Minister for Finance Paschal Donohoe has revealed a plan to sell part of the State’s 71.1 per cent stake in AIB on the stock market over the next six months.
As reported in The Irish Times, Mr Donohoe's effort to speed up the recovery of AIB’s crisis-era bailout bill comes as taxpayers have only recouped €10.8 billion of the bank’s €20.8 billion rescue bill.
According to the Department of Finance, the Minister has hired Bank of America’s Merrill Lynch International unit to carry out “a measured and orderly sell down of shares” in AIB over an initial six-month period. This is due to start from the middle of January.
Under this arrangement, the US bank has been instructed by Mr Donohoe to target a sale of up to 15 per cent of the expected total trading volume in AIB shares during the programme. This is being done in a bid to limit the impact on the lender’s share value from a major seller being in the market.
'Important development'
The newly announced plan to sell the State's AIB shares is similar to the one currently being used to sell down the State’s holding in Bank of Ireland. It is expected that Bank of Ireland will return to full private ownership by mid 2022.
Mr Donohoe's plan is also designed to take advantage of rally by Irish financial stocks this year as a result of shrinking competition, economic recovery, and the possibility of central bank rate hikes over the medium term.
Since the announcement by Ulster Bank that it would be quitting the Irish market, the Iseq Financial index, which is dominated by the three remaining domestic banks, rose by 36 per cent. This was followed by an announcement from Belgian’s KBC Group that it would also be leaving the market.
John Cronin, an analyst with AIB-owned stockbroker Goodbody, has estimated that the State’s holding could fall to 69 per cent over the period. Meanwhile, Davy analyst Diarmaid Sheridan has estimated it will decline as low as 68 per cent.
“The bank’s financial performance has improved significantly while investor appetite for banks is also recovering, so these conditions provide a supportive environment to reduce our shareholding in the bank over time,” Mr Donohoe said.
Due to the State's large share of AIB stock, the bank has less market trading activity than Bank of Ireland. The Minister for Finance said he expects “the pace of share sales to be slower than what we’ve seen at Bank of Ireland” as a result.
According to AIB's chief executive Colin Hunt, the decision by Mr Donohoe was “an important development in the process of returning the State’s investment in the group”.
The Department of Finance has said that the plan will not stop the bank from returning cash through a targeted buyback and cancellation of some taxpayer shares.
