AIB shares dip as normal stock market trading resumes

Shares in AIB fell yesterday as unconditional trading in the stock resumed for the first time since its flotation last Friday.

The shares dipped 1.5 cent to €4.735 from the level they had been trading conditionally on Monday.

Investment firm Cantor Fitzgerald said on Tuesday that the bank is likely to pay €1.24 billion in dividends to shareholders, led by the State, up until the end of 2019, but will still have €3.35 billion of "excess cash" on its balance sheet.

Analyst Stephen Hall estimates that AIB will seek to start returning the surplus capital through a special dividend, provided the group has been successful in reducing its nonperforming loans balance to "more normalised levels" by then.

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That means that AIB could be in a position to return up to €4.6 billion to shareholders by the end of the decade, although Mr Hall said the bank may decide to distribute the excess capital over a few years.

Speaking to Bloomberg television on Tuesday, chief executive Bernard Byrne said AIB may look to international expansion once more as the bank beds down its Irish operations and returns to growth. He said the issue was something that would be reviewed in three years or so.

“For now it’s really about efficiency in what we’re doing; but beyond the three-year horizon we’ll come back and talk about that later,” he said.

Mr Byrne also dismissed the prospect of government interference in the bank, which is still 70 per cent owned by the State after it sold a 28.8 per cent stake of its holding last week for €3.4 billion.

15% upside

Initiating coverage of AIB’s newly floated shares, Mr Hall set a price target of €5.05 on the stock, implying 15 per cent upside to last week’s initial public offering price, and an “outperform” rating.

Cantor Fitzgerald estimates that AIB will reach an “inflection point” this year where its loan book will start to grow again. The bank’s loan portfolio has shrunk by half over the past decade.

AIB’s level of nonperforming loans has fallen from a peak of €29 billion in 2013 to €8.6 billion in March. Mr Hall estimates that nonperforming loans will decline to € 4.6 billion, or 6.7 per cent of gross loans, by 2019.

Shares in AIB traded as high as €4.76 on Tuesday as they were officially admitted to the main segments of the stock exchanges in Dublin and London. The stock had been subject to “conditional trading” among large institutional investors over the previous two sessions, following the setting of the IPO price at €4.40 on Friday in a deal in which the State raised €3.4 billion selling a 28.8 per cent stake.

However, the official closing price yesterday marks a fall of 8.9 per cent on the €5.20 at which shares in the bank had been trading ahead of the flotation. Investors had been warned against investing at inflated prices in what market analysts term “eejit trading” ahead of the IPO.