Colin Hunt, the CEO of AIB, heralded 2023 as an unparalleled year in the bank’s financial history, during a meeting on Wednesday. This outstanding performance enabled the bank to propose a distribution of €1.7 billion to shareholders, including the State as a key player.
Despite forecasted decreases in this year’s net interest income and earnings to €3.65 billion from the previous year’s €3.84 billion, due to the European Central Bank’s imminent reduction of official rates, the bank ensures continued favourable outcomes for investors in terms of cash distributions.
It should be noted that those who heavily invested during the initial public offering (IPO) in 2017 have been anticipating the delivery of substantial distributions for longer than originally expected. Hopes for earlier returns were dashed by Brexit repercussions, lingering low rates, and subpar loan demand, until recent times.
Analyst Diarmaid Sheridan of Davy had previously projected dividends and share repurchases of about €1.4 billion over the ensuing three years. However, taking into account AIB’s aim to lower its primary capital reserves from 15.8% in December to 14.5%, and their prediction of generating an average capital increase of around 2.5% annually between 2024 and 2026 due to continued high profitability, Sheridan estimates he will need to augment his capital distribution forecasts by an additional €800 million to €900 million over the same timeframe.
The bank’s financial performance was well received by the market on Wednesday, with a stock increase of 5% to €4.56, surpassing its IPO price of €4.40 for the first time since late 2018.
Approximately €1 billion of surplus capital from the distribution will be allocated towards purchasing back government shares in AIB. This move is projected to decrease the government’s stake from 39.98% to around 34%. In accordance with past practices, Finance Minister Michael McGrath is expected to reduce a further 10% stake through two placements while maintaining steady stock supply in small amounts to the market.
There is a considerable likelihood that the stake may decrease to approximately 20 per cent before this year concludes. It remains doubtful whether this would persuade McGrath to loosen pay constraints, something the bank is actively advocating for, especially with elections on the horizon.
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