Allied Irish Banks plans to return to the subordinated bond market for the first time since the financial crisis. It is preparing to start repaying its €21bn bailout by the year’s end.
AIB is seeking to redeem €1.5bn to €2bn of the State’s holdings of €3.5bn of preferred stock in the bank, with the remainder converting to equity.
To help fund the deal and maintain capital levels, the lender may sell tier-2 bonds and additional tier-1 notes, the sources said, declining to give the amounts involved.
The blueprint is subject to market conditions, and to final approval from the ECB’s supervisory unit, which is expected by the middle of November.
An announcement on the plan could be made immediately afterwards, sources said.
AIB chief executive, Bernard Byrne, who was appointed earlier this year, told a business conference this month that the bank was on course to repay a substantial chunk of the preference shares by the end of the year.
Finance Minister Michael Noonan said, in September, that he expected to recover €4bn of the bank’s bailout costs, before selling a 25% stake in the company in the middle of next year.
Holders of AIB’s junior bonds lost €5bn, from 2009 to 2011, as the lender collapsed under the weight of soured property loans, and it will be the last of Ireland’s three surviving banks to return to the subordinated debt market since the crisis.
The yield on Bank of Ireland tier-2 bonds, sold in December, 2012, has fallen to 4.52%, from 10%.
Finance Ministry spokesman, Brendan Loughnane, and AIB spokeswoman, Niamh Hennessy, declined to comment.
AT1 notes, which European banks have been issuing since April, 2013, are undated securities, which convert into shares should capital levels drop below a certain threshold.
Issuers can just decide not to pay coupons on the notes. AIB sold €1.6bn of contingent convertible notes to the Government in July, 2011.
These will be redeemed at maturity in July, 2016, and will not be repaid early, sources said. AIB has long said that it is on course to repay the €20.6bn that Irish taxpayers injected into the bank during the crisis.
In its last annual review, the State valued AIB ordinary and preference shares at €11.7bn.
Analysts say that with the heady pace of economic recovery and the swing back to profits at AIB, the bank could pay back to taxpayers all of the cash that was injected into the company during the crisis.
And because of the likely timing of any IPO, early next year, the value of the bank is guaranteed to feature as a burning issue during the election campaign. AIB has said it is in an increasingly healthy position to return capital to the State.
It had reported that net-interest income rose 16%, to €940m, for the first six months to June 30, from a year earlier.
But though the bank had reported “a significant reduction” in impaired loans, observers say that those impaired loans remain at elevated levels.
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