AIB - CAPITAL UPDATE 30th March 2010 18:05 Overview of Capital Requirements As part of the Financial Regulator's assessment of the Irish banking sector's capital requirements it has determined that the targeted equity tier 1 capital ratio for AIB, in common with other institutions, will be 7%. For core tier 1 capital (which includes the Government preference shares), the target will be 8%. The total amount of additional equity capital that the Financial Regulator requires AIB to raise to meet the equity target is â¬7.4bn. The capital required to meet the core tier 1 target is â¬4.8bn. It is expected that these amounts will be significantly reduced by capital actions we are taking. The Financial Regulatorâs capital requirement is to be met by 31st December 2010. The strong capital ratios for AIB include an assumed effect of NAMA on our capital base and also incorporate a prudential buffer of c. â¬1.1bn as requested by the Financial Regulator. This is also after recognising our existing aggregate bad debt provision expectations in 2010, 2011 and 2012. The total capital requirement equates to a targeted equity capital ratio of 7% at the trough of the current cycle or c. 8% without taking into account the buffer. We expect that the finalised level of equity capital will ensure a high degree of confidence amongst all stakeholders as to the bankâs resilience. NAMA A draft of the list of loans and their values transferring to NAMA (the draft loan acquisition schedules) for the first tranche of 10 customers, accounting for c. â¬3.3bn of loans were submitted by NAMA for review by the bank 3 days ago. This review is continuing. The NAMA discount on transfer indicated by these draft schedules is c. 43% on the first tranche. We note the Financial Regulatorâs statement today that at this time he has assumed, for capital planning purposes, the same discount rate to the overall portfolio of NAMA eligible loans as applied to the first tranche. Credit institutions may apply to the Financial Regulator, up to the 30th June 2010, to revise down their capital requirement in the event of 1. the discount rate for subsequent tranches being lower than for the first tranche and / or 2. the quantum of loans to be transferred to NAMA being lower than now estimated. In relation to this aspect of NAMAâs statement, the following points should be noted in particular 1. As the NAMA process entails a loan by loan exercise, the discount on the loans for the first 10 customers may prove in due course not to represent an accurate discount for the overall portfolio. 2. The quantum of loans estimated to transfer to NAMA is c. â¬23bn for AIB. On the expected sale of our UK business it is our intention to review with NAMA the quantum of UK based NAMA loans that would transfer. The amount that could be subject to this review is c. â¬1.5bn. Any change to that quantum of NAMA transferred loans would be subject to the consent of NAMA. When further valuation work by the bank and NAMA is sufficiently advanced we will advise the market of any material change in expectation. Bad Debt Provisions We have carried out a detailed assessment of the bad debt provision charge expected, excluding the already mentioned effect of NAMA transfers. Over the three year period of 2010 to 2012 we have assessed a provision requirement, done by individual portfolio and division. The Financial Regulator has requested the inclusion of further prudential buffers for the Irish banking sector and for AIB this buffer is â¬1.1bn. Capital Actions - Self-Help As we announced earlier this month at our preliminary results we have a range of significant self-help options available to us. We have already successfully undertaken a bond exchange exercise generating approximately â¬445m of equity capital. We are now actioning additional self-help options, in particular, asset and business disposals. AIB will receive full credit from the Financial Regulator for disposals which have been agreed at year end but may be awaiting regulatory approvals prior to completion. The distinct assets that we plan to sell principally comprise our UK business, our interest in BZWBK and our interest in M&T. We have appointed AIB Corporate Finance and Morgan Stanley in relation to the sale of BZWBK and our interest in M&T, and AIB Corporate Finance in relation to the sale of our UK business. We currently expect the aggregate proceeds from those sales, based on todayâs market conditions, to exceed market estimates and meet a