Editorials

AIB: a work in progress

The sensible course of action is to press ahead and plan to float part of the State’s stake in the first half of the year if market conditions remain favourable

Fri Mar 03 2017 - 00:00

The Government may be able to go ahead and start the process of selling off its shareholding in AIB later this year, possibly as early as May. The bank's 2016 results, published yesterday, were better than forecasts suggested and international financial markets remain firm, for the moment at least.

The bank is back paying dividends and this is providing some return to the State. And it is clear that it has come a long way from the time of the State bail-out, making profits of more than €1 billion on its underlying operations.

It is only through selling down its stake in the bank that the State will recoup a significant amount of the €20 billion which was paid to rescue AIB and the Educational Building Society (which was subsequently merged into the larger bank). Of this, roughly €17 billion in capital is still owed to the State.

The damage caused by the banking collapse can never be undone but the capital return to the exchequer could at least help to improve the public finances, mainly by allowing the paydown of national debt.

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AIB still has problems to tackle. It has a large stock of non-performing loans and, like the other banks, is struggling to deal with the fall-out from the tracker mortgage review by the Central Bank. This is likely to lead to significant pay-outs to mortgage holders and penalties.

If the sale of part of the State’s stake – probably around 25 per cent – goes ahead this year, AIB will have to persuade investors that there is enough momentum in its underlying business to allow it to deal with these legacy issues. In turn, much will depend on the faith of investors in the Irish economy.

There is one other threat to the float plans. It is the possibility that the Government collapses, necessitating a general election. Given the favourable market conditions at the moment, this would be a pity. Who knows what condition investment markets might be in later this year or in 2018?

For the moment, the sensible course of action is to press ahead and plan to float part of the State’s stake in the first half of the year, provided market conditions remain favourable.