Timing of €3bn AIB sale pivots on Marine Le Pen vote

The Government is on course to sell up to €3bn worth of shares in AIB in late May — providing that the outcome of looming French election does not disturb banking markets.

The sale of a 25% stake in the bank which was all but fully nationalised at the height of the financial crisis over six years ago has been scheduled for a sale in late May or June, at the earliest, if market conditions allow.

Plans to start selling shares to investors in the bank last year had to be scrapped as bank valuations across Europe went on the slide. Deep fears over the health of the loan books of European banks have since eased.

However, the outcome of the French election is emerging as the key factor that will decide whether the Government will again push out the sale of AIB shares, to later this year or into 2018.

Yesterday, research by Citigroup predicted that a victory for Marine Le Pen in the presidential elections would cripple the country’s banking stocks. Analysts have long said that victories for the far right in European elections could hit banking markets.

However, French lenders would lose about a quarter of their market value on average should the anti-euro candidate win in May, Citigroup analysts forecast. While they see a low likelihood of that given recent voting polls, lessons from unexpected outcomes in the UK and US last year has Citigroup asking “what if?”

“Polls have been wrong in the past,” Citigroup analysts including Azzurra Guelfi and Simon Nellis wrote.

“Exposure to France and French sovereign debt are key stressed assumptions. We think the downside could be significant,” he wrote.

Le Pen, the candidate of the far-right National Front, wants to leave the euro, revoke central bank independence and print a new currency.

Risks to banks from her victory include a drop in French government bonds, which not only comprise a significant chunk of the lenders’ balance sheets but would also drive up funding costs, according to Citigroup.

Also of concern would be lower revenues from capital markets and slower growth in asset management.

Societe Generale shares could tumble 38% if Le Pen were elected president, due to its higher proportion of French revenues, greater exposure to sovereign bonds and larger investment-banking activities, Citigroup said.

BNP Paribas would hold up best, with a drop of 23%. The analysts predict declines of 30% and 34% for Credit Agricole and Natixis.

Polls show the 48-year-old leading in the first round of voting in April, but losing the May 7 runoff against more business-friendly leaders such as Francois Fillon and Emmanuel Macron.

Meanwhile, the British government has reduced its stake in Lloyds Banking Group to just below 3%, putting the lender on track to be back in private ownership soon.

UK Financial Investments Limited, which manages the UK government’s stake, resumed share sales in October, having halted them for almost a year due to market turbulence. It said it had reduced its stake by about 1% to 2.95% in an announcement yesterday.

The UK government was left with a 43% stake in Lloyds after a £20.5bn (€23.4bn) state-funded bailout during the financial crisis. n Additional reporting Bloomberg and Reuters