Rate hikes by the European Central Bank have been “positive for Irish banks” and mean the timing is right for the state to sell more of its stake in AIB, Treasury Department documents say.
In submissions to Treasury Secretary Paschal Donohoe, Department officials said investor appetite for AIB had increased “despite ongoing concerns” about an imminent recession in Europe.
They said feedback from investment banks suggested the state could easily sell a stake of between 300 and 400 million euros in AIB at a much better price than the last previous share sale in June.
A filing reads: “The latest ECB interest rate is rising [are] positive for Irish banks as they are among the most interest rate sensitive banks in Europe.
“The consolidation of the Irish banking sector is fueling the growth of the remaining banks while earnings momentum continues through improved operational leverage.”
Officials said there would be an obvious window for a stock sale in late October following the release of AIB’s third-quarter trading update.
However, they warned that the sale must take place before December 2 if AIB plans to announce new financial targets.
They said this would help “avoid the perception of inside information” and recommended the trade go ahead in early November.
Officials also said if the department waited too long, some investors would “effectively close their books from mid-December” ahead of the year-end.
Mr. Donohoe eventually gave the go-ahead for the sale of 135 million AIB shares on November 7 at a price of €2.96 and a repayment of almost €400 million to the Treasury.
In the submission to the minister in October, ministry officials said that AIB’s share price had generally been on an “uptrend” in recent weeks and that “high profile investors” had already expressed interest in another block trade.
In a note to officials, Mr Paschal Donohoe wrote: “I am open in principle and see the benefit of slightly changing the decision-making process.”
In a second filing in early November, officials told the minister that the state’s stake in AIB was still more valuable than at the start of the year, despite a stake sale in June.
Mr Donohoe wrote: “It is very positive to see the value of the shares have increased by €700 million since the start of the year. As the table below shows, we own less of the bank, but our stake is now worth more than it was in December 2021.”
In this submission, the minister was also informed that AIB had been one of the best performing banks in Europe that year.
Officials wrote, “A higher share price and increasing free float, which improves liquidity, is a virtuous circle that benefits the state as a seller and ensures investors remain interested in future sales opportunities.”
It said AIB’s latest trade statement had been well received by markets and analysts had upgraded their forecasts “mainly on the merits of higher interest rates”.
In a final statement following Project Viking’s recent share sale, Mr Donohoe thanked officials for what he described as an “excellent result”.
That update said the state’s stake in AIB was now down to 57 percent and gross proceeds from the sale were €396.6 million.
Officials again said that despite a significant reduction in the state’s stake in AIB, the value of their holdings is still higher than it was at the beginning of the year.
The filing states: “Although we sold in an environment where banks are more in demand due to rising interest rates, there is no doubt that we had a direct positive impact on AIB’s share price by creating liquidity.
“AIB is now up 43 percent this year versus down 8 percent for European bank stocks in general and the bank’s capitalization [AIB] is, in our view, approaching its underlying value.”
https://www.independent.ie/business/irish/ecb-rate-hikes-boost-aib-profits-and-sale-prospects-finance-minister-paschal-donohoe-told-42214858.html ECB rate hikes boost AIB’s profits and sales prospects, Treasury Secretary Paschal Donohoe said