AIB’s plan to shift some bad loan loss risks off its balance sheet later this year could lead to higher-than-expected cash distributions to shareholders, according to an analyst at Bank of America (BofA).
The bank’s chief financial officer, Donal Galvin, said last month that the group may enter so-called synthetic risk transfer, or securitisation, deals next year.
This would see a group of institutional investors or pension funds take on the credit risk for an agreed amount of potential losses on loan portfolios for an extended period of time, reducing the level of capital the bank needs to hold in reserve against the loans.
The bank initially plans to carry out a synthetic risk transfer deal on corporate loans, followed up by one “in the mortgage space”, Mr Galvin told analysts as AIB reported annual results on March 6th.
Parties’ general election manifestos struggle to make the figures add up
On his return to Web Summit, the often outspoken chief executive Paddy Cosgrave is now an epitome of caution
Surviving a shake-up: is restructuring ever good for staff?
The Irish Times Business Person of the Month: Dalton Philips, Greencore
AIB plans to spend €1.7 billion in the coming months on dividends and buying bank a block of Government shares in the lender. Taxpayers continue to own almost 40 per cent of the bank, 15 years after it was first bailed out.
BofA Global Research analyst Alastair Ryan highlighted in a note to clients on Tuesday that he expects a further €5.4 billion distributions over the next three years.
Mr Ryan noted that so-called risk weight on AIB’s mortgage book is three times that of the euro zone average, meaning it has to hold much higher levels of expensive capital in reserve against loans – a legacy of the scale of the State’s post-crash arrears crisis.
A securitisation deal would help AIB secure balance sheet relief from the bank’s improved loan-loss experience over the past decade, he said.
“This would free up capital, but perhaps more importantly emphasise future capital release potential which is not [yet] in our forecasts,” he said.
Mr Ryan also said the scale of the bank’s expected profitability over the coming years will see it make significant headway in using up its remaining €2.6 billion of so-called deferred tax assets. These stem from accumulated losses following the crash and have allowed it to minimise its tax bill since then.
- Sign up for Business push alerts and have the best news, analysis and comment delivered directly to your phone
- Find The Irish Times on WhatsApp and stay up to date
- Our Inside Business podcast is published weekly – Find the latest episode here