substantial part of our overall need for capital. Capital Actions - Equity Raising We will undertake an equity capital raising prior to the end of 2010 to fulfil the remaining capital requirement following disposals and other actions to that time. Our current intentions are to have an equity issue targeted at private shareholders, that would be underwritten by international investment banks or the Government, with any residual requirement met by a conversion of Government preference shares into ordinary shares. The structure, timing and terms of the this equity raising are to be further considered in conjunction with the Government. In doing so, AIB intends to respect pre-emption rights of existing shareholders in any capital raising. We note the statement by the Minister for Finance that the Government remains committed to providing equity capital if required. We recognise and are grateful for the significant support that has been provided by the Irish taxpayer over the last 18 months. Further update announcements will be made in due course. -Ends- For further information, please contact: Alan Kelly General Manager, Corporate Services AIB Group Bankcentre Ballsbridge Dublin 4 Tel: +353-1-6600311 Ext: 12162 or Catherine Burke Head of Corporate Relations & Communications AIB Group Bankcentre Ballsbridge Dublin 4 Tel: +353-1-6600311 Ext: 13894 Morgan Stanley & Co. Limited is acting as financial adviser to AIB and no one else in connection with the aforementioned planned disposal of its interests in M&T and BZWBK and will not be responsible to anyone other than AIB for providing the protections afforded to the clients of Morgan Stanley & Co. Limited nor for providing advice in relation to the planned disposal of its interests in M&T and BZWBK, the contents of this announcement or any other matter referred to herein. AIB Corporate Finance Limited is acting as financial adviser to AIB and no one else in connection with the aforementioned planned disposal of its interests in M&T, BZWBK and AIBâs UK business and will not be responsible to anyone other than AIB for providing the protections afforded to the clients of AIB Corporate Finance Limited nor for providing advice in relation to the planned disposal of its interests in M&T, BZWBK, and AIBâs UK business, the contents of this announcement or any other matter referred to herein.
Morningstar analysis: http://quicktake.morningstar.com/Stocknet/san.aspx?id=331002 The Irish government detailed the first stage of its plan to buy troubled loans from Irish banks through the National Asset Management Agency on Tuesday, which will wipe out substantially all of shareholders' equity at Allied Irish Banks AIB. Subsequently, Allied Irish published its plan to boost capital levels. While the plan is largely in line with our expectations, we anticipate leaving AIB unrated for now, as it is not yet clear how big of a discount AIB will have to take on subsequent tranches, or how successful the bank will be at raising capital. Under the agreed-to terms, Allied Irish will raise EUR 7.8 billion of new equity (compared to the EUR 7.0 billion of book equity reported at year end) by the end of 2010. The bank plans to do so, in part, by selling its untraded U.K. corporate business, its 22.7% stake in M&T Bank MTB (worth about EUR 1.6 billion at today's prices), and its 70.4% stake in Poland's Bank Zachodni WBK, worth about EUR 2.6 billion by our calculations. While the actual sales could bring in more or less than these estimates, AIB remains likely to need additional equity before the end of the year. We expect the bank to try to raise funds from private investors, perhaps through a rights issue, but note that the Irish government has explicitly said it will step in to buy shares if necessary. At best, AIB's existing shareholders will end the year with significantly diluted stakes in a smaller, less profitable business. At worst, if AIB's mortgage book deteriorates more than anticipated, the bank could find itself looking at an even greater capital shortfall. *** Poland = 2.6 billion EUR MTB = 1.6 billion EUR
share price update: A big surge in shares of Bank of Ireland (NYSE:IRE; Irish symbol BIR) helped to drag ALBK up to a high of 1.40 EUR. Then people woke up and realised that a huge capital raising is likely, and the stock is back down to 1.24 EUR at the time of writing. Despite this intraday decline in ALBK, BIR is still near its intraday high, and is trading at about 1.64 EUR at the time of writing.
