Finance minister had option to pull AIB buyback if share price rose

Department of Finance officials recommended the buyback proceed but said finance minister Paschal Donohoe was not bound by it if there was a dramatic rise in the value of the shares following trading update by AIB

The value of AIB stock later rallied and the buyback went ahead, bringing State ownership in the bank ever closer to an exit.

Department of Finance officials told finance minister Paschal Donohoe he could pull the plug on a deal for AIB to buy back €1.2bn in shares if there were any sudden changes in the stock price.

In a briefing for the minister in March, Mr Donohoe was told AIB was looking for an early decision on whether it could go ahead with a deal.

While officials recommended the buyback proceed, it said the minister was not bound by it if there was a dramatic rise in the value of the shares.

A briefing said AIB was due to issue a trading update on the days of its AGM which “could move the share price either up or down”. 

It said: “If the share price was to rise dramatically on the back of this trading update, there is always the very remote possibility that officials might believe the minister should not sign off on the transaction as the price for the buyback has been set too low.

“Again, this would be negatively received by investors, but it is important for the minister to know that he has the right to walk away from the deal should he wish.” 

In the end, the reverse happened, and the value of the shares dropped significantly after the introduction of tariffs by US president Donald Trump.

However, the value of AIB stock later rallied and the buyback went ahead, bringing State ownership in the bank ever closer to an exit.

In a submission for Mr Donohoe in late March, Department of Finance officials said the Government stake could drop as low as 2.5% following the deal.

The document said while the minister had 10 days in which to decide, AIB would be “very grateful” if a decision could be made by March 28.

It said AIB had in place all the required regulatory approvals, including from the European Central Bank, for the buyback.

The submission said: “If agreed to and implemented, [it] will reduce the minister’s shareholding in AIB and help contribute to AIB’s return to full private ownership over time through the use of AIB’s excess capital.

“This is in line with Government policy.” 

It said two separate prices — a floor price and an alternative price — would be set for the deal so the State would be protected in case of major fluctuations in the share price.

The submission said this floor price was expected to be in the region of €6.25, roughly in line with the eventual sale.

Officials recommended Mr Donohoe sign off on the deal and confirm the roughly €1.2bn raised be kept by the National Treasury Management Agency.

These would be invested in securities “pending further consideration” by the minister on what to do with the proceeds.

A note from Paschal Donohoe on the submission, dated March 25, said: “I agree to this proposal re: AIB.”