AIB plans sale of €1.1bn M&T stake

AIB plans to sell off its €1.13 billion 22.64% holding in M&T Bank in the US to raise capital, it emerged yesterday.

The company estimates that its investments in M&T and in Poland’s Bank Zachodni would realise close to €2bn in cash profit if sold, but stressed that they see Poland as a long term investment.

However, no timing to the sale of AIB’s M&T stake has emerged.

Bloxham stockbrokers head of research Kevin McConnell said they learned some insights into AIB and the NAMA process following a management meeting with AIB on Wednesday.

“Bank Zachodni is a long-term, key, strategic” asset for AIB, McConnell said by phone yesterday, citing the meeting with the bank’s management. “It was clear from the conversation that no consideration has been given to the sale ofZachodni.”

Initially yesterday investors in Poland thought AIB could sell its 70.36% stake in Zachodni, lifting the Polish bank’s shares more than 5% to their highest level in almost a year. AIB’s stake was valued at €1.86bn yesterday on the Warsaw Stock Exchange. AIB’s market capitalisation on the Irish Stock Exchange currently stands at €2.86bn; this could be interpreted as meaning the market is ascribing a negative value to AIB’s Irish and British operations.

In a note to clients Mr McConnell reported that M&T is said to be performing extremely well in a tough regional banking market space, enhancing the value of AIB’s stake after strong share price performance.

“At current rates M&T and Poland would generate cash of €2bn and indications were given that there does not need to be a new chief executive in place for the sale of the M&T asset. The overall impression was that succession will not act as an impediment to asset disposals,” he wrote.

Mr McConnell said that AIB management see Lisbon and NAMA votes next month as critical.

“The bank sees both being passed as critical to keeping the recovery on track,” he said.

“Overall, the meeting helped us get more clarity on the risk/return on AIB. We think the story will de-risk over the next month as Lisbon, NAMA and the potential for more guaranteed issuance increases. For the latter point, we think the tightening in of Irish debt over Germany, if a Lisbon yes is delivered, could open the way for the Irish banks to move strongly in the bond market,” he said.

The potential sale of the M&T stake will act as a definitive catalyst, but the timing is still unclear, he said.

“Our view is that the impact of NAMA on the capital base will be clearer by November as the assets start to move adding more certainty to the capital picture. All this leads to the critical point: when will AIB be best placed to move for a fund raising?” Mr McConnell wondered.

He also believes that: “By the end of the year, AIB could be in a much stronger position to outline the future of the bank.”