* HEARD ON THE STREET * MARCH 31, 2010, 11:29 A.M. ET Irish Bank Drama Not Over Yet http://online.wsj.com/article/SB10001424052702304252704575155742671907252.html?mod=googlenews_wsj By SIMON NIXON It's a measure of Ireland's credibility that bond investors shrugged off the latest rise in the cost of the country's bank bailout. The transfer of ââ¬81 billion ($108.97 billion) of bad loans from five banks to the National Asset Management Agency, Ireland's "bad bank," will leave the banking system with a potential ââ¬32 billion capital shortfall, equivalent to 20% of gross domestic product. Much of this may have to be provided by the state. If this had been Greece, bond markets would have gone bananas. Instead, the real action is in the equity markets. Ireland's credibility reflects its record of sound fiscal management, the tough action to reduce its deficit and the degree of social acceptance of the current austerity. Markets will also have noted that other countries have been able to recoup much of the cost of financial sector interventions. Protected by a higher-than-expected 47% average haircut on transferred assets, NAMA only needs Irish property prices to rise by 10% over the next decade to deliver a profit for taxpayers. Cleaned up balance sheets should enable banks to supply the credit to support economic growth. But that still leaves equity investors trying to work out who will recapitalize the banks and on what terms. The Irish regulator says Bank of Ireland could need an extra ââ¬2.7 billion of equity capital while Allied Irish Banks will need ââ¬7.4 billion. Some of this should be achievable via disposals. Even so, Bank of Ireland is still likely to need ââ¬2.1 billion and Allied Irish Banks ââ¬4.3 billion, reckons Barclays Capital. If public markets refuse to stump up, the government stakes in Bank of Ireland and Allied Irish Banks would increase to 74% and 89%, respectively. Much will depend on the price at which new shares are issued. Barclays Capital reckons that post-recapitalization both banks should trade in line with their net asset value per share, a 30% discount to the European sector average. Assuming Bank of Ireland is forced to issue shares at a 30% discount to the current price and Allied Irish Banks at a 50% discount, Bank of Ireland's tangible net assets per share would fall to 0.85 euros and Allied Irish Banks to 0.78 euros. That's some way below where both shares are trading nowââ¬âsuggesting the Irish bank drama is not quite over yet. *************** price target of 0.78 EUR = much lower from here.
Obviously in the short term I was wrong about AIB, with ALBK shares reaching 1.675 EUR on Thursday 15 April (day before "Goldman Sachs Friday" and the ADRs reaching 4.55 USD on the same day. However I still remain bearish on the stock. The deadline for a capital plan is this Friday 30 April, and even with the MTB and Poland asset sales, I find it hard to believe that ALBK can raise all the equity it needs without a significant decline in the price of its shares. Furthermore, sovereign debt worries will continue to put pressure Irish bank stocks, regardless of any capital raising.
http://www.marketwatch.com/story/bank-of-ireland-to-raise-34-billion-euros-2010-04-26?siteid=yhoof2 April 26, 2010, 2:51 a.m. EDT Bank of Ireland said Monday that it plans to raise 3.42 billion euros ($4.58 billion) to strengthen its capital levels through a mixture of a rights issue and the private placing of shares. After the capital raising, the bank said the Irish government will hold a maximum stake of 36%, compared to the current ownership level of 34% when including warrants held by the state. The proposals includes a 1.89 billion euros rights issue as well as a 500 million euros placing of shares with institutional investors and a 1.04 billion euro placing with the state. The group said it expects to increase equity Tier 1 capital by not less than 2.8 billion euros after expenses and the payment of 491 million euros to cancel the warrants. *********** Summary: 3.42 billion EUR capital raising 1.89 billion as rights issue 500 million with instos 1.04 billion with government **** Existing share data: BKIR (NYSE:IRE) 1.118 billion shares at 1.73 EUR per share at close on Tuesday 27 April market cap is about 1.93 billion EUR
