The Government has set the price range at which it will sell shares in AIB, pricing shares at between €3.90 and €4.90 for the Initial Public Offering (IPO).
This range values the bank at between €10.6 billion and €13.3 billion.
The AIB prospectus - a document providing all necessary information about the company and the IPO for investors - contains a lot of information about AIB’s financial position, including:
ECB funding: "Monetary authority funding Monetary authority funding decreased by €1.0 billion, or 34%, to €1.9 billion as at 31 December 2016, compared to €2.9 billion as at 31 December 2015 as the overall funding requirement reduced. In 2016, the existing €1.9 billion Targeted Long Term Refinancing Operation (‘‘TLTRO’’) was replaced with the TLTRO II facility, extending the term of the funding out to four years with an option to redeem after two years".
NAMA: "NAMA senior bonds AIB’s holdings of NAMA senior bonds decreased to €1.8 billion as at 31 December 2016, compared to €5.6 billion as at 31 December 2015. During the year ended 31 December 2016, €3.8 billion of NAMA senior bonds were redeemed."
DEFERRED TAX ASSETS: AIB is able to offset some of its past losses against tax on its future profits. This sum - €2.8 billion (down from €2.9 billion the year before) – is treated as an asset on AIB’s books. In the risk factors section of the prospectus it says:
"As at 31 March 2017, AIB had €2.8 billion of deferred tax assets on its statement of financial position, substantially all of which related to unused tax losses. Changes in tax legislation or the interpretation of such legislation, regulatory requirements, accounting standards or practices of relevant authorities, could adversely affect the basis for recognition of the value of these losses. In the United Kingdom, for instance, legislation has been introduced to restrict the proportion of a bank’s taxable profit that can be offset by certain carried forward losses to 50%, effective from 1 April 2015, resulting in a €242 million decrease in AIB’s deferred tax asset for the year ended 31 December 2015.
This was subsequently further reduced to 25%, effective from 1 April 2016, resulting in a €92m decrease in AIB’s deferred tax asset for the year ended 31 December 2016. This will likely continue to have a negative impact on AIB’s profit after taxation in future periods. This legislation has adversely affected the value of AIB’s deferred tax assets in relation to its UK operations. If similar legislation were to be introduced in Ireland, this could have a further adverse impact on the value of AIB’s deferred tax assets, which could adversely affect AIB’s business, results of operations, financial condition and prospects.
There is also a risk that AIB may not generate the necessary future taxable profit in Ireland or the United Kingdom to support the current level of deferred tax assets. Additionally, if the time period in which the profits may be generated is too distant, then AIB may not be able to assess the likelihood of profits arising as more likely than not, which could have a negative impact on its deferred tax assets.
The capital adequacy rules under CRD IV, also require AIB, among other things, to deduct from its CET1 the value of most of its deferred tax assets, including all deferred tax assets arising from unused tax losses. This deduction from CET1 commenced in 2015 and is to be phased in evenly over 10 years, although this phasing may be subject to change. If the phasing does change, AIB may be required to hold more capital in the transitional period."
LOANS: A substantial chunk of AIB’s lending relates to property, development land, and mortgages. Here is what the prospectus says about AIB’s loans, particularly those connected to property:
"Residential mortgage loan portfolio Residential mortgages decreased by €2.0 billion, or 5%, to €36.8 billion as at 31 December 2015, compared to €38.8 billion as at 31 December 2014. As at 31 December 2015, residential mortgages accounted for 52%, of total gross loans and receivables to customers, with 93% relating to RCB and 6% relating to AIB UK.
As at 31 December 2014, residential mortgages accounted for 51%, of total loans and receivables to customers, with 93% relating to RCB and 6% relating to AIB UK.
The split of the residential mortgage book as at 31 December 2015 was €30.9 billion, or 84%, related to owner-occupier and €5.9 billion, or 16%, related to buy-to-let, compared to €31.8 billion (82%) related to owner-occupier and €7.0 billion (18%) related to buy-to-let as at 31 December 2014."
Property and construction: "The property and construction portfolio decreased by €4.0 billion, or 26%, to €11.5 billion as at 31 December 2015, compared to €15.5 billion as at 31 December 2014. Property and construction loans accounted for 16% of total loans and receivables to customers as at 31 December 2015, compared to 20% as at 31 December 2014. The decrease in property and construction loans came entirely from criticised loans (which include ‘‘watch’’, ‘‘vulnerable’’ and ‘‘impaired’’ loans) and was primarily due to the impact of restructuring activity, write-offs, amortisations and customer repayments, which was offset by new business written of approximately €1.4 billion.
The property and construction sector has been favourably impacted by improved economic performance and increased investment spending, which has had a positive impact on the residential and commercial land and development market. As at 31 December 2015, the property and construction portfolio was comprised of 70% investment loans (€8.1 billion), 22% land and development loans (€2.6 billion) and 8% other property and construction loans €0.9 billion). AIB UK accounted for 30% of the property and construction portfolio as at 31 December 2015.
Property investment loans decreased by €2.6 billion, or 24%, to €8.1 billion as at 31 December 2015, compared to €10.7 billion as at 31 December 2014. As at 31 December 2015, €6.6 billion of property investment loans related to commercial investment, with the remaining €1.5 billion relating to residential investment. This compared to €8.4 billion of loans related to commercial investment and €2.2 billion of loans related to residential investment as at 31 December 2014.
The decrease in property investment loans was largely due to loan redemptions (asset sales by customers), restructures within the criticised loan portfolio and write-offs of provisions. As at 31 December 2015, €5.6 billion of the investment property portfolio related to loans for the purchase of property in Ireland, €2.4 billion related to the United Kingdom and €0.1 billion related to other geographical locations. Land and development loans decreased by €1.5 billion, or 37%, to €2.6 billion as at 31 December 2015, compared to €4.1 billion as at 31 December 2014. As at 31 December
2015, €1.5 billion of this portfolio related to loans in RCB, €0.2 billion related to loans in WIB and
€0.8 billion related to AIB UK. This compared to €2.5 billion, €0.6 billion and €1.0 billion as at 31 December 2014, respectively."
