AIB will pay the State €1.62 billion on Thursday in a move that will allow the Government to balance the exchequer books for the year for the first time in almost a decade.
The bank’s shareholders on Wednesday gave the green light to a reorganisation of AIB’s capital to allow it to begin repaying its €20.8 billion taxpayer bailout, while also clearing the way for a stock market flotation next year.
This will be the first meaningful return by AIB of its bailout money, with the promise of further payments in 2016.
After an extraordinary general meeting in Dublin, AIB chairman Richard Pym said: "This is the first of the capital repayments and we hope there will be more."
AIB chief executive Bernard Byrne indicated it would take the bank five to 10 years to repay its bailout funds in full: "Based on current assumptions, it's not in the 10-plus category and it's unlikely to be in the next short number of years."
The reorganisation agreed involves AIB paying the State €1.7 billion to redeem part of the 3.5 billion preference shares used to help bail out the bank after the crash in 2008. It will pay a dividend of €166.4 million to the State on these shares, issued in 2009. These payments will be offset by the Government waiving a €225 million promissory note connected with EBS, the former building society now part of AIB.
Market listing
The bank has already committed to paying €1.6 billion to the State when instruments known as contingent capital notes expire in July 2016, plus a dividend of €160 million.
Plans are being drafted to return the bank to a main market listing in Dublin and London next year, some time after the general election.
Mr Byrne said AIB was “ready” to press the button on a stock market listing but the timing would be a matter for the Government, which owns 99.8 per cent of its shares.
A flotation is likely to involve one-quarter of the bank being offered to institutional investors. With AIB valued at €11.7 billion by the National Treasury Management Agency, the State would stand to net just under €3 billion from the sale of shares.
This would bring the total received from AIB to about €6.6 billion. The bank has also paid €3 billion to the Government since 2008 in fees for the bank guarantee, coupon payments on the preference shares, and the bank levy.
Minister for Finance Michael Noonan is due to attend an event on Thursday hosted by AIB and the Strategic Banking Corporation of Ireland to announce the bank has secured €200 million from the State agency to lend to Irish businesses. He is expected to reiterate the Government’s belief it will recover the taxpayer’s full investment in AIB.
Balancing books
The Minister is likely to highlight how, along with the strong tax performance this year, the returns achieved from the banking sector – it received €508.5 million from
Permanent TSB
after its stock market listing – will allow the Government balance the exchequer books in cash terms.
This is likely to reduce the exchequer borrowing requirement, and cut Ireland’s debt ratio by almost 1 per cent of gross domestic product in 2016. This could result in the State’s debt falling to 92 per cent of GDP, in line with the euro area average. Just two years ago, the figure was 120 per cent of GDP.
There was other good news on Wednesday with ratings agency Fitch upgrading AIB and Bank of Ireland: "The upgrade reflects ongoing improvements in these banks' asset quality, business prospects, profitability and capitalisation."
