BANCO Santander’s decision to turn down the option of buying AIB’s stake in M&T has increased the woes of the country’s former leading bank.
AIB shares fell more than 6% yesterday as it became clear that the bank will have to place the stock on the market at a severe discount.
Its 22%-plus stake in the bank, based on the east coast of the US, was worth an estimated €1.6 billion, but the placement may raise only €800 million in fresh capital after initial investment costs are factored in.
Ciaran Callaghan of NCB Stockbrokers said yesterday that given the breakdown in the talks “the ability for AIB to achieve a premium for its M&T stake evaporated”.
The forced sale & on the open market adds to the bank’s difficulties of trying to shore up the €10.4bn gap in its balance sheet.
The underfunding followed AIB’s costly affair with the Irish and British property sectors during the 10-year construction boom.
After the sale of its Polish operations, it still has over €7bn left to raise and that target is getting more difficult to achieve following yesterday’s announcement.
Santander last month agreed to buy the Irish bank’s 70% holding in Bank Zachodni, Poland’s third largest bank, as part of a €3.1bn deal involving other Polish assets of AIB.
The decision by the Spanish giant to walk away from the M&T deal could have further implications for the bank’s capital raising.
Santander was also seen to be the lead contender to buy the 40 British business branch network of AIB.
Last week, the financial regulator put further pressure on AIB when he said it required a further €3bn in capital on top of the €7.4bn already identified.
The bank expected it would achieve its capital target with disposals and a rights issue. The Government already owns nearly 19% of the bank and said it will take a majority stake in the bank to allow the capital raising to proceed.
It is now expected to end up owning at least 90% of the bank.
Mr Callaghan estimates that even if the placing raises close to €800m and allowing for other disposals, the Government will have to inject a further €6.5bn into the bank.
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