AIB profits leap as doubts rise on IPO this year

AIB says it’s in good enough shape for the first slice of the bank to be sold off later this year, and hopes that turbulent market conditions will have settled by then.

The focus fell yesterday on the timing of any initial public offering (IPO) as the bank announced pre-tax profits of €1.9bn for 2015, marking a huge 72% leap from 2014.

However, some analysts now say an IPO this year would not be in the best interests of the State following the turmoil facing European bank shares since the start of the year.

Impaired loans fell sharply by €9.1bn, but still remain at an elevated level of over €13bn across the loan books, while key measures of AIB’s profitability improved and its costs fell.

Chief executive Bernard Byrne said the bank now had the levels of profitability and strong capital base, after making the right moves in cutting down impaired loans, for the bank to start to return to private hands.

However, the profits were massively bolstered by a huge level of writebacks of €925m — the highest any Irish bank has recognised since the end of the banking crisis.

Over a year ago, in the early stages of the recovery, the Central Bank had cautioned lenders here about writing back provisions. However, Mr Byrne said the level of writebacks reflected the buoyant economy, as the bank gets a grip on the legacy issue from the crash.

Analysts said AIB had done the right thing. Fiona Hayes, bank analyst at Cantor Fitzgerald Ireland, said the lender had written back about €100m more than she had anticipated, but the amount was nonetheless justified by the strength of the recovery that had boosted asset prices.

She said she was impressed too with the work done by the bank over the year in working through its impaired loan books. And head of financials research at Investec Ireland John Cronin said the writebacks were “fully justified”.

AIB said it believed that the best ownership structure was for the bank to pass to private ownership, and it was fully ready for an IPO this year, if its government owner deemed the timing right. Weeks before the election campaign, Finance Minister Michael Noonan had said an IPO was likely to be slated for the third quarter of this year.

The Department of Finance had hired Rothschild to advise on the IPO earlier this year. European bank shares have rallied in recent days, but had at one stage lost up to a third of their value since the start of the year.

Ms Hayes at Cantor said the huge selloff in European shares made it likely the IPO would be postponed into next year. Any delay may mean a new incoming government could get a better price, she said.

Mr Cronin saw “a real risk that the election would lead to a slippage in the timetable of an AIB IPO”.

Darren McKinley, analyst at Merrion Stockbrokers, said the best of the economic tailwinds that helped AIB cut through its impaired loans was probably now behind it. However, Mr McKinley believed that a new government would sanction an IPO at the end of the year.

CEO Mr Byrne said that AIB would not be hugely affected if Britain were to vote to leave the EU in its in-out referendum on June 23.

He believed there would be some impact, but not a major impact because AIB generates a small portion of its profits from its operations in Britain.