For a brief moment at the height of the financial crisis, AIB received some respite as top executives at Goldman Sachs were grilled in April 2010 by US senators about the role the Wall Street giant played in the global markets meltdown.
The congressional hearing learned of an internal email that had been sent by a Goldman saleswoman who sought to sell a US subprime product to AIB in 2006. However, she concluded that Ireland’s second-largest bank by assets was “too smart to buy this junk”.
It had been some time since AIB had been lauded for such financial prowess. The bank, after all, was deep in the trenches at the time dealing with toxic assets picked up on its own doorstep: commercial property loans and risky mortgages that would ultimately default in their thousands.
Indeed, 2010 would probably go down as AIB's worst, as the bank reported a record €10.7 billion after-tax loss and depositors withdrew billions of euro, leaving it increasingly reliant on an emergency credit from the European Central Bank. The lender ultimately succumbed to State control two days before Christmas.
That has been the abiding memory over the past seven years among investors – big and small – who were wiped out.
Redevelop relationships
And that's been the challenge for AIB's chief executive of two years, Bernard Byrne, and even his predecessor, David Duffy, as they sought redevelop relationships, and trust, among international money managers in recent years.
The return of AIB to the main stock markets in Dublin and London on Friday is testament to the work that they – and countless others – have done turning around a bank that racked up €25.5 billion of losses during the downturn. The State’s sale of an initial 28.8 per cent stake has raised €3.4 billion, added to the €6.8 billion of cash AIB has already returned to the exchequer, between capital repayments, interest and guarantee fees.
In a video message sent out to AIB’s 10,400 staff shortly after the final terms of the initial public offering (IPO) were revealed to the stock exchange at 7am on Friday, Byrne said the “landmark” day of AIB’s long-awaited flotation is also a time “to remember all the difficult decisions that we had to make in the past”.
Where to start?
AIB was forced to sell its profitable Polish unit, Bank Zachodni WBK, its 24 per cent stake in US bank M&T Bank and Goodbody Stockbrokers to raise money in 2010 to limit a taxpayer bailout. It also had to dispose of its investment management unit in 2011.
Voluntary redundancy
Over the past four years, 7,400 AIB employees left the company, many under a voluntary redundancy programme. Still, the organisation also hired 4,400 people during the period, resulting in a net decrease of 3,000.
The most outward-looking of the two pillar banks during the boom has now effectively become a domestic bank, with 85 per cent of its loan book based in the Republic. That makes it the purest bet on the recovering Irish economy. By contrast, over 40 per cent of Bank of Ireland’s is in the UK, leaving it most directly exposed to any fallout from Brexit. (By default, of course, AIB’s Irish loan book is most exposed to knock-on effects from Brexit on the economy here.)
AIB has slashed its level of bad loans from €29 billion in 2013 – or what was 34 per cent of its entire loan book at the time – to €8.6 billion, as the bank restructured soured loans at pace, and it benefited from a rebound in the economy and house prices.
Drip-feed shares
AIB is still well off repaying its entire €20.8 billion rescue bill, but the flotation is a key milestone and gives the Government an opportunity to drip-feed shares onto the market over the coming years. Minister for Finance Paschal Donohoe continues to hold onto a 71 per cent interest in the bank.
“Now we are in a position where the bank that we’ve been building, the bank that we’ve asked everyone to believe in, is clearly one that investors believe they can invest in,” Byrne said in his message to staff.
“Now, we need to move on. We’ve new challenges but there are also new opportunities.”
