ALLIED IRISH Banks (AIB) has said the European Commission has told the bank to stop making interest payments on some of its debts, including the Government’s €3.5 billion preference share investment in the bank.
The commission indicated that, in line with its policy and pending an assessment of AIB’s restructuring plan, the bank should not pay coupons on tier one and tier two capital instruments unless legally bound to do so.
AIB is the latest financial institution in receipt of State aid to agree to EU conditions stopping interest payments to investors holding some of the bank’s securities.
The effect of the decision is to trigger a “dividend stopper” on the securities for a period of a year.
The bank said it had agreed to the request but that the bank and the Department of Finance were in “continuing discussions” with the commission to resume “declaration and payment of dividends and distributions as normal”.
The effect of the coupon restrictions would mean that the Government would not be paid the €280 million – an 8 per cent coupon – due next May under the €3.5 billion State recapitalisation of AIB.
This in turn would give the Government a larger stake in the bank, as AIB must pay the coupon in the form of ordinary shares if it cannot meet the payment in cash.
This could lead to the State taking a stake of 42 per cent, including the Government’s 25 per cent holding in warrants, based on Monday’s closing share price, Goodbody Stockbrokers said in a note to clients.
AIB’s share price closed down 2 per cent, or three cent, to €1.52.
The bank said the talks with Brussels could allow it to make a retrospective cash payment of a bond coupon due on December 14th as well as the cash dividend on the State’s preference shares due on May 13th.
The commission said it would back AIB’s attempts to raise capital privately in return for reducing State aid, and that it could adjust the coupon restrictions if it helped it to raise private capital.
“In the commission’s approach to restructuring aid for banks, it is possible for the period of coupon restrictions to be adjusted if this would favour private capital raising that would in turn reduce the amount of State aid,” it said.
“The commission will support efforts of AIB to raise private capital, including measures aimed at providing adequate remuneration to the Government’s preference shares without necessarily diluting existing shareholders.”
The European Commission is reviewing AIB’s restructuring plan, which was submitted on November 13th.
The plan must show how it intends to minimise and repay State aid and “an analysis of the compensatory measures taken or to be taken to minimise any distortions of competition caused”, AIB said in a shareholder circular.
AIB said the preference of the Minister for Finance and the bank was to pay the dividends owing on the bank’s preference shares.