Bank of Ireland: Information here: http://www.bankofireland.com/invest...tions/stock_exchange_releases/2010/index.html http://www.bankofireland.com/includ...ing/capital_raising_announcement_us_final.pdf Are fully underwritten proposals to raise â¬3.421 billion equity tier 1 capital comprising: Placing (govt â¬1.036 billion and insto â¬0.5 billion) The Placing, comprising the Institutional Placing and the NPRFC Placing, will raise â¬1,536 million in Equity Tier 1 Capital (gross of expenses). The underwriters have agreed to use reasonable endeavours to procure Placees for an aggregate of 326,797,386 units of Placing Stock at a price of â¬1.53 per unit of Placing Stock issued in the Institutional Placing. The price at which the Placing Stock will be issued to Placees represents a 15.0% discount to the Closing Price of â¬1.80 of the Existing Stock on 23 April 2010 Pursuant to the NPRFC Placing, the NPRFC has agreed to subscribe for 575,555,556 units of Ordinary Stock at a price of â¬1.80 per unit of Ordinary Stock (being the Closing Price on 23 April 2010). Rights Issue A Rights Issue to raise up to â¬1,885 million in Equity Tier 1 Capital The Rights Issue size and Rights Issue Price at which qualifying Stockholders will be invited to subscribe for Rights Issue Stock will be determined in advance of the EGC. The Rights Issue Price will be equal to the higher of (i) â¬0.10 per unit of Rights Issue Stock, and (ii) a price per unit of Rights Issue Stock which is within the range of 38% to 42% discount to the TERP. **** 38% discount to 1.80 EUR = 0.62 * 1.80 = 1.116 EUR
http://www.reuters.com/article/idUSLDE63Q1VE20100428 UPDATE 2-Allied Irish Banks sees H2 cash call * Ultimate size of govt stake after capital raising unclear * Not in "fire sale" of assets * Rights issue could be launched in H2, around Sept * Shares down 1 pct as European banks slide (Adds comments on govt preference shares, rights issue) By Andras Gergely DUBLIN, April 28 (Reuters) - Allied Irish Banks (ALBK.I) plans to launch a rights issue in the second half of 2010 as it seeks to catch up with Bank of Ireland (BKIR.I) in the race for fresh capital and minimise state ownership. Bank of Ireland (BKIR.I) this week became the first of five Irish lenders to tap markets looking to plug the holes left after a "bad bank" scheme and meet new regulatory requirements by the end of the year. Allied Irish, which needs to raise 7.4 billion euros ($9.9 billion), almost three times as much as its main rival's shortfall, plans to sell its UK business, its majority stake in Poland's Bank Zachodni WBK BZWB.WA and a minority stake in M&T Bank (MTB.N) in the United States. It wants to move ahead with the asset sales before launching a rights isssue and asking the state to provide any residual capital, though the asset sales can already count towards its capital even if deals are not finalised this year, it said. "We have no option but to sell those assets," Chairman Dan O'Connor told a shareholder meeting on Wednesday. "It's not going to be a fire sale, we are not rushed into having to have these businesses sold in the next few months," said O'Connor, whose predecessor had eggs thrown at him at a meeting called a year ago to approve its government bailout. Years of excessive lending by banks and a soaring budget deficit last year took Ireland close to a market attack similar to the one pounding Greece this year and Irish bonds and shares remain some of the most vulnerable in the euro zone. Shares in Allied Irish shed 1.03 percent to 1.43 euros by 1340 GMT as banks led falls across European shares on worries about contagion following debt rating cuts for Greece and Portugal. COUPON PAYMENTS Allied Irish, which needs to compensate for losses on loans sold to the National Asset Management Agency (NAMA), the bad bank, could launch a rights issue around September or sometime in the second half, O'Connor said. That made it unclear at the moment how big a stake the government would ultimately end up with, he added. Allied Irish will next month give the government ordinary shares in lieu of a coupon payment on the state's 3.5 billion euro preference share holding, which can't be made in cash due to an EU ruling. The government will acquire a direct stake of 16 to 17 percent as a result of the coupon transaction, O'Connor said. ($1=.7508 Euro) (Editing by David Cowell) ***************
