AIB selloff: a tempting morsel for British banks

The Irish government is selling off its stakes in rescued banks. That’s an opportunity for the brave, says Matthew Lynn.

In the quiet week leading up to Christmas, the Irish government said it plans to start selling off part of its 71% share of Allied Irish Banks (AIB). Over the course of the next month, slightly over 3% of the equity will be placed on the market, and, if it goes well, we can expect to see the rest of the shares steadily sold off over the next few years. This raises a question: why don’t the British banks make a move and buy it up? 

The go-go years

AIB has had a mixed history, to put it politely. In the wake of the 2008 crash and the eurozone crisis that followed it, and with fresh capital impossible to raise, the bank was bailed out by the Irish government for an eye-watering €21bn. Leading up to that, like many of the Irish banks in the go-go years after the country joined the single currency, AIB had expanded and lent wildly. Even a decade later, there is probably not much hope of ever getting the money the state invested back. The share price would have to more than triple for the Irish taxpayer to make a return on the rescue. Still, all that is history. It still looks like a tempting buy for British banks

Sure, it is easy to make the case for caution. Irish banking, even more than most comparable markets, has a history of wild boom and bust cycles. No one wants to buy in just before the next crash. The British retail banks have struggled to expand in other countries, often spending a fortune, and then being forced to retreat. And the finance industry has plenty of challenges to deal with, from responding to the rise of app-based competitors to coping with rising interest rates to closing down obsolete branch networks, without distracting themselves with foreign acquisitions. On top of all that, the issues over Northern Ireland mean relations between the governments in London and Dublin are very strained; Irish ministers would probably not be very pleased by a British takeover of one of the country’s largest financial institutions. 

Still, there is a strong case in favour as well. Ireland is still a very attractive banking market. It has long since recovered from the financial crash and remains one of the fastest-growing of the developed economies. Indeed, it was the fastest growing economy in the EU last year, and its overall output is now significantly above the pre-pandemic level. Its low corporate tax rate still makes it a key hub for global multinationals (it may have to raise that under plans to create a global minimum corporate tax rate, but the country still has plenty of momentum to carry it forward). Its GDP per capita is one of the highest in the world and wages are high. With an average age of 38, the population is relatively young (it is above 40 in the UK). Its housing market has bounced back from the crash, and is robust and stable. And, of course, it is inside the European Union’s single market, making it a natural base for providing financial services right across the continent. 

Seize the day

It is hard to see why none of the British banks would be tempted by that. It’s not as if they don’t need fresh sources of growth. Lloyds is expanding into the housing market, which hardly seems a safer bet. HSBC and Barclays are building up their capital markets units. NatWest already owns Ulster Bank, and although it said it was withdrawing from the market south of the border last year, and still has to complete its own privatisation, it has plenty of experience of the market. 

AIB or Bank of Ireland would make a perfect acquisition for one of the UK’s big four retail banks. With market values of around £5bn, they are not hugely expensive, and are hardly going to be a strain on anyone’s balance sheet. If they don’t want to expand into the Irish market, then it is hard to see what country they would be willing to take on. A cash offer would save the Irish government a lot of trouble, and at a 20% to 30% premium would make it more money than selling off the shares in dribs and drabs. The only real question is whether one of the British banks will be brave enough to seize an opportunity that might not come again. 

Recommended

We’re doing well on pensions – but we still need to do better
Pensions

We’re doing well on pensions – but we still need to do better

Pensions auto-enrolment has vastly increased the number of people in the UK with retirement savings. But we’re still not engaged enough, says Merryn S…
4 Jul 2022
The income investor’s dilemma
Income investing

The income investor’s dilemma

Pay attention to dividend growth as well as initial yield when picking income trusts, says Max King.
4 Jul 2022
How to boost your income as dividends come back in fashion
Income investing

How to boost your income as dividends come back in fashion

Dividends are back in fashion. But how do you go about building an income-generating portfolio?
4 Jul 2022
The transition to renewable energy is easier said than done
Renewables

The transition to renewable energy is easier said than done

We are on a path to “net zero” carbon emissions, says Edward Chancellor, but fossil fuels will be with us for some time yet.
4 Jul 2022

Most Popular

UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022
How to invest in copper, the most important metal in the world
Industrial metals

How to invest in copper, the most important metal in the world

As the world looks to electrify and try to move away from fossil fuels, copper looks set to be the biggest beneficiary. But how can you invest? Rupert…
30 Jun 2022
Don’t try to time the bottom – start buying good companies now
Investment strategy

Don’t try to time the bottom – start buying good companies now

Markets are having a rough time, so you may be tempted to wait to try to call the bottom and pick up some bargains. But that would be a mistake, says …
1 Jul 2022