AIB drip food sale seems like a lot of work for little change

Given the elaborate steps of the latest plan to reduce taxpayer participation in AIB, the reality is likely to be quite disappointing, at least in isolation.

around six months, part of the 71 pc stake held by the government in the bank will be drip-fed into the market, above a certain price agreed in advance but not named and under strict controls so that the number of shares sold does not exceed 15 pc of the share’s overall trading volume.

This is to avoid a flood of shares that would push prices down, although they did come down on Tuesday anyway, but it does mean that somewhere on the order of just 2-3 percent of the bank’s shares will be. sold.

Taxpayers will be diluted, but not by much. Not enough to address concerns about the state’s dominant holdings in AIB and Permanent TSB, which is a potentially growing problem as Ulster Bank and KBC exit the market.

Neither was it enough to make a significant recovery for shareholders on the 22 billion euro cost of rescuing AIB more than ten years ago either. With very favorable winds and a busy market, the planned sale could bring in 180 million euros.

Past sales of AIB shares and other instruments, as well as fees and interest recovered over the past decade bring the rescue cost down to € 16.6 billion, according to an estimate by the Comptroller and Auditor General (C&AG ) in 2018.

It is fair to update this tally up to 2 billion euros in Nama surplus and calculate a shortfall for taxpayers in the order of 14.5 billion euros, worse than when the C&AG calculated the numbers in 2018 thanks to the deterioration in AIB’s share price.

So what’s the point? Analysts at major stockbrokers yesterday indicated the direction of the trip. The first sale of AIB shares since 2017 at least puts privatization back on the agenda.

That in turn could signal further normalization – analysts at Goodbody wondering if this signals a change in the discourse on salary caps for the banking sector, a condition of bailouts that is seen by the industry as a disadvantage in terms of banking. hiring, and which has been diluted considerably this year to facilitate the acquisitions of Goodbody by AIB and Davy by Bank of Ireland.

That last point can be a lot of stock to put into a 2 to 3 stake sale, but the signal of intent is probably there.

Finance Minister Paschal Donohoe reduced the state’s stake in Bank of Ireland this year from 14% to less than 9%, using techniques similar to AIB’s drip feed. This outing continues.

Ulster Bank’s messy exit is expected to reduce the state’s 75% stake in Permanent TSB to less than 60%, which is being scrapped to help fund a deal for the UK bank’s retail assets.

A nationalized banking sector has never been government policy. Sales of shares have always been the order of the day. In an ideal world, they would recoup the cost of the bailouts, as the Bank of Ireland did. But more than a decade after the bailouts, the prospect of taxpayer recovery from AIB or Permanent TSB bailouts is more distant than ever.

The government’s plan to reduce its stake in AIB at a loss indicates that any ambition on this point is dead or dying and that the exit from the banks has replaced the cash back from the banks.

Maria D. Ervin