The state currently owns over 71% of AIB Group
BofA Securities was appointed to the role from the Department of Finance’s Panel of Financial Advisors following a mini-tender competition.
The Minister did not say how much of the AIB holding he plans to sell, but said that under the trading plan BofA Securities has been mandated to effect a “measured and orderly sell down” of shares in the bank on his behalf.
The number of shares to be sold will depend on market conditions, amongst other factors.
In order to ensure that the taxpayers’ interest is protected, shares will not be sold below a certain price per share, which the Department of Finance will keep under review.
The trading plan will become operational in the middle of January and will end no later than six months afterwards.
But it can be renewed at the minister’s discretion, the Department of Finance said in a statement.
Minister Donohoe said the Government’s continuation of pandemic supports for the economy is one factor behind its decision to sell part of its shareholding in AIB Group.
He said that he believes that AIB will be an important contributor to economic growth through lending, investment and advice it gives as well as being in a position to benefit from a recovery.
The minister said that AIB’s financial performance has improved significantly and there is also increased investor interest in banks.
He said the trading plan will become operational in the middle of January and terminate no later than six months later, though the Government reserves the right to review that.
He said “this does not preclude us from using an alternative exit strategy, including during the term of the trading plan”.
Minister Donohoe said that he has instructed the Bank of America Merrill Lynch, who will manage the plan, to target a sale of up to, but no more than, 50% of expected aggregate total trading volume in the bank.
He said the number of shares sold each day will depend on market conditions and shares will not be sold below a certain price per share, which will be kept under review.
AIB CEO Colin Hunt
Today’s move comes as the Government has reduced its stake in Bank of Ireland from 13.9% to 8.99% over several months this year.
“It is an important development in the process of returning the State’s investment in the Group,” Mr Hunt said.
“AIB owes the Irish taxpayer an immense debt of gratitude for its support during the financial crisis. The group’s robust balance sheet, its digital capability and the scale of its operations means it will continue to play a key role in supporting the Irish economy and our customers,” he said.
“The focus of our strategy is to grow and strengthen the Group to ensure we continue generating sustainable returns for all our shareholders,” he added.
“With our share trading programme proving successful in reducing our stake in Bank of Ireland, I am now announcing the restart of our phased exit from the State’s larger investment in AIB,” the Finance Minister said.
“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.
“Given the thinner liquidity in AIB shares, I expect the pace of share sales to be slower than what we’ve seen at Bank of Ireland, but it is important that we make further progress on what will be a multi-year journey,” he added.
The Minister for Finance currently owns about 1,930 million ordinary shares in AIB through the directed portfolio of the Ireland Strategic Investment Fund (ISIF).
The NPRF was further directed to invest €8.7 billion in two tranches – in December 2010 and July 2011 – while a capital contribution totaling €6.1 billion was also made by the NPRF and the Minister for Finance.
During the financial crisis, AIB also acquired EBS, which itself had previously been recapitalised and taken over by the State.
In 2017, the Government implemented an Initial Public Offering (IPO) of a portion of the State’s shares in AIB, listing the bank’s shares on the Irish and London stock exchanges.
The IPO resulted in the sale of 28.75% of the bank’s ordinary shares and recouped €3.4 billion for the Irish exchequer.
At the time, the Government said AIB’s IPO and return of value to the taxpayer was possible after the “considerable progress” made by the bank since the financial crisis, returning to sustainable profitability since 2014 and reducing its impaired loans froits m peak by 70% while also building up a strong capital base.
The reorganisation of AIB’s capital at the end of 2015 also marked a significant milestone as it modernised its capital structure and facilitated the consolidation the bank’s shares.
It also allowed for the return of €1.7 billion to the State, which was followed by the redemption of the Contingent Capital instrument in July of 2016, which returned a further €1.6 billion.
Commenting on today’s news, Davy Stockbrokers said the AIB sell-down will be welcomed as a demonstration that the State is committed to pursuing its strategy of not being a long-term holder in the banking sector.
“Given its overall stake, we would expect other forms of transactions such as directed buybacks and placings to also form part of the overall long-term strategy,” Davy said.
“AIB has made substantial progress on implementing its strategy during 2021, deploying capital in an accretive manner while also maintaining significant surplus capital,” the stockbrokers added.
Goodbody Stockbrokers said it believes the clarity in relation to the Government’s openness to divesting of its shareholding over time will be welcomed by shareholders and wider stakeholders.
“We believe the stake sale must be seen as a further important step in the normalisation of the domestic banking system following the Minister for Finance’s parliamentary speech in March and the subsequent decision to announce a trading plan to sell down the government’s shareholding in Bank of Ireland, which was announced on June 23,” the stockbrokers said.
“We wonder does the pending sale now change the narrative in time on the pay caps for the banking sector in Ireland, the lack of variable pay and removal of the bonus,” they said.
“This should make the sector better placed to attract talent and deliver better longer-term outturns, bearing in mind this issue has scored badly for the sector for investors in both a social and a governance context,” Goodbody added.
AIB shares were lower in Dublin trade today.