Ireland Government Plans €500m Boost as Allied Irish Banks Stake Sale Continues

The government's plans to sell a 5% stake in AIB (Allied Irish Banks) are set to raise approximately €500m. Discover how Goldman Sachs, Morgan Stanley, and BNP Paribas are tasked with selling the shares, leading to a reduction in the state's holding to about 40.8%. Stay informed about the latest financial developments.

Finance Minister Michael McGrath has enlisted the services of three investment banks to facilitate the sale of an additional 5% stake in AIB (Allied Irish Banks). This move is part of the government's ongoing efforts to recuperate the funds provided during the bank's bailout in the wake of the financial crisis. The sale, which was launched immediately after the close of the Dublin market, is anticipated to generate approximately €500 million in revenue. The three investment banks mandated to oversee the sale are Goldman Sachs, Morgan Stanley, and BNP Paribas. The transaction will reduce the state's shareholding in AIB from 45.96% to around 40.8%. Furthermore, this share sale will contribute to the overall amount repaid by AIB towards its €20.8 billion rescue, increasing it to roughly €13.6 billion. However, with the government's remaining stake currently valued at €4.3 billion, taxpayers are currently facing a €2.9 billion cash shortfall on their investment in the bank.

Over the past year, the government has employed multiple approaches to reduce its stake in AIB, including gradually releasing small amounts of shares onto the market, implementing occasional larger 5% blocks sales, and actively participating in stock buy-backs by the bank. At the start of the sell-down programme, the government held a 71% stake in January 2022. The funds recovered thus far include the proceeds from an initial public offering in 2017, bailout bond redemptions, dividends, interest, and guarantees.

Last week, AIB raised its full-year net interest income forecast for the third time in 2023. The bank attributed this enhancement to a slower-than-anticipated transition of savers from low-rate accounts to its more attractive products. AIB now expects its net interest income (NII) to exceed €3.75 billion, €150 million more than its previous estimation. The net interest margin (NIM), which denotes the discrepancy between the average rates at which a bank funds itself and lends to customers, is also set to exceed 3%, surpassing the bank's previous forecast of over 2.9%. AIB achieved a net interest income of €2.16 billion and a net NIM of 2.74% in the previous year.

Despite recent rate hikes on specific deposit products by AIB and other major Irish banks, approximately 95% of household savings remain in on-demand or overnight accounts that yield minimal or no returns. AIB expects this situation to change as borrowers migrate to higher-rate savings products. During an analyst call, AIB's chief financial officer, Donal Galvin, acknowledged that the shift has been slower than anticipated.

In an effort to combat inflation, the European Central Bank (ECB) has embarked on a series of rate hikes. As a result, AIB's €29.5 billion in excess customer deposits held at the Central Bank now earn a rate of 4%, compared to zero in July of the previous year.