Profit-taking after the extraordinary 5 per cent rise on Tuesday dragged AIB shares lower although vague speculation about a possible bid for the bank is still circulating in the market. At the close yesterday, AIB shares were on €17.20 (£13.54), erasing all the gains notched up on Tuesday.
After the intense speculation in the past week about a bid, most of it apparently driven by London analysts and duly reported by the British media, there was a growing realisation yesterday that a bid for the Irish institution by either Lloyds TSB or Deutsche Bank at the suggested £15 sterling (€21.76) is highly unlikely, for different reasons.
Banking analysts said that while a potential bidder like Lloyds TSB might wish to treat the bid as a merger for accounting purposes, such an approach was unlikely to be allowed by the regulatory authorities. This would mean that the bidder would have to write off all the goodwill associated with an AIB take-over, goodwill that would be around €14 billion (£11 billion).
Even after yesterday's fall, AIB is trading at not much under five times its book value, and a bid at the suggested €21.76 would be at six times book value. "That would be an enormous sum to pay for any bank, especially one in a country where the rumoured bidders have a negligible presence," said one source.
In any event, analysts believe that a bid by Lloyds TSB for AIB would involve a huge cash call for Lloyds shareholders, with the British bank unlikely to have the cash for more than 25 per cent of AIB shares. This would leave Lloyds TSB shareholders, or the underwriters to a rights issue, to provide the best part of €15 billion (£12 billion) for an acquisition of this scale. Analysts believe that Lloyds TSB shareholders are unlikely to welcome such a move which could dilute their return on equity in the long-term.
As regards Deutsche Bank, the view in the market is that the German bank has plenty on its plate with the $10 billion (€8.82 billion) acquisition of Bankers Trust.
Whether or not there is a bidder for AIB lurking on the sidelines, there is general unanimity that there is no prospect of a successful take-over of Ireland's biggest company without the full and enthusiastic support of the AIB board. While AIB, and the purported bidders - Lloyds TSB and Deutsche Bank - have maintained a strict "no comment" approach to the speculated bids, reliable sources have indicated that AIB has received no approach - formal or informal.
While London might be preoccupied with the prospect of a bid for AIB, the view in the market is that a cross-border bid for AIB by a major European banking group is unlikely before there has been a far greater level of banking consolidation within European national borders.
The Societe Generale/ Paribas merger in France and similar mergers of major banks in Spain and Italy represent the sort of rationalisation within national boundaries that will become more common before major cross-border acquisitions take place, say analysts.
As the demand for AIB shares eased, Bank of Ireland shares surged 65 cents to a new high of €20.75 (£16.34), not because of any take-over talks but more because they were seen as cheap compared to AIB, trading at just more than four times book value.
