Ciarán Hancock: Sale timetable for AIB now in serious doubt

Given that we won't know the precise composition of the new government until some time after Easter, we can say with some certainty that there won't now be an IPO of AIB shares before the summer.

The rout of bank shares this year probably ruled it out anyway, but the political uncertainty caused by the election result has put the final nail in the coffin.

Investec banking analyst John Cronin told me on Tuesday that the result "poses a real risk to the timetable for an [AIB] IPO", adding that "it's still too early to say whether or not it will proceed this year".

Michael Noonan’s stated preference for a listing of AIB shares was always in the autumn, but he would no doubt have pressed the button on a second quarter listing had his advisers in the department told it was the right time to go. Time and tide wait for no man, and all that.

Now, we can't even be sure that Noonan will even be the next minister for finance, even in a minority Fine Gael government.

Such an administration would require the support of Fianna Fáil to take office. While Fianna Fáil isn't opposed to the part-privatisation of AIB in principle, it did float the idea in a pre-election economic strategy document of examining the "feasibility of EBS being sold separately as a mortgage bank".

Such a move would be designed to foster competition in home loans. The idea has some merit and there are many former EBS people who would argue that the society should never have been merged into AIB in 2011 in the first place. But that horse has bolted and the costs and regulatory challenges of de-merging EBS out of AIB would appear to be too great at this stage. There would also be little appetite for such a proposal among the AIB executive.

Would Fianna Fáil insist on the feasibility of such a move being examined as a condition of its support for a minority government? Possibly, but the reality is there are far more pressing policy issues to be dealt with first.

The spotlight might better be focused on encouraging new entrants into the Irish market as a means of stimulating competition.

Knock-out results

AIB will publish its full-year figures for 2015 on Thursday morning. They are expected to be knock-out results. Investec’s Cronin is forecasting a pre-tax profit “well north of €2 billion”, which would effectively be a doubling of its surplus on the previous year. He puts this down to strong underlying earnings growth, once-off gains and provision writebacks.

While there are still issues around mortgage arrears, non-performing SME loans and its low-yielding tracker book, in the round AIB is in good shape. Last year it restructured its capital base and share register to pave the way for an IPO. It is a good proxy for the Irish economy, which is the fastest growing in Europe.

Its chief executive Bernard Byrne is likely to tell us that the bank is ready to go whenever the Government gives it the signal – but there is no need to rush an IPO of AIB. The bank paid the State €1.6 billion in December for some of its preference shares and will pay €1.7 billion in July, when the CoCos mature.

There is also the headroom to pay a dividend, which is arguably more valuable to the Government in the short term as it can be used for day-to-day spending unlike any cheque from an IPO, which has to be set against the national debt. The key for taxpayers is that we get the right price and achieve full repayment of the €20.8 billion bailout.

Even if markets recover to allow an autumn listing – the Euro Stoxx financials index is currently down 22 per cent in the year to date while Bank of Ireland has fallen by 26 per cent and Permanent TSB by 48 per cent – it is arguable if we would get a good price.

David Duffy’s Clydesdale went for 0.6 times its net asset value when it floated a quarter of the bank last month. PTSB’s IPO last year was at 0.9 times book value.

AIB is currently valued by the State at €11.7 billion and selling at those levels doesn’t make sense, given the size of the bank’s tab with taxpayers.

Having seen Wilbur Ross clean up on his 2011 investment in Bank of Ireland and witnessed various overseas funds make substantial gains from assets bought from Nama and the IBRC liquidator, the next government, whoever that might be, needs to ensure that we don't make the same mistake with AIB. Twitter: @CiaranHancock1