AIB ‘may return €4.3bn’ to shareholders in coming years

AIB’s initial public offering in 2017, in which the Government sold an initial 28.8 per cent stake after the lender’s bailout, was partly pitched on the premise that it was only be a matter of time before the bank would be divvying out a pile of surplus capital to shareholders.

AIB has paid out €594 million over the past two years by way of dividends and buying back some of the State’s shares – or what are known as directed buy-backs. But investors have been kept waiting for details of long-anticipated bigger pay-days.

There have been reasons for the delay. The intervening period has seen the bank slowly reduced problem loans, deal with the fallout from Brexit and the pandemic. More recently, it hoarded capital as it focused on acquiring Goodbody Stockbrokers, a chunk of Ulster Bank loans and spending money setting up a life and pensions joint venture with Irish Life’s parent, Great-West Lifeco.

However, group chief executive Colin Hunt promised on Wednesday, as AIB raised its full-year income forecasts for the third time in 2023, that the bank would “answer comprehensively” on March 6th 2024, as it publishes annual results, how much capital it plans to return to investors over the coming years.

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“Our preference will be to grow a cash dividend sustainably and transact with the Government on a directed basis where we possibly can,” Hunt told analysts on a call. “That makes good sense for us as we reduce a large shareholding overhang from the Government.”

Davy analyst Diarmaid Sheridan has already crunched the numbers. He reckons AIB will pay out almost €4.3 billion to investors over the next three years – the equivalent of almost 40 per cent of its current market cap.

Some €2.4 billion of this will be by way of ordinary dividends, with the remaining €1.8 billion likely to be spent buying back more State shares. The Government’s stake currently stands at just under 46 per cent.

Investor payouts will be underpinned too, as the bank engages in manoeuvres to reduce the level of expensive regulatory capital it must hold, by agreeing some so-called significant risk transfer deals next year. This would see some institutional investors take on the credit risk for an agreed amount of potential losses on certain loan portfolios for an extended period. Every little helps.