will want answers to such questions and more besides before committing their money to an IPO.
Twitter:@CiaranHancock1
