Department of Finance officials have defended a Government move this week to sell a 5 per cent stake in AIB on the stock market at a deep discount on the bank’s initial public offering (IPO) price five years ago and the share’s current intrinsic value.
The Government raised €304.8 million from the placing after the Dublin market closed on Monday, in a deal that lowered its shareholding in the lender to 63.5 per cent. The shares on offer were priced at €2.28 each – representing a 6.5 per cent discount on Monday’s closing price.
The price was a little more than half the IPO price in June 2017 and just 55 per cent of the bank’s so-called book value, which is the estimated value per share of AIB’s assets. Like the wider European banking sector, AIB is trading at a discount on book value.
“AIB’s stock price has been very volatile in recent years for various reasons, including the impact of Brexit, Covid-19 and the invasion of Ukraine more recently,” a spokesman for the department said in response to questions. “It is worth noting that the price we have achieved for our shares today is above the price when Ireland announced its first case of Covid-19 at the end of February 2020.
“The Minister still owns circa 63.5 per cent of AIB and what ultimately matters is the final price citizens receive from their investment,” he said.
The placing of a block of shares is in addition to Minister for Finance Paschal Donohoe’s strategy in recent months of drip-feeding AIB shares on to the market. The State held 71 per cent of AIB as of the end of last year, a legacy of the bank’s €20.8 million crisis-era bailout.
The latest transaction brings to €11.1 million the amount of cash that AIB has returned to the State since its rescue, including proceeds for share sales, dividends, interest and principal repayments on bailout bonds and guarantee fees. The remaining taxpayer stake is currently valued by the market at €4.14 billion, meaning that the State is currently underwater to the tune of €5.56 billion on its investment in rescuing the bank.
Department of Finance sources said that it was important – more than a dozen years after AIB’s initial bailout – to make headway on selling down the State’s remaining stake in an effort to expand the amount of tradable shares and improve investor interest in the stock.
“All going well, the AIB price will continue to improve in the next few years and we can continue to sell down into a rising market,” one source said. “The average price we achieve through this multiyear process is ultimately what matters.”
Analysts at Deutsche Bank said last week that the share prices of the two largest Irish banks could double in the coming years, as they will be among the main winners across euro zone lenders when central banks hike interest rates to fight soaring inflation.
They raised their AIB pretax profit forecasts for each of the next two years by about 40 per cent, to reach €1.45 billion in 2024, as they factor in the European Central Bank’s deposit rate swinging from minus 0.5 per cent to 1 per cent and the Bank of England’s main rate rising to 2 per cent from 1.25 per cent.
However, there is also a widespread fear in the market that rising interest rates will push Europe into recession as households and businesses grapple with soaring fuel and food bills and general geopolitical uncertainty sparked by the war in Ukraine.
Goldman Sachs and AIB’s Goodbody Stockbrokers unit managed the share sale on behalf of the State, with Rothschild acting as Independent financial adviser. Law firms William Fry and Allen & Overy acted as legal counsel to the Department of Finance in connection with the sale.
“We very much welcome the decision and subsequent transaction undertaken by the Minister for Finance, Mr Paschal Donohoe, which has led to a further divestment of the State’s shareholding in AIB Group plc,” said the banking group’s chief executive, Colin Hunt.
“It is an important development in the process of returning the State’s investment in the group and a normalisation of the share register. AIB owes the Irish taxpayer an immense debt of gratitude for its support during the financial crisis. We remain focused on our strategy to grow and strengthen the group to ensure we continue generating sustainable returns for all our shareholders.”
The transaction comes days after the Central Bank fined AIB and its EBS subsidiary a record €96.7 million for overcharging customers denied mortgages that track European Central Bank rates.
