Finance Minister Paschal Donohoe was warned that a hefty fine for AIB over tracker mortgages could represent a "negative surprise" as the State prepared to sell a significant stake in the bank.

Officials explained how two previous attempts to offload a large chunk of AIB had fallen at the final hurdle in November last year and again in March this year after the "war in Ukraine intervened".

They said that the time was right in June to sell down a major stake in the bank with "high quality investors" ready to make sizable trades for AIB shares.

A submission for Minister Donohoe said there were already half a dozen institutions who had indicated a firm interest in investing around €50m each in the bank.

"What is noteworthy is that these firms are all high-quality names and all but one are what the industry describes as "long only" - ie your traditional pension and investment funds as opposed to hedge funds that tend to have a short time horizon".

In a detailed submission from June, the finance minister was told the state should consider selling off around a €300m stake in the bank, which represented about 5% of the company.

This could be increased up to €350m if "demand is strong", officials said.

The submission also warned that there may be "obstacles to navigate" up to June as it was the end of AIB's financial half year.

"More importantly, we believe that AIB's tracker fine from the Central Bank could be announced on Tuesday the 21st of June or failing this next Wednesday or Thursday," it said.

"This is material information and given the risk that it could represent a negative surprise, we should not attempt to trade ahead of it," it added.

The submission also explained how there had been two aborted attempts to sell off a large stake in the bank, the first in November of last year.

"Just before launch, we learned that the likely discount on the share price was going to end up higher than we expected," it explained.

Officials said they had also been "well-positioned" to look at a sale after the bank's results in early March until the war in Ukraine began.

It said AIB's share price had since recovered due to a strong first quarter trading statement, the acquisition of Ulster Bank loans, its €91mn share buyback programme, and confirmation of interest rate rises from the European Central Bank.

"All of these factors mean that investor appetite has increased materially in the stock notwithstanding lingering concerns that there is a recession coming in Europe that will harm banks," explained the submission.

Another submission - prepared after the sale had gone through - said the shares had been sold at a price of €2.28, a 6.5% discount on their closing price from 27 June.

"AIB's stock price has been very volatile in recent years. For instance, it is worth noting that the price we have achieved for our shares in this transaction is above the price when Ireland announced its first case of Covid-19 at the end of February 2020 (€2.10)," it stated.

"AIB's share price also fell to a low of €0.77 in 2020 following the outbreak of Covid-19," it added.

The submission said the 6.5% discount was lower than anticipated and compared well with similar deals.

It said that following the sale, shares in AIB had "traded in a range" that the department and investors were happy with following a 4% rise on the first day after the state selloff.

However, by early July, AIB’s share price had fallen away and at the time the submission was written, they were valued at €2.09.

"We have been in contact with Goodbody Stockbrokers around this and their view is that the drop is not specific to AIB but rather due to a negative sentiment towards European banks more generally," the submission said.

It said this volatility suggested the state was "fortunate" with the timing of their sale and that the result achieved had been "very solid".

Asked to comment on the records, the Department of Finance said they had nothing further to add to their contents.


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