AIB set to pay Government €280m dividend

AIB will pay a €280m dividend to the Government in May as it begins the process of repaying €21bn in State aid.

Last year’s €1.1bn pre-tax profit was its first profit since 2008 and a massive €2.8bn improvement on the €1.7bn loss posted in 2013. The turnaround was achieved on a much improved underlying performance as well as a huge reduction in the level of loan impairments.

Compared with 2013, there was a 37% increase in lending approvals last year to reach a total of €13.2bn. Drawdowns for the year were €5.9bn, which is a 50% increase on the previous year. Impaired loans fell by €6.7bn during 2014 to €22.2bn by the end of the year.

Moreover, the 99.8% state-owned bank booked a bad debt provision writeback of €188m last year compared with a €1.9bn impairment charge in 2013. The net interest margin, which is a key indicator of profitability averaged 1.69% compared with 1.37% in 2013. It reached 1.78% over the second six months of 2014. The target is 2%, although this is still well below Bank of Ireland’s NIM of 2.22% reported last week.

In January, Finance Minister Michael Noonan announced he had hired Goldman Sachs to advise on the restructuring of AIB’s capital base before the part-sale of up to 25% of the bank in an initial public offering (IPO) possibly later this year or 2016.

AIB will pay its first cash dividend of €280m to the Government for its €3.6bn of preference shares. Speaking to reporters yesterday, AIB chairman, Richard Pym, said, “the bank could pay, and it was right that it should pay [the €280m dividend]”.

The State also holds €1.6bn of contingent capital notes (CCN). It is expected that during the year the CCN will be refinanced through the issuance of additional tier one (AT1) debt and subordinated debt and the preference shares will be partially sold and the balance converted into ordinary shares.

There will also be a consolidation of the 523bn of ordinary shares. Mr Pym said he was confident that over time AIB would fully repay the €21bn of taxpayer funds used to rescue the bank. At the end of 2014, the bank’s fully loaded core tier one capital was 11.8%, which includes the €3.9bn of preference shares.

Mr Pym said it is up to the minister for finance, as the bank’s main shareholder, to decide when the capital restructuring takes place and the timing of the subsequent IPO.

AIB chief executive, David Duffy, announced in January that he was leaving the bank to take up a position as chief executive of Clydesdale Bank in the UK. Mr Duffy said that the Government imposed salary cap of €500,000 had no influence on his decision to leave. In addition, the salary cap was not a barrier to attracting a replacement, said Mr Pym.

Even though Mr Duffy is contracted until next summer, Mr Pym said he expected the new CEO to be in place before then.

Bernard Byrne, AIB’s director of Business & Corporate banking, is the bookies’ favourite to succeed Mr Duffy. The bank has so far released 5,500 files to the Oireachtas Banking Inquiry. Mr Duffy said he did not know at this stage which current or past AIB executives would be called before the inquiry. The chief financial officer, Mark Bourke, declined to give guidance on future profitability. “We have to be very careful in this area,” he said.


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