AIB CEO Eyes Cash Return Before State’s 2016 Signaled Share Sale

Allied Irish Banks Plc is preparing to return some of its 21 billion-euro ($23 billion) bailout to the state after the government signaled that the timing for a share sale is drifting into next year.

AIB may be able to redeem some of the state’s 3.5 billion euros of preferred shares and 1.6 billion euros of contingent convertible notes before a share sale, Chief Executive Officer Bernard Byrne said in an interview on Friday after the company reported a surge in first-half profit. Any plan is subject to approval from the European Central Bank’s supervision unit, the Single Supervisory Mechanism.

“You could have capital going back to the state in preparation” of the government starting to sell its 99.8 percent stake in the bank, Byrne said in the interview in Dublin. “The SSM are coming back with capital determinations in September and we would hope that will put us in a situation to be clear on what our capital structure should be.”

The country’s largest state-owned lender said Friday that its first-half pretax profit rose to 1.24 billion euros from 437 million euros a year earlier. AIB released 540 million euros of bad-debt provisions as defaulted loans fell and property prices rose. Net interest income rose 16 percent to 940 million euros in that period.

AIB first said in March it was ready for a sale, having returned to profit in 2014 after cutting jobs, selling assets and easing terms of defaulted loans. Finance Minister Michael Noonan has said the sale of a minority stake will likely be pushed into mid-2016, with a narrow window for a transaction in November 2015.

‘Well Ahead’

“AIB’s 1.24 billion-euro first-half profit was well ahead of our 793 million-euro forecast,” said Stephen Lyons, an analyst with Davy, Ireland’s largest securities firm. “But the greater story is the prospect of a 3 billion-euro to 4 billion-euro capital return on top of an expected 2016 share sale.”

Byrne said he’s “confident we’ll be able to put the bank in a position where the state can get its money back.”

The bank’s common equity Tier 1 capital ratio, a gauge of financial strength that reflects incoming banking rules, rose to 14.1 percent in June from 11.8 percent in December.

AIB’s loan book grew by 400 million euros to 63.8 billion euros, the first expansion since 2007, as a stronger pound lifted the value of its sterling assets. Excluding currency effects, net loans fell by 800 million euros, it said.

The bank’s net interest margin, the difference between the average rate at which it borrowers and lends to customers, rose to 1.92 percent from 1.60 percent a year earlier.

The bank said it will cut variable interest rates for mortgage customers by 0.25 percentage points in October, marking a third such decrease in 10 months, as its own funding costs have improved.