AIB pulls bond over unfavourable market conditions

Bad timing was behind AIB’s decision to pull a 10-year covered bond scheduled for yesterday.

On Tuesday, AIB announced it had mandated a number of banks, including Dublin-based Merrion Capital, to look at issuing what was believed to be a €500m 10-year covered bond. However, the bond did not materialise.

According to one market source initial speculation suggested that the failure to issue the bond was caused by a technical glitch. “The market hasn’t changed much over the past few days. The backdrop is reasonably benign for bank stocks. Moreover, the ECB has been quite active in the secondary [asset backed securities] market over the past few weeks.”

An AIB spokesperson said there had been no technical glitch and the reasons rested exclusively with market conditions. “The market tone in the last 24 hours has deteriorated, as evidenced by the postponement of a number of new issues in the financial institutions arena. As a consequence, AIB will continue to monitor the market for suitable windows,’’ said AIB in a statement.

A person familiar with the situation said AIB was unlucky with the timing and it was not a negative reaction to the bank.

“First of all it was the day before Thanksgiving, so the market is a bit thin as a lot of investors have already taken the rest of the week off. The price was also a factor. The range indicated was lower than the sovereign yield, so investors who are closing off their books for year-end might have decided to just stay away,” said the source.

“However, I certainly wouldn’t say it had anything to do with AIB. Ireland is still a very attractive story and there is a lot of liquidity out there looking at Irish assets,” added the source.

It is unclear whether AIB will be able to issue the bond before Christmas. The next ECB meeting is on December 4 when an announcement is expected on quantitative easing. Another source said AIB does not need the funding. The bond was intended to maintain engagement with the markets before it looks at issuing alternative tier one and subordinated debt after Christmas as part of a restructuring of its capital base.


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