AIB signals confidence as it moves to redeem €750m of junior bonds

AIB told investors in €750 million of junior bonds in the bank that it plans to buy back the notes at the first opportunity next month, signalling ongoing confidence in its capital reserves as the industry grapples with the Covid-19 economic shock.

The bank sold the so-called Tier 2 capital notes in late November 2015 and has the option to redeem the notes, which have an annual interest rate of 4.13 per cent, from the fifth anniversary of issue.

“The notes will be redeemed in whole, together with interest to the date fixed for redemption, on 26 November 2020,” AIB said in a stock exchange announcement on Thursday.

The 2015 sale marked AIB’s return to the subordinated debt market following the financial crisis. Holders of junior bonds in the bank were force to take €5 billion of losses on their investments from 2009 to 2011 as the lender collapsed under the weight of soured property loans and the government sought to share its rescue bill for the lender.

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AIB needed a €20.8 billion taxpayer bailout during the financial crisis.

The bank set the scene for a likely redemption of the 2015 notes when it raised €1 billion from the sale of Tier 2 “green bonds”, aimed at supporting lending towards renewable energy projects and green buildings. The new bonds were priced to carry an interest rate, or coupon, of about 2.9 per cent.

The bank, led by chief executive Colin Hunt, is due to issue a trading update on Friday. It posted a €700 million net loss for the first half of 2020, after setting aside €1.2 billion of upfront provisions to absorb an expected surge in bad loans as a result of Covid-19.

Analysts are largely agreed that Irish banks have more than enough capital to weather the crisis, with UBS’s Jason Napier estimating last month that AIB may have €1.1 billion to hand out to stock investors after the pandemic plays out.