Michael Noonan hinted last month that the sale of AIB shares in an IPO — meant to return a substantial part of the €20.6bn Irish taxpayers directly injected into the bank during the crisis — would be held sometime early next year.
Though likely to be after the election, AIB’s IPO is guaranteed to feature as a burning issue during the election campaign itself.
AIB said it was now in a very healthy position to return capital to the State. It reported net interest income rose 16% to €940m in the first six months to June 30 from a year earlier. It reported “a significant reduction” in impaired loans to €18bn.
Net profit more than doubled to €840m. And its overall net interest margin — a key benchmark for all banks — rose 32 basis points to 1.92%.
The minister yesterday said that AIB’s half-year results had confirmed the bank was “well positioned to start returning material amounts of capital to the Irish State”.
“The State’s finances should receive a significant benefit in the coming year independent of any decision to sell some of our shares in the bank,” Mr Noonan said.
Valuing AIB and how much taxpayers will get back from the bank will now rest on what investors think the level of profits — and significantly the amount of write backs — that the bank will generate in the future.
A key decision by the regulator on the appropriate levels of capital large banks must hold will have a huge bearing on the bank. That decision will be taken in the next few weeks.
In its last annual review, the State last valued AIB ordinary and preference shares at €11.7bn.
On the face of it, it is a long way from the €21bn in funds Irish taxpayers injected into the lender during the crisis.
Regarding the so-called CoCo bonds and preference shares, there was “little new” that came out yesterday on the future shape AIB’s capital structure, said Stephen Lyons, analyst at Davy Stockbrokers.
But the State could in all benefit by up to €4bn alongside the IPO, My Lyons estimated.
“Therefore the €21bn could be achieved under certain circumstances,” Mr Lyons said.
But the question remains how much the equity in the bank is worth. A back of the cigarette packet analysis suggests that reaching the €21bn total target will be difficult without the bank signalling to investors to expect large write-backs on improving loans in the coming years.
The bank told reporters yesterday it was in “good shape” in getting capital back to the State.
“We can get to the point where €21bn is returned to the State that is clearly something that is possible. We are not saying the bank today is valued at €21bn,” said chief executive Bernard Byrne, but adding that the bank is clearly returning to profitability.
Mr Byrne said there was no political pressure brought to bear on the bank to reduce its standard variable mortgage interest rate by a further 0.25%.
Mr Noonan welcomed that decision.
“Meanwhile, finance union IBOA said it backed a mediator’s proposal for a 2% pay increase to AIB staff earning less than €100,000 in the Republic and £80,000 in the North.