Photographer: Crispin Rodwell/Bloomberg

Good News for Irish Taxpayer May Be Bad News for Irish Investors

  • Ireland’s government may sell off part of bank as soon as May
  • Investors may move cash out of other firms to buy into AIB

Ireland’s plan to sell part of its stake in Allied Irish Banks Plc has been cast as a sign of the renewed health of the country’s financial sector. For investors in other Irish stocks, though, it might be bad news.

The disposal of 25 percent of AIB, set to raise about 3 billion euros ($3.2 billion) within months, may hurt shares in Bank of Ireland Plc and other publicly-traded Irish companies, at least in the immediate aftermath, analysts say. The process took another step closer on Thursday in Dublin, as the government appointed Investec Plc as co-lead manager of a potential sale.

“If AIB goes public, here is a bank that is paying a dividend, is better capitalized, higher margin and less exposed to Brexit than Bank of Ireland, ” Darren McKinley, an analyst with Merrion Capital in Dublin, said. “So I would expect some investors to favor AIB over Bank of Ireland in the short term at least.”

Bank of Ireland declined to comment.

Ireland has controlled most of AIB since 2010, when the nation’s financial meltdown pushed the lender close to collapse. In all, it cost taxpayers about 21 billion euros to rescue the bank. While a tiny sliver of AIB remains on Ireland’s junior stock exchange, Finance Minister Michael Noonan has indicated he’ll probably start selling off the government’s stake in May or June, in a move which could threaten other stocks.

“Investors may come up against country limits that would lead them to pull back a bit across the board so they can get into AIB,” said Owen Callan, an analyst with Investec Plc in Dublin. “That would hit the wider Irish market.”

The benchmark ISEQ Overall Index has risen 25 percent since June 27, days after the U.K. vote to leave the European Union in June. Bank of Ireland has gained about 39 percent, while Permanent TSB Group Holdings Plc, which focuses mostly on home loans, has surged 60 percent.

Fore more on the Irish government’s plans for AIB, click here

AIB Chief Executive Officer Bernard Byrne is pitching his bank as a play on the wider Irish economy, which is growing at about twice the pace of the wider euro-region. The bank is the “leading franchise in a growing economy that has a very attractive dynamic,” Byrne said at an analyst conference on March 9.

Vulnerable Stocks

Other stocks that act as a proxy for Ireland may be vulnerable, according to Callan, who highlights insurer FBD Holdings Plc and hotelier Dalata Hotel Group Plc. The three Irish real estate investment trusts: Hibernia Reit Plc, Green Reit Plc, and IRES Reit Plc may also at risk, he said.

All five companies declined to comment.

The sale of a chunk of AIB may not be all bad for other firms. AIB’s arrival on the market may attract new money, says Stephen Hall, an analyst with Cantor Fitzgerald in Dublin.

“Ultimately each case would be investor specific but we don’t expect to see a big rotation out of Bank of Ireland into AIB following its IPO as both investment cases are positive,” he said. “AIB may attract a new wave of investors, particularly fund managers who require a steady income stream with a sustainable dividend now in place.”

Natural Flow

Still, even if investors don’t actively move cash from other companies into AIB, its very presence will have a knock on effect on the market, says McKinley at Merrion.

“AIB will have a much larger free float and so it will become a larger weighting within the ISEQ Index,” he said. “So there will be a natural flow of money into AIB and out of other Irish equities.”

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