Global equity markets have taken a hammering so far this year as investors bet on a worldwide recession. Among the rare exceptions in the Irish market have been AIB and Bank of Ireland, whose shares have jumped more than 40 per cent so far this year, as they are seen as benefiting from rising interest rates – at the cost, of course, of borrowers.
Minister for Finance Paschal Donohoe has taken advantage of this by disposing of the State’s remaining shares in Bank of Ireland this year and accelerating a sell-down of AIB stock – including the sale of a 5 per cent stake this week for almost €400 million. It is the second such 5 per cent stock placing that Donohoe has carried out this year. The price achieved was 30 per cent higher than what the State received when he sold a similar-sized block in June.
Adding in additional AIB shares that the Minister has sold since January, the State’s stake has fallen from 71 per cent to 57 per cent. It brings the total that taxpayers have recouped from AIB’s €20.7 billion bailout to about €11.5 billion.
Both recent deals were priced at a significant discount to the intrinsic value of AIB’s shares. The stock is currently trading at about 70 per cent of the bank’s so-called book value, or the value put on its assets. But a few years on from AIB’s initial public offering (IPO) in 2017, it could be argued that it is important to bring in more large investors who could absorb further stock placings.
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The Government will hope to be able to continue to sell into a rising market for AIB shares. However, the effects of slowing economic growth and rising interest rates will inevitably lead to a rise in problem loans, according to analysts, which should contain any onward march by the shares.
Adding the amount recouped to date with the current market value of the State’s remaining shares – at about €4.7 billion – means that taxpayers remain about €4.5 billion under water on the money pumped in to AIB. It will be an uphill struggle to make that up – and that is before considering the lost opportunities for the State to have spent the money in other areas.