AIB upgrades profit forecast and plans for share buybacks

AIB has significantly upgraded its profitability target ahead of proposed share buybacks that will help reduce the State’s shareholding in the bank below 50pc.

he bank said it will deliver a return on tangible equity (RoTE) – a measure of sustainable profits – of more than 13pc in 2024, up from its earlier forecast of above 9pc for next year.

The improved performance trajectory should allow the bank to increase cash distributions to shareholders, including both dividends and buybacks, in the coming years, according to a medium-term update published this morning.

A buyback programme, combined with incremental stock disposals and opportunistic share placings, is likely to cut the State’s shareholding to a minority position from its current level of 57pc.

“While global economic headwinds exist, the Irish economy continues to deliver economic growth and demonstrate resilience,” said AIB chief executive Colin Hunt.

“Against this domestic backdrop and given the changing banking landscape and evolving operating environment, we have revised our medium-term targets and now expect a RoTE of greater than 13pc in 2024. We continue to implement our strategy to enhance shareholder value and deliver sustainable returns.”

The upward revision in profitability reflects a dramatically changed environment for the bank in which rapid interest rate increases by the European Central Bank (ECB) have added hundreds of millions in income on both loans and deposits.

With more hikes due from the ECB this month and into next year, AIB is exceptionally well-positioned to benefit, making it a darling of equity investors this year.

According to the banks own estimates, every 1pc rate rise in Frankfurt delivers more than €300m in new net interest income to the bank.

Consequently, AIB’s share price has risen 39pc this year against a poor performance in stock markets generally as investors have gradually begun to understand how much a rising rate environment is conducive to much stronger revenue.

Today’s robust update, therefore, could potentially set up another major sell-down of Government shares to satisfy growing investor demand following a €397m market placing last month that cut the State’s stake by 5pc.

More liquidity in the stock would be welcomed by institutional investors that have been clamouring for more access to ownership of the bank, possibly opening a window for a transaction before Christmas, informed sources said.

However, analysts said that there is not yet a clear line of sight on returning capital to shareholders, given ECB worries about loan losses if there is a recession next year.

Moreover, higher costs at AIB going forward – confirmed in today’s update – could dampen enthusiasm for the stock, offsetting the good news on profitability, they said.

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