Allied Irish Bank must set targets for cost reductions and abstain from acquisitions until the end of 2017 under the terms of a new restructuring plan, which was approved today by the European Commission.
The plan, which is tied to the pillar bank’s €21 billion taxpayer rescue, will also see the bank distribute marketing material for competitors to ensure that competition in the market isn’t distorted as a result of its bail-out. A limitation on AIB’s total holdings of Irish sovereign bonds during the restructuring period will also apply, excluding those bonds issued by Nama.
In a statement released today, Commission Vice President in charge of competition policy Joaquín Almunia said: "Today, the Commission closed an important chapter in the ongoing restructuring of the Irish banking sector. AIB is one of the two largest Irish banks. Its restructuring plan sets out the right measures for this bank to return to profitability without unduly distorting competition in the Single Market. In particular, AIB will implement market opening measures over the next three years to attract new entrants to the concentrated Irish banking market".
David Duffy, chief executive officer of AIB welcomed the announcement. “AIB has made significant progress and has successfully implemented a number of restructuring measures as the bank progresses with its aim of returning to profitability this year. The commitments as outlined are in line with our existing operational plans. The bank remains focused on delivering against its strategic objectives, while supporting the ongoing recovery of the Irish economy.”
In 2009, AIB and EBS received repeated State support in the form of guarantees, recapitalisations and asset relief. In 2011, when AIB and EBS were merged, the merged entity also received capital support. In September 2012, Ireland submitted a restructuring plan for AIB which was complemented by several additional submissions.
Under the restructuring plan, AIB will operate as a smaller domestically focussed bank with an improved funding profile. The bank will increase its level of profitability “notably by enhancing the net interest margin and further curbing its operating expenses”. Finally, AIB will maintain a strong capital buffer during the restructuring period. AIB also has contingent capital instruments which can be converted into equity, if needed. These measures will enable AIB to return to long-term viability without further State support.
The restructuring plan also includes a set of commitments which AIB will respect until the end of 2017. Those commitments comprise, among other things, targets on cost reduction and a ban on acquisitions. Moreover, AIB will operate “market opening measures” to facilitate the market entry of competitors, comprising a “services package” and a “customer mobility package”.
Under the “services package” AIB will provide to competitors access to certain services, such as cash supply and distribution services, and access to market intelligence. Under the “customer mobility package” AIB will distribute advertising material on behalf of a competitor to its clients to promote customer switching. The commitments will ensure that the competition distortions brought about by the aid are limited.
