AIB chief plays down UK election jitters as he courts IPO investors

AIB's chief executive, Bernard Byrne, has played down the potential impact of a UK election upset on the planned flotation of the State-owned bank. This comes as an opinion poll showed the British prime minister Theresa May may fail to win an overall majority in next week's vote.

“We don’t think that the outcome of an election is something we focus on,” Mr Byrne said on a call with reporters on Wednesday morning, after the Government announced plans to sell an initial 25 per cent stake to stock market investors in the next month. “We don’t see that as a key event for us.”

The chief executive of AIB of two years said that his team's main focus will be on demonstrating to investors in the coming weeks how the bank has turned itself around in a recovering economy since 2013, cutting its level of bad loans from €29 billion to €8.6 billion, shaving €365 million in costs and convincing more customers to carry out transactions online.

“Today we think we are presenting a changed bank,” Mr Byrne said.

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Took fright

However, financial markets took fright on Wednesday morning as they digested the pollster YouGov’s predictions, based on its latest polling, that the British Conservative Party may lose 20 seats in next week’s election and fall short of an overall majority by 16 seats. Sterling dropped as much as 0.7 per cent against the dollar in European trading, while European banking stocks declined by 0.8 per cent.

Ms May has been banking on the election increasing her majority and giving her a stronger hand in negotiating divorce terms with the European Union.

Meanwhile, Mr Byrne said investor appetite for AIB is strong enough that the bank will likely be able to avoid having to rely on a small group of major institutional investors – known as anchor investors – to commit to buying a portion of the shares on offer before the rest of the orders are filled.

At the height of the financial crisis, the government sold a 35 per cent stake in Bank of Ireland to a group of North American investors in 2011, including New York billionaire Wilbur Ross and Canada's Fairfax Financial, to avoid having to take control of the country's largest bank by assets.

‘Higher risk profile’

Companies typically rely on cornerstone or anchor investors if they have a “higher risk profile or at an early stage in the recovery cycle”, Mr Byrne said.

AIB, which required a €20.8 billion bailout between 2009 and 2011, has since returned €6.8 billion of cash, including repayment of debt-like investments, interest and fees attached to the government’s guarantee of the financial system during the financial crisis. The 25 per cent stake sale, expected to be completed in four weeks’ time, could raise up to an additional €3 billion, according to analysts.

AIB is "now within touching distance" of being in a position to return all of taxpayers' cash put into the bank, Mr Byrne said earlier on Wednesday in an RTÉ radio interview, noting that the Government's most recent official valuation on the company last year was €11.3 billion. Combined with existing cash payments to the State ,"that puts you up in a range very close to €18 billion," he said.

Shareholder dividends

The chief executive signalled that the bank will also rely on future shareholder dividends to form part of the total payback.

While the State plans to sell a small portion of the shares in the initial public offering to small – or retail – investors, Mr Byrne said that the bulk of the stock is likely to end up in the hands of larger “long-only” institutional investors who have a “long-term perspective”.

He declined to comment on the potential price at which the shares will be sold. A pricing range will be outlined by the Government in mid-June when a prospectus for the stock sale will be circulated. The final deal is likely to be priced within two weeks of that.