AIB value plummets by up to €2.7bn

The value of the State’s investment in Irish banks fell by over €3.3bn in just six months as a torrid start to 2016 rocked bank shares across Europe.

At the end of last year, the estimated remaining value of the State’s investment in AIB, Bank of Ireland, and Permanent TSB — including money already recouped through disposals and fees — stood at €29.3bn.

This was €0.3bn more than taxpayers originally pumped into the three banks.

European bank shares — and those of the Irish banks particularly — have been hit hard by a global stock market slide since the start of the year, however, with the State’s net position at the start of May €3.32bn worse off than in December.

Official briefing documents provided to Finance Minister Michael Noonan show that as much as €2.7bn has been shorn off the value of the 99.8% state-owned AIB since the turn of the year.

The latest equity valuation provided to the Government puts the value of the bank at as low as €9bn; “well below” its estimated €11.7bn worth last December.

Having previously pledged to begin selling down the State’s holding in AIB immediately after the general election, an initial sale has now been pushed back to Q1 2017 at the earliest as the Government awaits an improvement in stock market conditions.

In the absence of such a recovery, an initial public offering of AIB shares could be possible but would “only be achieved at a significant discount” to what department officials regard as the bank’s fair value.

The documents also note the dramatic slide in shares since the beginning of 2016 which has seen Permanent TSB shares fall 55% from the start of the year.

The prospect of the Central Bank being granted powers to influence mortgage rates has caused particular concern over PTSB given its exposure to the mortgage market.

PTSB’s long-term future could be best served by either a merger or acquisition given the challenges it faces, officials advised Mr Noonan.

“The bank faces challenges which the board and management team are conscious of and are working through. There is the possibility of M&A activity to drive value and improve long term viability of the bank,” the briefing document reads.

Given the bank’s low profitability an interest in the bank levy would jeopardise the bank’s ability to meet its commitment to the European Commission as part of its restructuring plan and “could in the worst case scenario render the bank unviable”, officials warned.

Bank of Ireland is expected to commence “modest” dividends, of approximately 15% of profits, for the first time since the financial crash in the first half of 2017.


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