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Allied Irish Banks: AIB announced Tuesday evening that it
is to sell its 22.4% stake in the US bank M&T in a public
offering of shares, after talks with potential buyers for the
stake broke down.
AIB, in which the Irish State will soon have
90% control, has sold its Polish banking business to Spanish
bank Santander for €2.5bn last month but talks with the
banking giant broke down last week.
Goodbody's Ken Darmody commented: "AIB announced last
night that it is commencing a process to offload its 22.5% stake
in M&T. AIB is planning to offer shares in the open market
(underwritten by Morgan Stanley and Citicorp) through the sale
of exchangeable notes, which can be converted into M&T shares
once the transaction is approved by AIB’s shareholders.
Following the disposal of the Polish subsidiary, netting €2.5bn
in capital, M&T was the next likely disposal by the bank. We
estimate that a price range in the $75-95 range per share has
the potential to add €950-1,350m to AIB’s capital, with M&T
closing last night at $83. In recent weeks, the shares had been
higher as merger talks appeared to be proceeding with Sovereign,
owned by Santander, though last night’s announcement by AIB will
attempt to bring an element of certainty to its capital raise
Stephen Lyons of Davy commented: "ANALYSIS: The
announcement follows last week's revelation that the
bank would be required to raise an additional €3bn
of capital, taking its total capital requirement to
€10.4bn. The recent sale of the bank's stake in BZW
yielded €2.5bn and a €5.4bn equity capital-raising
is expected in November, which will be underwritten
by the government.
This leaves an additional €2.5bn to be
generated from asset sales, which includes the M&T
disposal, and any shortfall will result in
additional conversion of the government's preference
shares. There is no price mentioned in the
announcement, but if the notes were issued at last
night's close of $83 per M&T share (finished up
1.14%) then the transaction would generate close to
€900m of capital.
DAVY VIEW: After the disappointment of last
week, the long awaited announcement of the M&T
disposal has lost much of its lustre. At a price of
50c or 0.9x 2010 tangible book value per share, it
will be a challenge to attract investor interest in
the equity raise next month and it looks like it
will result in majority government ownership. If we
assume full government take-up in the equity raise,
government ownership will increase to 93%. The
timeline for completion of asset disposals has been
extended until the end of March next year, which may
help secure a better price for the group's remaining
assets — principally the UK business. However, we
think that the target €2.5bn from disposals is a
stretch, which will likely result in some additional
conversion of preference shares, the prospect of
which will further dampen interest in the group's
After the BOJ's surprise move, monetary stimulus by the Fed is going to happen very soon, given the slowdown in economic growth, says Vasu Menon, vice president of wealth management at OCBC Bank. He talks to CNBC's Oriel Morrison:
Moody's flags a downgrade as Irish indicators continue to
fluctuate: Davy economist, Aidan Corcoran, comments - -"The
spread of Irish ten-year bonds over bunds rose 10bps yesterday
(October 5th) as Moody's indicated that the rating on Irish
sovereign debt would probably be cut by one notch from Aa2. Such a
move would bring the Moody's rating in line with those of S&P and
Fitch. The ISEQ shrugged off the news, posting a 1% rise to 2,697 at
While downgrades to Ireland's debt are never welcome, the
effect of the Moody's downgrade, if it occurs, may be of secondary
importance when compared with developments in the real economy. It
is worth noting that the Irish Markit services PMI fell from 52.9 in
August to 48.8 in September, a figure consistent with contraction.
On a more positive note, new export business was steady at 53.8,
reinforcing the view that exports will lead the economy out of
This may be true, but there remains a significant risk that
exports will undershoot expectations. One risk factor is exchange
rates. The Bank of Japan surprised markets yesterday by returning to
zero interest rates and instituting further monetary easing. With
further easing also on the cards in the UK and US, there is a
possibility of a strengthening euro providing some downside to
Insight on Google's latest products and the user experience, with Marissa Mayer, Google vice president of search products:
Economic View: Timely reminder of importance of the four-year budget plan;
Goodbody chief economist, Dermot O’Leary, comments -- "In some ways,
Moody’s warning that Ireland may be downgraded further within the next three
months and the subsequent widening of spreads on Irish bonds yesterday, is a
timely reminder of the challenges that lie ahead for the Irish government.
The announcements in relation to the banking sector were generally greeted
favourably by the markets, with 10-year bond yields falling by 0.5% in the three
days following the announcement. Yesterday’s increase to 6.4% took the spread
over German bunds to over 4% once again. While it would be a wild overstatement
to say that the banking issues are now over for the government, they have been
parked for now, allowing the focus to be placed on the underlying public
finances and, specifically, reducing the budget deficit of 12% of GDP.
The government already knows the importance of the four-year budget plan,
to be announced in November, but Moody’s and other ratings agencies and most
important of all, the market’s perceptions of the Irish sovereign, will hinge on
the credibility of that plan. It is an unenviable task, but based on recent
experience there is a will to follow through with it. Given the multi-year
nature of the plan though, political consensus would help in convincing the
markets of its credibility. The invitation by the government to opposition
parties yesterday, and their acceptance, to access budgetary information is a
good start, but given the scale of the problems further coordination and
agreement is needed."
Discussing an off-script exchange between President Obama and a leading economist, with Martin Feldstein, Harvard University:
Tuesday, the Dow Jones rose 193 points or 1.80% to 10,945.
500 rose 2.09% and the Nasdaq gained 2.36%.
The MSCI Asia
Pacific Index jumped 1.3% Wednesday.
Nikkei rose 1.81%; China's market was closed; Australia's S&P/ASX 200 Index
added 1.73% and India's Sensex Index