Allied Irish Banks Plc, the country’s second-largest lender by assets, won European Union approval for its 21 billion-euro ($29 billion) taxpayer rescue after agreeing a restructuring plan to return to profitability.
AIB will set targets for cost reductions and abstain from acquisitions until the end of 2017, the European Commission said in an e-mailed statement today after it granted final approval for the aid. The bank will also offer some access and support to new rivals to attract new competition into the “concentrated” Irish banking market, the EU authority said.
AIB Chief Executive Officer David Duffy said in March the lender may start repaying state support after European Central Bank stress tests later this year. Ireland owns 99.8 percent of the bank after a taxpayer bailout in the wake of the worst real estate crash in Western Europe. EU regulators must approve state aid and require restructuring measures to limit harm to competition.
“The approval, a return to profitability in the second half of this year and possibly as early as the summer, and clearing the EU stress tests in October, which is our base case, would facilitate steps for the bank to start repaying the state’s investment,” Eamonn Hughes, an analyst with Dublin-based Goodbody Stockbrokers, said in a note today.
AIB has committed to limiting Irish sovereign bonds holdings until the end of 2017, the Dublin-based lender said in a separate statement on the restructuring plan. This excludes government-backed securities AIB received as payment in 2010 for risky commercial real-estate it sold to the state’s bad bank, the National Asset Management Agency.
AIB held 10.3 billion euros of Irish government debt securities in its portfolio of financial assets available for sale at the end of 2013, according to its annual report.
The bank, which almost collapsed after Ireland’s real estate collapse, has already implemented much of its restructuring, including the shrinking of its balance sheet, since it filed its first draft of the plan with the EU in 2009.
Since then, AIB sold its Polish unit to Banco Santander SA for 3.1 billion euros and its minority stake in Buffalo, New York-based M&T Bank Corp. for about 1.5 billion euros. It has also disposed of loan portfolios, its securities firm Goodbody Stockbrokers and asset management unit, and eliminated 2,500 jobs through a program of voluntary job cuts.
“AIB has made significant progress and has successfully implemented a number of restructuring measures as the bank progresses with its aim to returning to profitability this year,” Duffy said in the lender’s statement.
The bank, which hasn’t posted a profit since 2008, will pay an “appropriate remuneration” to the government and add to existing cost cuts, the EU said. It will increase earnings by enhancing its net interest margin and curbing operating expenses and will maintain a strong capital buffer, it said. The bank’s contingent capital notes can be converted to equity if needed.
Joaquin Almunia, the EU’s antitrust chief, has said Bank of Ireland Plc and AIB require “close surveillance” because they have a “de facto duopoly” in the country.
AIB has pledged to stoke new competition by providing rivals access to cash supply and distribution services and with market intelligence, the EU said. The bank will also distribute advertising material for a rival to its customers to encourage them to switch to another bank.