Aib

Complete.

Dilutive capital raising announced. Price is 0.50 EUR per share, however at the time of writing the stock is offered at 0.399 EUR per share, with an intraday low of 0.372 EUR per share.

http://finance.yahoo.com/news/AIB-Capital-Update-Equity-iw-338615298.html?x=0&.v=1

I'm pleased with how this trade worked out.

My first post on this saga was 6 months ago, on 30 March.

It's a very good example of the type of large returns that can be achieved using fundamental analysis.

It's also unfortunate that the US government did not provide capital to companies like BAC, C, AIG at greater discounts, but instead provided bailouts on overly generous terms.
 
PDF file:

http://www.merrionstreet.ie/wp-content/uploads/2010/11/Government-Statement-on-EU_IMF-programme.pdf

HTML:

http://www.taoiseach.gov.ie/eng/Gov...nt_of_joint_EU_IMF_Programme_for_Ireland.html

some snippets:

The domestic banking system will benefit from a substantial and immediate recapitalisation raising Core Tier 1 capital ratios to at least 12%.

This action, along with early measures to support deleveraging set out below will result in an immediate injection of €10bn of fresh capital into the banking system, above and beyond that already committed.

Further recapitalisations will take place in the first half of 2011 as necessary based on the results of a detailed review and updating of the banks’ capital needs following a revised PCAR exercise undertaken by the Central Bank of Ireland and involving stringent stress testing.

A Prudential Liquidity Assessment Review (PLAR) will be implemented by the Central Bank of Ireland for the domestic banks to identify deleveraging actions necessary to significantly reduce their reliance on short term funding.

A substantial downsizing of the banking system will be achieved through early and decisive actions including:-

* Banks will be required to run down non-core assets, securitize and or sell portfolios or divisions with credit enhancement provided by the State, if needed.

* The NAMA Scheme will be extended to remove remaining vulnerable land and development loans from Bank of Ireland and Allied Irish Bank by end-Q1 2011

* Banks will be required to promptly and fully provide for all nonperforming assets.

****

also found here:

http://www.politics.ie/economy/1443...-programme-ireland-irish-gov-statement-3.html

http://www.irishtimes.com/newspaper/breaking/2010/1128/breaking30.html
 
Finally some questions have been answered:

http://www.rte.ie/news/2010/1128/banks-business.html

The Central Bank has also set new financial targets for the banks to reach by early next year. It said AIB, Bank of Ireland, Irish Life & Permanent and EBS would have to have core tier one capital ratio of 12%. This is the amount of funding the banks must hold in reserve to cope with potential future loan losses. The banks must meet this target by February 28 next year, though IL&P will be given until the end of May.

Under the Central Bank's target, AIB will now need another €5.3 billion, bringing the total it needs to raise to almost €10 billion. Bank of Ireland will need another €2.2 billion, EBS €438m and IL&P €98m.

The Central Bank said this would involve an extra injection of €10 billion into the banking system. The banks will go through a 'stress test' in March, and further money will be injected if their capital ratio falls below 10.5%.

http://www.financialregulator.ie/press-area/press-releases/Pages/Technical.aspx

This contains even more detail about the capital raisings for ALBK, BKIR and the two other smaller companies.
 
I am not sure about the accuracy of shares outstanding counts for ALBK and BKIR, because I have different figures from different sources.

The highest share count is provided by FT, so I will use that (so as to underestimate dilution rather than overestimate).

Bloomberg has similar share counts, Yahoo Finance has substantially lower counts.

ALBK:
1.28 billion * 0.35 EUR = 448 million EUR

BKIR:
5.3 billion * 0.27 EUR = 1.431 billion EUR

Capital raising required as per
http://www.financialregulator.ie/press-area/press-releases/Pages/Technical.aspx

ALBK:
5.265 billion EUR

BKIR:
2.199 billion EUR

****

Analysis:

ALBK:

Highly Highly unlikely that ALBK can raise that much capital (more than 10 times current market cap) without government help. However it's possible that the government could be generous and agree to a capital raising at a small discount to the current share price.

