THE STATE’S largest bank, Allied Irish Banks (AIB), climbed 20 per cent on the stock market, its biggest gain since September, after investors reacted favourably to its plan to sell businesses which would generate cash to help absorb mounting losses.
The bank has been presenting its capital-raising plan to investors in London over the past two days after saying this week that it could raise up to €4 billion by its own means and avoid a further Government bailout.
The bank’s shares climbed 20 cent to €1.25 as global institutional investors warmed to the bank’s plan which involves selling some of the bank’s most valuable assets.
The rising share price also lifted Bank of Ireland which increased 9.1 per cent, or 9 cent, to €1.09.
AIB will be left with a capital hole of more than €4 billion after selling €23 billion in development loans at a discounted price to the National Asset Management Agency (Nama).
The bank said that it could raise capital by selling key businesses, which include its UK banking business, Polish lender Bank Zachodni WBK, and its interest in US bank MT, before having to turn to shareholders for cash.
Analysts estimate that AIB could net about €2.5 billion from the sale of its Polish and US businesses.
Colm Doherty, managing director of AIB, said this week that it has had discussions with a number of investors who were interested in taking a “strategic” stake in the bank. He said that there were an “inordinate” number of parties interested in AIB’s Polish business, which he described as “the jewel in the crown”.
The bank reported losses of €2.6 billion for 2009 earlier this week – the first annual loss in its history.
AIB has said that it plans to raise capital through “self-help” options before turning to investors or even the Government for cash.
The positive reaction from the international investment community improves the bank’s prospects of tapping these investors for cash through the issuing of new shares after the sale of its businesses.
“They are getting a positive reaction to the ‘self-help’ programme, even if it means selling prized assets,” said banking analyst Sebastian Orsi at Dublin stockbroking firm Merrion Capital.
The share price values AIB at just over €1 billion. Further gains on the market will improve the bank’s chances of raising sufficient capital from a “rights issue” cash call of shareholders. Investors were said to be particularly encouraged by the potential sale of AIB’s UK business in private presentations given by Mr Doherty over the past two days.
The sale of the business, which has a well-established commercial banking operation, could generate €650 million in a capital gain for AIB, according to analysts at French bank Société Générale.
AIB’s plan to swap debt with bondholders for an estimated gain of up to €350 million will be made within days, sources said.
Meanwhile, Anglo Irish Bank director Alan Dukes said the bank may become part of “a third force” banking group to rival AIB and Bank of Ireland formed out of the smaller financial institutions.