Share price falls 20% as AIB unveils €750m plan

AIB is planning to issue €750 million in Tier 2 capital on Thursday as a first step in a reorganisation of its capital structure announced earlier this month.

It is understood that three teams of investor relations executives at AIB will meet with investors in London and Frankfurt on Wednesday, with the bank likely to price the issuance on Thursday or possibly Friday.

Market sources expect the debt to be priced at between 4 and 4.25 per cent. A successful issuance would pave the way for the bank to raise €500 million in additional Tier 1 capital before the year end.

While this is expected to be a harder sell, the bank will be hoping for significant crossover of investors between the two debt instruments.

Separately, AIB’s share price fell by 20.5 per cent in Dublin on Tuesday after the bank announced plans to consolidate the number of shares in issue by offering one for every 250 currently held by investors.

This additional measure will form part of its capital reorganisation announced recently. It will involve a payment of some €1.7 billion to the State for a partial redemption of preference shares and the conversion of the remaining preference shares into ordinary stock for taxpayers.

The share consolidation will reduce the number of AIB shares in issue to 2.7 billion from 523.4 billion currently.

Its share price went from 7 cent to 5.72 cent by the close of trading.

In addition, AIB announced that the EBS promissory note, issued in 2010 as part of the State’s capital support to the building society at an initial value of €250 million, will now be eliminated at a cost equivalent to its carrying value (circa €220 million).

Trading update

It has also signalled a potential issue of warrants to the

Irish Government

at the time of its re-admission of shares to the stock market.

“The Government would be entitled to subscribe for ordinary shares not exceeding 9.99 per cent of AIB’s issued ordinary share capital, at a price not less than 200 per cent of the re-admission price and within 10 years of re-admission,” the bank said.

AIB plans to seek shareholder approval for these various measures at an extraordinary general meeting, probably in December.

These details formed part of a trading update for the third quarter of this year. AIB said profitability and capital generation trends continued.

Its new lending drawdowns rose by 53 per cent year-on-year to €6.2 billion while the number of owner-occupier accounts in mortgage arrears declined by 20 per cent since December 2014.

It has seen a reduction of €2 billion in impaired loan balances since the end of June to €16 billion while its performing loan portfolios increased by €2.3 billion to €56 billion since December 2014.

AIB said it expected lower provision writebacks in the second half of the year as collateral values and customer cashflows continued to improve albeit at a slower pace.