The Government anticipates a major return from AIB in the coming weeks as preparations intensify for a flotation of the nationalised lender in the first half of next year.

With the bank back in profit, officials are now working on the basis it could be in a position to repay preference shares and contingent convertible notes as early as next month.

A return of €3 billion-€4 billion may be in play, money which would be used to pay down some of the national debt and further reduce the declining debt-GDP ratio. At the same time, the restructuring of the AIB balance sheet would clear the way for a public offering of the bank’s shares on the stock market in the first half of 2016. The State would sell 25 per cent of the shares in AIB initially.

Renewed focus

The Coalition parties are preparing to campaign in the general election – likely to take place in early February – on the basis they would proceed quickly with a flotation if they are returned to office.

A renewed focus on AIB within the Government follows the cancellation of tentative plans for a November election, as well as the conclusion of the budget and publication of the Finance Bill to give effect to the 2016 fiscal plan. AIB has privately signalled it can settle a restructuring package by the end of this year. Thus, any prospectus for an early 2016 flotation would be predicated on forecasts and annual accounts based on a cleaner balance sheet.

The push within Government is to conclude this process during November, meaning the State’s return would be reflected in exchequer figures that month. Completion of the process before December would smooth the process of closing off the State’s books at the end of the year.

Debt paydown

The prospect of a debt paydown would also come as the EU authorities examined the budget, thereby improving the debt metrics set out in the plan.

However, a November return from AIB would be earlier than foreseen very recently.

AIB must first receive approval in respect of its capital structure from the pan-European bank regulator in Frankfurt. The precise status of the regulatory process remains unclear, but conclusion is anticipated soon. The bank is expected to convert €1.5 billion of its preference shares, redeeming up to €2 billion to the State. A further possibility is that it repays €1.6 billion in contingent convertible notes, which are due to mature next summer .

AIB chief executive Bernard Byrne said the bank would be in a position in the “not too distant future” to repay a “sizeable chunk” of capital to the State.

“The Minister for Finance will determine when and how the bank will return more capital to the State through an initial public offering but you can be assured that we will be ready when he makes that decision,” Mr Byrne said.