AIB is expected to significantly raise its profitability target on Friday, which will kickstart a major sale of government stakes in the bank, taking taxpayers’ share to 50 percent for the first time in a decade.
Analysts believe AIB could raise its forecast for annual returns above 10 percent and into the mid-teens when it updates its medium-term forecast Friday morning.
A solid update along those lines could potentially lead to a further sell-off of the state’s stake to meet growing investor demand after a €397 million listing last month that reduced its stake by 5 percent.
Such positive news would find a welcome audience among institutional investors clamoring for more exposure to the bank’s shares and potentially opening a window for a deal before Christmas.
The expected upward revision in profitability reflects a dramatically changed backdrop for AIB since August 2021, when chief executive Colin Hunt said the bank will deliver sustainable returns of just 9 percent through 2023.
A series of sharp rate hikes by the European Central Bank (ECB) this year has massively boosted AIB’s earnings prospects due to the interest rate sensitivity of its loan book and increased investor appetite for the stock.
According to the bank’s own forecasts, every 1 percent increase in ECB interest rates will result in net interest income of more than 300 million euros. The ECB hiked rates by 2.25 percentage points in three steps in July, September and October, with another half-point expected this month.
AIB’s share price is up 39 percent this year, despite the generally poor performance of stock markets as investors begin to understand how a rising interest rate environment translates into much stronger earnings.
The bank said in its third-quarter update at the end of October that its net interest income was already up more than 15 percent this year, showing how quickly higher rates are taking hold.
Just a week after the announcement, Treasury Secretary Paschal Donohoe sold a large tranche of shares to reduce the government’s position to 57 percent, with the prospect of a minority stake.
Informed sources said another placement could take place in the coming weeks, with the approval of the investment banks that completed the latest sale, provided the market for Irish bank shares remains buoyant.
Davy has suggested that AIB should begin “big buybacks,” particularly of stocks controlled by the National Treasury Management Agency, to bring the government’s stake below 50 percent more quickly.
Such a plan would quickly reduce state ownership while leaving private shareholders untouched, giving them greater control over the bank.
It would also more quickly repay some of the outstanding billions pumped into AIB when the taxpayer came to its rescue during the financial crisis.
But analysts said there’s still no clear view of returning capital to shareholders through buybacks or dividends as the ECB worries about loan losses if a recession hits next year.
The expectation of significantly higher costs could also dampen enthusiasm for the stock.
