ALLIED IRISH Banks has commenced the sale process of the lender’s 22.4 per cent stake in US regional bank M&T in a public offering of the shareholding after the failure of talks with potential buyers.

M&T’s share price closed at $83 a share last night, valuing AIB’s interest in the bank at $2.2 billion (€1.6 billion). However, the sale will be sold at a discount to the market value, leaving the bank with an estimated capital gain of more than €750 million.

The transaction is expected to be priced tomorrow with an investor circular issued soon after. The sale must be approved by AIB shareholders and a meeting will likely be held at the end of month.

The sale will be transacted through a public offer of 26.7 million contingent mandatory exchangeable notes, which can be converted into M&T shares.

The transaction is being underwriten by US banks Morgan Stanley and Citigroup, which means they will take up the shares if investors do not take up the stock in the public offering.

AIB’s decision to place the stake follows the breakdown of talks between Spanish bank Santander and M&T over the possible merger of Santander’s US bank Sovereign with M&T.

Sebastian Orsi, analyst at stockbrokers Merrion, said the placement would lead to “a slightly lower capital gain” than if sold to a corporate buyer in a trade sale but would create greater certainty.

The sale of the M&T stake was accelerated after the Government said it will take a majority controlling stake in AIB, of over 90 per cent, after the Central Bank said the bank required a further €3 billion to cover rising losses.

The announcement of the M&T sale process came just four hours after the bank said Robert Wilmers, chief executive of M&T, would resign from AIB’s board with immediate effect.

The bank also announced that Kieran Crowley, a non-executive director of AIB since 2004, will step down on October 13th.

The board changes bring to four the number of AIB directors to announce their departures over the past week since the Government said it would take a majority stake in the State’s largest bank.

Mr Wilmers has been on AIB’s board since 2003 after the bank took a strategic stake in M&T following the disposal of the bank’s US bank Allfirst after the John Rusnak rogue trading scandal.

The M&T stake is one of a number of assets put on the market by AIB to raise additional capital to cover mounting losses on loans moving to the National Asset Management Agency.

The bank is also selling its UK business, including First Trust Bank in Northern Ireland, to help reach a €10.4 billion capital target.

Some €2.5 billion in capital has already been raised from the sale of the bank’s Polish businesses.

The Central Bank’s decision to increase the bank’s capital target by €3 billion from the original target of €7.4 billion will leave the bank in the control of the State.

The second Government bailout of the bank, which could increase the Government’s injection into the bank to more than €6.5 billion, has forced the departures of executive chairman Dan O’Connor and managing director Colm Doherty.