AIB shareholders could be in for M&T stake windfall, say analysts

US top 20 bank M&T, 22.5% owned by AIB, is set to report a jump in operating profits by close to 17% next week.

AIB is the largest shareholder in M&T, with its €2 billion plus stake the cause of considerable speculation. Legendary investor Warren Buffet is the third largest shareholder.

Davy stockbrokers analyst Scott Rankin, among others, believes that if M&T uses a rights issue to fund further acquisitions then AIB may dispose of its M&T stake.

This could result in a windfall dividend for AIB shareholders or a massive share buyback programme like the one that followed AIB’s €3bn sale to M&T of the troubled Allfirst bank after the Rusnak debacle.

M&T Bank’s acquisitions drive has resulted in it building up a network of more than 650 branches and 1,500 ATMs across Delaware, Maryland, New York, Pennsylvania, Virginia, West Virginia and Washington, DC.

M&T also has mortgage offices in Arizona, California, Colorado, Idaho, Nevada, New Jersey, Ohio, Oregon, Utah and Washington.

Yesterday Mr Rankin said, in a note to shareholders, consensus estimates for M&T operating earnings per share (EPS) after goodwill of $1.59 versus $1.56 in Q3 and $1.36 in Q4 last year. M&T will announce its results next Tuesday.

“This equates to growth of almost 17% year-on-year. We are forecasting slightly more than this - $1.62 - which would give $6.01 for the full year,” he added.

Mr Rankin said M&T looks to be in good shape for 2005 with income growth accelerating, expenses under control and bad debts well down on previous year’s levels.

Mr Rankin said in December that he believes that AIB will dispose of its holding in M&T sooner rather than later. So what if AIB moved to sell the stake today?

“We calculate the bank would make a fairly large profit - as much as €555m, assuming it was sold at the current price (a discount might be expected, of course). Interestingly, the group would not have to pay capital gains tax on the gain, thanks to a recent change in Irish tax law,” he said.

Mr Rankin believes that the proceeds from the disposal would most likely be used for a share buy-back, though the bank would probably keep some of the funds on balance sheet.

“A decision could well be forced on AIB if M&T looks to make another large acquisition. AIB has confirmed that it could be forced to sell in these circumstances...The alternative option of being diluted would not be acceptable to it either, as a stake much less than 22.5% could hardly be viewed as anything other than a passive investment,” Mr Rankin said.