AIB plans rights issue and asset sales to meet €7.4bn capital requirement

AIB has pencilled in a rights issue for September, to help it meet its €7.4 billion post-NAMA capital requirement by the end of the year.

Addressing shareholders at the bank’s annual general meeting in Dublin yesterday, AIB executive chairman, Dan O’Connor, said that apart from the disposal of its overseas assets, the company’s plans an equity issue targeted at private investors, which will be underwritten by international investment banks or the Government.

“We have a series of actions planned. However, if we are not able to meet the regulatory requirements through these planned actions, then the Government will provide the additional capital we need.

“This would see the state increasing its stake in the bank; the extent of the Government’s stake will become clearer in the coming months after we implement our planned actions.”

The Government is set to take an initial 16%-17% stake in AIB next month as the bank makes its first repayment of the state’s 2009 €3.5bn preference share investment – something which has to be repaid in ordinary shares rather than cash, due to EU rules.

The bank is also due to lodge its capital raising plan with the financial regulator by the end of this week.

AIB has already said that it aims to sell its overseas banking assets – its 70%-plus share in Polish bank, Bank Zachodni; a 23% stake in US institution, M&T Bank and its British operations (including First Trust bank in the North).

The bank has appointed investment bank Morgan Stanley to advise on the sales and has already received expressions of interest for the Polish and US operations.

Mr O’Connor refuted claims from the floor that the Polish investment was not a core part of the business and was just a value investment. “We have no desire to sell these assets. It kills me to sell Bank Zachodni; it’s a phenomenal business. But, we don’t have an option. If we don’t sell, the €7bn will have to come from Government and that would wipe out our shareholder base and wouldn’t be fair on taxpayers.

“We have to look at ways of independently meeting our capital requirements,” he said, adding that proceeds from the asset disposals should meet a ‘substantial’ part of AIB’s capital needs.

“We’re doing everything we can to make the positive changes needed to restore AIB to viability, profitability and to a position where it can play a critical role in helping in the recovery of the Irish economy. Nobody on this podium is proud to be in the current position.

“Mistakes have been made and they have to be fixed. This bank will be fixed; it won’t be pleasant, but it will be done,” he also told shareholders, adding that standards were being established in order to avoid a repeat of the mistakes made.

He acknowledged that the bank lent too much money to the property/construction sector and that last year’s financial performance was “highly unsatisfactory”.

Meanwhile, the second of three tranches of AIB loans bound for NAMA (covering about €23bn) are being prepared for transfer.