AIB shelves sale of UK units

By Carmel Crimmins

DUBLIN (BestGrowthStock) – Allied Irish Banks (ALBK.I: ) has put the sale of its British businesses on hold after failing to get any decent bids, its new chairman said on Monday, meaning the state may end up owning around 95 percent of the lender.

Ireland, already set to take a stake of over 90 percent in AIB by underwriting a 5.4 billion euros ($7.5 billion) rights issue in November, has said it will convert existing preference shares into ordinary capital if AIB fails to raise 5 billion in funds from asset sales by the end of March.

David Hodgkinson said on Monday the sale of AIB’s business bank in Britain and its First Trust retail operation in Northern Ireland was on hold. The book value of the businesses is around 1.2 billion euros but its loan quality is weak.

“There was an attempt to sell it and it could not be sold on satisfactory terms. So, we are now going to work with the UK bank to try and strengthen it, stabilize it and we will start re-examining all the options for it,” Hodgkinson told reporters.

AIB is retrenching from overseas markets as it plugs a 10 billion euros plus capital hole left after a domestic property bubble burst. So far, it has raised 3.4 billion euros from offloading businesses in Poland and the United States.

Ciaran Callaghan, an analyst with NCB Stockbrokers, said the government could end up with a stake of around 95 percent if AIB failed to sell its British operations.

“There is … questions marks over the division’s asset quality, which had criticized (non-performing) loans of 6.4 billion euros or 32 percent of the total at the end of June,” said O’Callaghan. “The elevated loan to deposit ratio of 172 percent is also a structural problem for any prospective buyer.”

A SLIMMER OPERATION

The government parachuted Hodgkinson, a veteran British banker, in as executive chairman last week.

Hodgkinson, a former chief operating officer at HSBC (HSBA.L: ), will have to slash costs at AIB and job cuts are on the cards. “It is fair to say the bank is going to be somewhat slimmer,” he told reporters.

Hodgkinson will also start looking for a replacement for Colm Doherty, who left his post as managing director on Monday, but he said a new chief executive would not be in place this year.

“I think six months is a more realistic period that is why I have agreed to come in on an interim basis,” he said. “If you have got a really good person it takes time to get them out of their existing job.”

He said he would hire external experts to stress test AIB’s balance sheet. The review will take around three months.

HAPPIEST DAY

Once a stockmarket heavyweight, AIB currently trades at just one percent of its share price peak of 24.4 euros.

A disastrous courtship of property developers during Ireland’s ill-fated property boom brought AIB to the brink of collapse and has fanned fears Ireland will need external assistance to deal with its banking sector and cut the worst deficit in Europe.

AIB is transferring nearly 20 billion euros in commercial property loans to Ieland’s “bad bank” scheme, the bulk of the assets at a discount of 60 percent.

Hodgkinson is AIB’s third chairman in less than two years and shareholders, most of them pensioners and all of them nursing huge losses on their stock, welcomed the arrival of an outsider to the board.

“This is one of the happiest days of my life to see you here,” said one investor.

Hodgkinson will be paid 500,000 euros a year.

Shareholders at Monday’s EGM approved the sale of AIB’s 22 percent stake in U.S. group M&T Bank Corp (MTB.N: ), which will generate 900 million euros toward AIB’s capital target.

The government will underwrite a 5.4 billion euros rights issue in AIB, expected later this month, which is being priced at 50 cents a share.

AIB stock closed up 1.2 percent at 34.1 euro cents.

(Editing by David Cowell and Dan Lalor)

($1 = 0.7158 euro)

AIB shelves sale of UK units