In the restructuring document published by the Directorate General for Competition at the European Commission, it stipulates that AIB will have to pay the Government excess capital it is holding above legal requirements at the end of December 2016. This is unlikely to be more than a few hundred million euro.
AIB has received just under €21bn in state aid from the Government since 2009. Michael Noonan, the finance minister, holds 99.8% of the common equity in the bank as well as €3.5bn in preference shares and €1.6bn of contingent convertible (CoCo) bonds.
The Government has put a current valuation on the bank of just under €14bn.
One market source described the European Commission’s ruling on AIB as a “free pass”.
However, a spokesman for the Department of Finance said that the Government, as the majority shareholder, would do what was best for the taxpayer in terms of recouping as much of the original investment as possible.
Bank of Ireland was ordered to sell its life assurance company, New Ireland, and its mortgage platform ICS as well as a number of smaller businesses in order to repay state aid.
Bank of Ireland was subsequently allowed to keep New Ireland following an appeal although it has so far paid the Government €6bn for €4.8bn in state aid. Moreover, the finance minister retains a 14% stake in Bank of Ireland which is valued at over €1bn.
According to the EU restructuring document: “Ireland commits that AIB will repay the state aid prior to the end of the restructuring period via the payment of dividends or other means, in such amount equal to the surplus regulatory capital above the minimum CET1 ratio (on a Basel III fully implemented basis) as set by the Central Bank (plus a buffer of 1-4%) at 31 December 2016.”
AIB released its trading update yesterday which said that it continues to be profitable and is generating capital. New lending is up 40% this year compared with last year, impaired loans have reduced by €4.6bn, and mortgage arrears are down by 11%. Moreover, AIB said it was in continued discussions with the Department of Finance about a partial sale of the bank.
Market sources say that the Department of Finance and AIB will release a plan for its preference shares, CoCo notes, and part privatisation next March following the release of its 2014 results.
Fianna Fáil finance spokesman Michael McGrath said that it was imperative that AIB repaid as much of the €21bn it owed the taxpayer as possible. He urged the finance minister to retain a majority stake in the bank in order to take advantage of the recovering economy and maximise shareholder value for the taxpayer.
AIB declined to comment on the basis that discussions with the Department of Finance about its return to private ownership were ongoing.