AIB produced a slick 54-page presentation of its annual results on Thursday, showing the company ahead of expectations across a number of headings. It drilled down into the granular detail of the bank's operating performance last year and gave an overview of some of the key balance-sheet metrics.
The story hangs well on many levels, but the main item on the agenda right now is a sale of shares by the State to institutional investors through a stock market flotation.
Behind the scenes, preparations are under way for a possible initial public offering (IPO) in May. This is not to say that it will happen at that point.
AIB is due to hold a capital markets day on March 9th, after which its executives are expected to undertake a series of so-called non-deal roadshows. This is when AIB will try to educate investors about its recovery story and future prospects, in advance of the formal IPO process, when the legalities that surround a flotation place a straitjacket on information flow.
Election
AIB chief executive Bernard Byrne said yesterday that the markets are in a "sweet spot" at present, but that could change at any time if, say, President Trump did something foolish or the Italian banks were to blow up.
A snap general election here would also scupper a spring IPO. It’s something that can’t be ruled out given recent wrangling between the Government and the Opposition over Garda whistleblowers and water charges.
There is also the potential for a change of taoiseach, with Enda Kenny expected to announce his intentions in the coming weeks. There is speculation that a changing of the guard might also see Michael Noonan make way as Minister for Finance.
Even if this were to come to pass, it would probably only delay a listing by a short number of weeks while a new minister got up to speed with the brief.
A sale of AIB shares is in the programme for government, and therefore shouldn't be a controversial issue for any new leader of Fine Gael or, for that matter, Fianna Fáil, should it find itself in power at some point this year.
Price is another important factor in getting an IPO away successfully. For sure, there is strong investor interest in Ireland. But how much will they be willing to pay for a quarter share of AIB? How big will the discount need to be to get such a listing away?
Valuation
The State’s 99.9 per cent holding in AIB was valued at €11.3 billion at the end of last year by the Ireland Strategic Investment Fund. You might therefore expect the State to net about €2.8 billion from selling a 25 per cent stake in the bank.
But that valuation isn’t a reliable guide for an IPO process, where the State and the bank will work hard to persuade investors about AIB’s future prospects as much as recent past performance. A figure somewhere between €2 billion and €3 billion is mooted by commentators.
In many ways, Noonan has been a lucky Minister for Finance. Nama is predicting a surplus of €2.3 billion now, when break-even looked like a good result when he took office six years ago. He netted €509 million in 2015 from the sale of a quarter share in Permanent TSB. The bank's share price has since halved.
Even IBRC’s liquidation is set to return a surplus to the State. Not many would have predicted that when the plug was pulled in February 2013.
A successful sale of AIB shares would be the icing on the cake if he is minded to step aside as Minister.
