Officials fretted over tracker mortgage fine ahead of AIB share sale

Minister for Finance Paschal Donohoe was warned that a hefty fine for AIB over tracker mortgages could represent a “negative surprise” as the State prepared to sell a significant stake in the bank.

Officials explained how two previous attempts to offload a large chunk of AIB had fallen at the final hurdle in November last year and again in March this year after the “war in Ukraine intervened”.

They said that the time was right in June to sell down a major stake in the bank with “high-quality investors” ready to make sizable trades for AIB shares.

A submission for Mr Donohoe stated there were already half a dozen institutions that had indicated a firm interest in investing about €50 million each in the bank.

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“What is noteworthy is that these firms are all high-quality names and all but one are what the industry describes as ‘long only’ — ie your traditional pension and investment funds as opposed to hedge funds that tend to have a short time horizon,” it said.

In a detailed submission dated in June, Mr Donohoe was told the State should consider selling off about a €300 million stake in the bank, which represented about 5 per cent of the business. This could be increased up to €350 million if “demand is strong”, said officials.

The submission also warned that there may be “obstacles to navigate” through June as it was the end of AIB’s financial half-year.

“More importantly, we believe that AIB’s tracker fine from the Central Bank could be announced on Tuesday the 21st [of June] or failing this next Wednesday or Thursday. This is material information and, given the risk that it could represent a negative surprise, we should not attempt to trade ahead of it.”

In the event, the State secured just under €305 million for the 5 per cent stake it sold in the bank in June.

‘Likely discount’

The submission also explained the previously aborted attempts to sell off a stake in the bank.

In relation to the November plan, it explained: “Just before launch, we learned that the likely discount [on the share price] was going to end up higher than we expected.”

Officials said they had also been “well-positioned” to look at a sale after the bank’s results in early March until the war in Ukraine began.

It said AIB’s share price had since recovered due to a strong first quarter trading statement, the acquisition of Ulster Bank loans, their €91 million share buyback programme, and confirmation of interest rate rises from the European Central Bank. “All of these factors mean that investor appetite has increased materially in the stock, notwithstanding lingering concerns that there is a recession coming in Europe that will harm banks,” explained the submission.

Another submission — prepared after the sale had gone through — said the shares had been sold at a price of €2.28, a 6.5 per cent discount on their closing price from June 27th.

It said: “AIB’s stock price has been very volatile in recent years. For instance, it is worth noting that the price we have achieved for our shares in this transaction is above the price when Ireland announced its first case of Covid-19 at the end of February 2020 (€2.10).

“AIB’s share price also fell to a low of €0.77 in 2020 following the outbreak of Covid-19.”

The submission noted the 6.5 per cent discount was lower than anticipated and compared well with similar deals. It said that following the sale, shares in AIB had “traded in a range” that the department and investors were happy with following a 4 per cent rise on the first day after the State sell-off.

Asked to comment on the records, the Department of Finance said they had nothing further to add to their contents.