http://online.wsj.com/article/BT-CO-20100428-710231.html?mod=WSJ_World_MIDDLEHeadlinesEurope * APRIL 28, 2010, 7:51 A.M. ET 2nd UPDATE: AIB: Sales Will Meet "Substantial" Capital Needs By Quentin Fottrell Of DOW JONES NEWSWIRES DUBLIN (Dow Jones)--Allied Irish Banks PLC (AIB) Chairman Dan O'Connor said Wednesday that the sale of the U.K. and Polish businesses and its stake in M&T Bank Corp. (MTB) in the U.S. will meet a "substantial" part of its capital needs, but said the regulator's capital targets are "demanding." He also said the bank is trading broadly in line with current market expectations in "very challenging conditions" and has made progress in reducing costs. "This bank will be fixed," O'Connor said. "It's not going to be pleasant and it's not going to be without pain." At 1145 GMT Wednesday, Allied Irish Banks shares were down 3.5% at EUR1.40 on the Irish Stock Exchange in a weak overall market. The shares are down from around EUR22.35 three years ago. AIB is effectively fighting for its survival as an independent entity in the aftermath of the property market crash. It has already received EUR3.5 billion government recapitalization in return for 25% voting rights, or an effective 25% stake, to help offset its bad debts, and must raise EUR7.4 billion before year-end or face a further capital injection from the state. AIB said it may ultimately transfer EUR23 billion in land and development loans to the National Asset Management Agency or so-called "bad bank." NAMA gave AIB a 42% discount or "haircut" on the first tranche of these loans with a nominal value of EUR3.29 billion. O'Connor said management was working hard to fix "the many problems that face this organization ... We are not there yet. There is still some way to go." AIB's has a 70.5% share in Poland's Bank Zachodni/WBK and acquired a 23.2% stake in M&T after the 2003 merger of its U.S. unit Allfirst. AIB's U.K. businesses comprise 48 First Trust retail bank branches in Northern Ireland and 31 niche business branches in mainland U.K. Referring to the Polish unit, O'Connor told the AGM, "I have no desire to sell that bank. It kills me to sell that bank, but it has to be sold." He added, "Ireland's recovery cannot happen without this bank being fixed and that is what we're going to do." "The extent of the government's stake will become clearer in the coming months after we implement our planned actions," O'Connor told a packed AGM. "The capital targets we have to meet are demanding." The financial regulator has said the bank needs to target a core Tier 1 capital of 8% and equity tier 1 capital ratio of 7% by year-end. The annual coupon of EUR280 million on AIB's EUR3.5 billion government preference shares is due to be paid by May 13. Analysts say AIB is likely to make a payment to the state in the form of ordinary shares, further increasing the government's prospective stake. O'Connor also said the bank has committed to further lending of EUR3 billion for small and midsize businesses in 2010 and 2011. Speaking at a sometimes rowdy AGM, he said the bank is learning from past mistakes: "Our credit underwriting, credit-risk policy and strategy, best-practice and standards are being overhauled and centralized so we won't repeat the mistakes which contributed to our present problems." Company Web site: http://www.aib.com -By Quentin Fottrell, Dow Jones Newswires; +353 1 676 2189; quentin.fottrell@dowjones.com ************* comment: 8% annual coupon on preference shares. This payment of 280 million EUR (as ordinary shares) could also result in additional downward pressure on ALBK. No real news today with regards to the capital "plan" (if you can call it that). Just the same old news regarding sale of assets. However interesting to note that the capital raising might not take place until September.
general comment about share price movement following ALBK announcements: S&P 500 up a little bit XLF up by more than 1% BBVA and STD down by 1% to 2% ALBK and BKIR down by 3% to 4%