A huge downward revision by the UK government of its bailed-out banks has once again put a spotlight on the over-valuation of AIB and other banks here on the State’s books.
In an assessment prepared as part of its budget this week, the British government has said it faces an almost £27bn (€31bn) loss from rescuing failed banks during the 2007-2009 financial crisis after a slump in the lenders’ value since Britain’s vote to leave EU.
Shares in RBS — the owner of Ulster Bank — and Lloyds have fallen by about a fifth since the June 23 vote to leave the EU.
Their valuations have also been rocked by the slide in bank shares across Europe this year, which has hit hard the stockmarket-listed Irish banks too.
The Office for Budget Responsibility, Britain’s independent budget watchdog, said it has increased its forecast for potential UK taxpayer losses by more than £9bn since March.
Britain spent more than £136.6bn rescuing lenders, including RBS, Lloyds and Northern Rock. However, it has so far only managed to recoup just over half of that money.
Shares in Bank of Ireland, in which the Government here has a stake of just under 14%, have slid 22% since the June 23 vote. The bank’s value is down by over a third to €7bn from €11bn at the start of the year.
Such a sharp slide will have a some sort of read-through for the valuation of AIB, which is all but owned outright by the Government.
Last month, the Irish Examiner reported the Government was likely to slash its current €12.2bn valuation of AIB on the State’s books by billions, to reflect the rocky-times European bank shares have faced this year.
The Government, through the Ireland Strategic Investment Fund, last revalued Bank of Ireland at the end of June, but left unchanged an earlier valuation for AIB, at €12.2bn.
The agency is expected to announce its new bank valuations in the coming weeks.
Alan McQuaid, chief economist at Merrion Capital, said yesterday that bank valuations across Europe face even choppier waters if Italy’s prime minister Matteo Renzi loses his December 4 referendum.
The vote is designed to usher in reforms in the country and Mr Renzi may resign if a ‘no’ vote prevails.
Italy is home to some of the weakest banks in the eurozone and its politics could have a disproportionate effect in rocking European bank shares, amid fears the perceived Brexit-style revolt against establishment politicians will spread.
Following the Brexit vote, there are more political hurdles for bank valuations in 2017 from the Dutch, French and German elections. Mr McQuaid said however, that 2018 could be a good year for stockmarkets and a good time to sell a bank, if those new political “minefields” were avoided.
Cantor Fitzgerald Ireland bank analyst Stephen Hall said the valuation of over €12bn for AIB on the Government’s books was “very high”. That valuation implies AIB is trading at a large premium to Bank of Ireland, Mr Hall said, adding that a ‘yes’ vote in the Italian referendum could, however, lead to a re-rating of all European bank shares.
Finance Minister Michael Noonan last week launched a contract for the appointment of advisers who will explore the potential for selling AIB in the coming years.
© Irish Examiner Ltd. All rights reserved