AIB cash is welcome windfall for Government ahead of election

The announcement today by AIB that it had received the green light from its regulator in Frankfurt to begin repaying some of its €20.8 billion in taxpayer bailout funds is a welcome development for the Government, coming as it does just months before a general election.

By the end of July next, AIB should have repaid some €3.3 billion to the State from the redemption of all of the €1.6 billion in contingent capital notes (CoCos) and €1.7 billion from part-payment of the preference shares.

Another €2.14 billion in preference shares will be converted into €2.67 billion worth of ordinary shares for the State, which already owns 99.8 per cent of the stock. This is due to a step-up clause that was built into the preference shares agreement if they weren’t redeemed by the bank within five years.

To help foot the bill, AIB will issue a minimum of €750 million of Tier 2 capital and at least €500 million of additional Tier 1 capital, a form of subordinated debt.

Some repayment by AIB to the State had been well flagged, with preparations for a capital restructuring starting at the beginning of this year with Goldman Sachs initially advising the Government on its options.

A stock market IPO was mooted but shelved until after the election, with the Government instead satisfying itself with part-redemption of the preference shares and a commitment to repay the CoCos post the election.

An IPO of AIB some time next year looks likely, probably with an offering of 25 per cent to the market. It will be some years before AIB fully wipes the slate, whatever happens, but this is an important milestone for the bank on the long road to normalisation.

Sorting out the financial sector mess was a key plank of the Government’s policy platform when it came to power in 2011.

These payments by AIB allow Minister Noonan to tick another couple of boxes on his report sheet.

Bank of Ireland has repaid its bailout money in full while the State continues to own a 14 per cent stake in the bank, which is worth about

€1.5 billion.

Permanent TSB was partially floated on the stock market this year, yielding some €508.5 million for the State of its €2.3 billion in bailout cash. It's worth remembering that there was no certainty that PTSB would survive as a standalone bank when Mr Noonan took office.

Irish Life was sold to Great-West Lifeco for €1.3 billion in 2013, recouping the State's outlay on the company while Irish Bank Resolution Corporation (an amalgam of Anglo Irish Bank and Irish Nationwide) was liquidated in February 2013 without any additional liability falling on the State - it had already cost us about €34 billion.

The bank guarantee was scrapped with a levy introduced to help replace the substantial annual fees that it used to generate for the exchequer. And the levy was extended to 2021 in the recent budget.

Just this week Bank of Ireland said it paid €38 million in bank levy fees to the State in October.

Critics would argue that not enough has been done to solve the mortgage arrears crisis, while allegations relating to certain loan sales by IBRC and the National Asset Management Agency continue to dog the Government.

And Bank of Ireland’s decisions to limit cash transactions in its branches highlighted yet again how out of step banks often are with public opinion and how little the Government can do to influence these decisions.

Still, securing some repayment of funds from AIB helps to join up another couple of dots in terms of the resolution of the financial sector here.

It’s a timely assist to Mr Noonan’s repeated statements over the past 12 to 18 months that the State would get back all of the €30 billion or so in bailout funds that was given to AIB (including EBS), Bank of Ireland and the former Irish Life & Permanent.

Especially with an election campaign now in full swing.