AIB Plans to Shrink Shares by 99% Before Ireland Stake Sale

Allied Irish Banks Plc plans to cut the amount of shares it has in issue by more than 99 percent as it reorganizes its capital structure before a government stake sale next year.

AIB, which has 523 billion shares in issue following multiple government bailouts during the financial crisis, is preparing to consolidate stock on a 1-for-250 basis, it said in a statement on Tuesday. The lender may provide the government with warrants to buy as much as 9.99 percent of AIB’s issued capital within 10 years of readmission to a main stock market, subject to a final agreement with the finance ministry.

AIB laid out plans earlier this month to repay 1.7 billion euros ($1.8 billion) of state aid within months, in its initial step toward returning its entire 21 billion-euro bailout. The bank plans to partly fund the transaction by selling subordinated bonds for the first time since it inflicted 5 billion euros of losses on holders of such securities during the financial crisis.

Finance Minister Michael Noonan has said the state may begin to sell down its 99.8 percent stake next year, although that’ll be the decision of the next government as elections are due to be held by early April. This and other actions are likely to see AIB return more than 6.4 billion euros to the state within six months, according to John Cronin, an analyst with Investec Plc.

“This is a key step on the path to the government realizing its investment in
AIB in full,” Cronin said in a note.

The bank said its common equity Tier 1 capital ratio, fully reflecting incoming banking rules, rose by 0.9 percentage points during the third quarter. It’s fully-loaded CET1 ratio was 14.1 percent at the end of June, including state-owned preferred stock in the lender.

AIB’s net interest margin, the difference between the average rate at which it borrows and lends on to customers, rose to 1.94 percent at Sept. 30 from 1.92 percent in June, it said. Defaulted loans fell by 2 billion euros to 16 billion euros during the quarter.

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