Allied Irish Banks, p.l.c. Capital Update
Allied Irish Banks, p.l.c. Capital Update
Following the announcement of the 22nd December on capital measures agreed with the Irish Government, Allied Irish Banks, p.l.c. (”AIB”) [NYSE: AIB] has been in further negotiations with the Government.
These negotiations have now concluded with a revised agreement, outline details of which are contained in last night’s separate statement by the Minister for Finance. That statement refers to the recapitalisation of AIB and Bank of Ireland and is appended to this announcement for ease of reference.
The Government has offered and we have accepted total core tier one capital of €3.5bn. The total represents an increase of €1.5bn over the €2bn previously agreed and the agreement contains features designed to assure the market of our stability and independent future. The agreement is subject to shareholder, regulatory and EU State aid approval.
In reaching the agreement, we have carefully considered current market conditions and the best interests of all our stakeholders. We have previously acknowledged increased market expectation for banks everywhere to have higher capital ratios as economic conditions deteriorate and asset quality weakens. As outlined in our announcement of the 22nd December, the Government committed to underwrite and otherwise support the raising of additional core tier one capital and we indicated our interest in seeking up to a further €1bn from our shareholders. Subsequently, we had a series of meetings with institutional shareholders to discuss our capital position and we are encouraged by the broadly positive and constructive nature of these meetings. Since then however, there has been further volatility in share prices across the banking sector. In Ireland, this factor has been exacerbated by negative market sentiment following developments in the UK banking sector and the nationalisation of Anglo Irish Bank. In those volatile conditions, any attempt at present to raise Government underwritten equity in the market could result in a material level of state ownership. We are absolutely resolved that any action taken would rule out a risk of having this unintended consequence for either our shareholders or the Government.
The agreement reached last night combines the key elements of:
(i) Substantially increasing the resilience of our balance sheet at this stage of the credit cycle
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- €3.5bn of perpetual core tier one non- cumulative preference shares with warrants. The addition of this capital would increase our end 2008 pro forma core tier one capital ratio to c. 8.5%.
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- The preference shares have a fixed coupon of 8% and may be repurchased at our option.
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- The Government, as a matter of priority, is to examine and produce proposals for the management and reduction of risks in respect of the banks’ property and land development portfolios. This process will be informed by international developments and ongoing work at the level of the European Central Bank and the EU.
(ii) Strongly protecting shareholder interests
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- Government is entitled to warrants over new units of ordinary stock representing 25% of existing share capital as enlarged by the warrants, exercisable after 5 years.
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- Government entitlement to warrants will be reduced pro rata to a minimum of 15% of existing share capital as enlarged by the warrants in the event that AIB raises new core tier one capital of up to €1.5 bn prior to 31st December 2009.
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- Government entitled to exercise only half of the voting rights attached to the new units of ordinary stock issued on exercise of the warrants, with full voting rights restored to this stock on disposal by the Government.
(iii) Voting rights while any of the already described preference shares are outstanding
* - Government to have 25% of total ordinary voting rights in respect of certain functions including change of control and board appointments
(iv) A review to be completed by mid April 2009 of the Government Guarantee Scheme
* - The Government will examine how the Scheme could be revised subject to European Commission approval and consistent with EU State aid requirements, in ways which include supporting longer term bond issuance by the covered institutions. This would be in line with international and EU trends where the average term of State cover for bond issues extends beyond 2010.
(v) A bank customer package
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* The initiatives contained in this package are in line with our ambitions for our business and are positive for the economy, our shareholders and staff.
We are currently in a close period and details of our current trading and outlook will be provided at the time of our 2008 audited results presentation on 2nd March.
Commenting on today’s announcement, Eugene Sheehy, AIB Group Chief Executive, said “I welcome this initiative and consider that it strongly supports the vital objective of improving market confidence in Ireland, our banking system and AIB. I thank the Government for the positive and commercial approach taken in reaching this agreement”.
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