Interest rate hikes by the European Central Bank had been “positive for Irish banks” and meant the timing was right for the State to sell more of its share in AIB, according to Department of Finance documents.
In submissions to Minister Paschal Donohoe, department officials said investor appetite for AIB had increased “notwithstanding lingering concerns” of a recession coming in Europe.
They said feedback from investment banks suggested the state could easily sell a stake of between €300 and €400 million in AIB at a much better price than in the most recent previous share offload in June.
A submission said: “The recent ECB rate increases [are] positive for Irish banks as they are among the most rate sensitive banks in Europe.
“The consolidation of the Irish banking sector is driving growth for the remaining banks while there is continued earnings momentum from improved operating leverage.”
Officials said there would be an obvious window for a share sale following the release of AIB’s third quarter trading update in late October.
However, they warned that the sale would need to take place in advance of December 2 when AIB planned to issue new financial targets.
They said this would help “avoid the perception of insider information” and recommended the trade take place early in November.
Officials also said if the department waited for too long, some investors would “effectively close their books from mid-December” ahead of the year end.
Minister Donohoe ultimately gave the go-ahead for the sale of 135 million AIB shares on November 7 at a price of €2.96 and a return of almost €400 million to the Exchequer.
In the submission to the minister in October, department officials said AIB’s share price had generally been on an “upward trajectory” over recent weeks and that “high quality investors” had already indicated an interest in another block trade.
In a note to officials, Minister Paschal Donohoe wrote: “I am open to this in principle and I can see the benefit of the slight change in the decision making process.”
In a second submission from early November, officials told the minister how the state’s stake in AIB was still more valuable than it had been early in the year despite a sale of shares in June.
Mr Donohoe wrote: “Very positive to see that value of the shares is €700 million more versus start of year. As below table shows – we hold less of the bank, but our shareholding is now worth more versus December 2021.”
In that submission, the minister was also told AIB had been one of the best performing banks in Europe this year.
Officials wrote: “A higher share price and rising free float that improves liquidity is a virtuous circle that benefits the State as seller and ensures that investors remain interested in future sell down opportunities.”
It said AIB’s latest trading statement had been well received by the markets with analysts upgrading forecasts “largely due to the benefits of higher interest rates coming through”.
In a final submission following the latest share sale in ‘Project Viking’, Minister Donohoe thanked officials for what he said was an “excellent outcome”.
That update said the state’s stake in AIB was now down to 57% and that gross proceeds from the sale had been €396.6 million.
Officials again said that despite a significant downsizing of the state’s share of AIB, the value of what they held still remained higher than at the start of the year.
The submission said: “While we have been selling into an environment where banks are more in demand due to rising rates, there is no doubt that by creating liquidity we have had a direct positive influence on AIB's share price.
“AIB is now up 43% this year versus minus 8% for European bank shares generally and the capitalisation of the bank [AIB] is moving closer to its underlying value in our view.”
Asked about the records, the Department of Finance said they had nothing further to add to what was released under FOI.
READ NEXT :
Missing Amy Fitzpatrick was paid to go on 'drugs runs' before disappearance
First woman to get Covid-19 vaccine in Ireland dies as tributes are paid
Exact dates social welfare payments will be made over Christmas 2022
Cash-strapped RTE spend over €80k launching their annual new season event
Hopes Pogues star Shane MacGowan will be home for Christmas after deadly virus
Get breaking news to your inbox by signing up to our newsletter
