AIB to test market for external investment in first half of 2015

AIB is working towards being ready to test the market for external investment in the first half of 2015, its chief executive David Duffy has said.

"The internal target is to be ready for the first half of next year because of the guidance the Minister [for Finance Michael Noonan] gave [at the World Economic Forum] in Davos to test the price pre- 2016," Mr Duffy told The Irish Times yesterday.

“You have to really put your governance in place, your disciplines, you’re reporting mechanisms . . . building the organisational capability with a view that, if we’re asked in the first half of 2015, we’ll be ready. It’s just logical. An investor really wants to see a cleaned up balance sheet and that’s the logical sequence.”

His comments were made in the wake of AIB announcing yesterday that it returned to profit in the first quarter of this year and that it had started talks with the Department of Finance about the possible conversion of some or all of the €3.5 billion in preference shares, dating from 2009, into ordinary shares and “options in respect of the contingent capital notes”.

AIB said it hoped to reach agreement on these discussions during the second half of this year. “As part of these discussions, the bank will consider options in respect of repayment of capital to the State,” AIB added.

Mr Duffy said a decision on when AIB might test the market for investment was at the “discretion” of the State, which owns 99.8 per cent of the bank. “It’s actually beyond our control,” he added. “It’s really a function of when the Government decides to put parts of AIB up for sale.”

Restoring profitability
Mr Duffy also said restoring the bank to profitability and receiving clearance last week from the European Commission for its State aid restructuring plan were important steps towards making the bank attractive again to investors.

Passing the Europe-wide stress tests later this year would be another important step towards selling a stake in the bank, he added.

On the possible appointment of external advisers, Mr Duffy said: “We’ll have that discussion [with the Government] over the next couple of months. What’s the timing? Do we need more at advice level at this stage? How does it work between us all.

“My watchword internally to the team is that there’s no need to worry about any of that until I tell you because it can be a very distracting process. The whole senior team here is not actually focused on that; they are focused on the commercial side [of the business].”

In a trading update yesterday, AIB said it had returned to profitability in the first quarter of this year due to a “significant” reduction in impairment charges, a 60 per cent increase in lending drawdowns and tight cost management.

“Both the UK and Irish businesses returned to underlying profitability,” the bank said.

Its net interest margin increased to about 1.57 per cent due to lower funding costs, an improvement in yield on interest-earning assets and a further reduction in the costs of the State’s eligible liabilities scheme, which is being wound down.

Cost-income ratio
AIB said its cost-income ratio was "lower" in the three months of this year compared with the second half of 2013.

AIB reported increased activity in SME lending. Mr Duffy said it was broadly spread, across energy, clean tech, biotech, agriculture, hotel and small domestic retail.

Mortgage drawdowns were 50 per cent higher than a year earlier. On online mortgages, Mr Duffy said there were now about “1,000 in the hopper” and “we’ve executed the first batch of pure non-branch visit mortgages. That’s exciting.”