AIB share hike as Bank of Ireland dips

AIB shares surged yesterday after analysts recommended buying the shares, but Bank of Ireland suffered slightly.

AIB closed up almost 15% to €1.43, the most since March 5, while Bank of Ireland fell close to 3% at €1.74.

Irish Life and Permanent jumped 6% to €3.10.

The strong AIB performance followed analysts at Royal Bank of Scotland recommending the purchase of AIB shares and doubling their price estimate.

RBS analysts such as Asheefa Sarangi raised AIB to “buy” from “sell” and set a share-price estimate of €1.75.

Ms Sarangi said that while the bank accepts that a degree of uncertainty and high execution risk remains over the coming months, it believes this provides a buying opportunity for investors.

AIB which needs €7.4 billion in total, may generate €3.9bn in capital from asset sales, RBS said. The Government may have to inject money into the bank to make up the shortfall.

“AIB is fully aware of the difficult task in front of it,” Ms Sarangi said. “Given how hard the bank has fought to remain out of majority government ownership thus far, we expect the bank to do its uppermost to limit the full €3.5 billion conversion of the government preference shares.”

The RBS analysts also raised Bank of Ireland’s rating to “hold” from “sell”. They increased the share-price estimate to €1.70 from 0.52 cent.

Referring to both banks, RBS said “uncertainty will remain” until the recapitalisation plans are “fleshed out,” all loans are transferred to the asset agency, and the EU rules on the lenders’ restructuring plans.

“Given AIB’s plan to divest all of its major foreign assets, we believe the risk of a negative surprise from the EU is more likely at Bank of Ireland where the deleveraging process has been slow,” Ms Sarangi said.

Bank of Ireland, meanwhile, said last night that, following a review, it has accepted a deal to cut its €1.6bn pension deficit in half over a six-year period.

The bank will make available €750m as part of the proposed agreement.

The proposal was brokered by a third-party chairman and is supported by bankers union, the IBOA.

It said there will be a temporary freeze on any salary increases qualifying for pensionable salary from April 2010 to April 2012, with the company saying its defined benefit scheme will be preserved.

The ISEQ dropped 0.7% to 3,268.05 yesterday as renewed concerns over Greece’s finances left investors nervous ahead of eurozone GDP data.