State’s AIB Stake Drops to 25%

The UK government has confirmed plans to release another 5% chunk of its AIB holdings, which will lower its stake to approximately 25%. This transaction is likely to generate more than €570 million, assuming it is sold with a 5% discount from this Wednesday’s closing price. This would increase the total funds recuperated so far from the bank’s €20.8 billion bailout during the financial crisis to €15.7 billion.

The sum recouped so far includes the proceeds from an initial public offering in 2017, bailout bonds redemption, dividends, and various fees. The UK Government’s existing 25.5% stake in AIB amounts to €3.16 billion, implying a deficit for taxpayers of about €1.94 billion on a cash basis.

Beginning early 2022, the government has been disposing of its stake via three mechanisms: periodic release of smaller quantities of shares, placing larger 5% blocks occasionally, and participating in the bank’s share buybacks. This strategy was set into motion when the government’s share stood at 71% in January 2022.

There has been a 32% surge in AIB shares in the past year, buffeted by the investor sentiment towards Irish banks. Irish bank earnings are very sensitive to interest rate fluctuations more than an average European bank. The envisaged rapid lowering of official borrowing costs by the European Central Bank (ECB) supported this sentiment.

At the start of this year, the financial markets had accounted for 1.5 points of rate reductions. However, with the ECB just recently lowering the deposit rate by a quarter point to 3.75%, it is predicted that only two additional cuts will take place for this year, marking a significant departure from the six reductions that had been initially projected.

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