Also there's the small matter of an additional 4.5 billion EUR required, to bring the total capital raising to 9.765 billion EUR.

BKIR:

Unlikely that BKIR can raise that much capital (more than 150% of current market cap) without government help. However it's possible that the government could be generous and agree to a capital raising at a small discount to the current share price, especially given that the dilution is not as bad as it is for ALBK.
 
Recap from 30 September 2010 announcement regarding ALBK capital raising:

http://finance.yahoo.com/news/AIB-Capital-Update-Equity-iw-338615298.html?x=0&.v=1

snippets:

"A EUR5.4 billion equity capital raising will be launched during November which will be completed before 31 December 2010.

"This equity capital raising will be fully underwritten by the National Pensions Reserve Fund Commission ("NPRFC") at a fixed price of EUR0.50 per new ordinary share, which represents a discount of approximately 9.4 per cent to the official closing price of an ordinary share on the Irish Stock Exchange on 29 September 2010.

"The capital raising will be structured as a placing and open offer and existing shareholders will be invited to subscribe for all or part of their pro rata entitlements. New institutional shareholders may also be permitted to subscribe for new shares under the offer.

"If necessary, the NPRFC's underwriting commitment will be met through a new cash contribution of up to EUR3.7 billion for new ordinary shares from existing cash resources of the NPRFC and by the conversion of up to EUR1.7 billion of the existing 2009 Preferences Shares held by the NPRFC.

"Following this conversion of 2009 Preference Shares the NPRFC would hold EUR1.8 billion of 2009 Preference Shares."
 
I'll put the rally in ALBK and BKIR this morning down to short covering and a dead-cat bounce.

There were probably a few people who were expecting worse news for shareholders, so ALBK is up 10% and BKIR is up 21%.

The difference in percentage gains makes sense. As mentioned in a previous post on this thread, ALBK faces massive dilution before February, whereas BKIR's capital requirement is "only" 150% of market cap.
 
I'm short a few AIB calls.

Basically waiting for the announcement of the capital raising price, which should come before the end of Feb 2011.

Although I think IRE will also fall from here in the coming weeks / months, I don't feel as confident because the IRE dilution is not nearly as bad as the AIB situation.
 
update:

ALBK continues to underperform BKIR, due to the additional dilution that ALBK shareholders face.

Tue 30 November press release from ALBK regarding capital raising:

http://finance.yahoo.com/news/AIB-Capital-iw-3072304094.html?x=0&.v=1

http://www.aibgroup.com/servlet/Con...DA&position=first&rank=top&year=2010&month=11

Allied Irish Banks, p.l.c. ("AIB") [NYSE: AIB] is making the following announcement following the statements made on 28th November by the Irish Government and Central Bank of Ireland.

We note that AIB’s additional capital requirement has been set at €5.265bn by the Central Bank of Ireland, to be raised by the end of February 2011. The total core tier one capital (CT1) still to be raised by AIB has been estimated by the Central Bank of Ireland at c.€9.8bn and arrived at as follows:

PCAR // €bn

30th March CT1 requirement = c. 4.9 €bn

30th September additional CT1 requirement = c. 3.0 €bn

28th November additional CT1 requirement = c. 5.3 €bn

Business disposals (Poland & M&T) = c. (3.4) €bn

Total = c. 9.8 €bn

The estimated impact of the total remaining capital injection of €9.8bn is to increase AIB’s pro forma CT1 at 31st December 2010 to c.14%.

The Irish State will subscribe for the incremental capital requirement that AIB does not raise from other sources.
 
BKIR press release on capital requirements:

http://www.bankofireland.com/about-...es-and-presentations/stock-exchange-releases/

http://www.bankofireland.com/fs/doc...atement-on-capital-requirement-28-11-2010.pdf

http://ftalphaville.ft.com/blog/2010/11/28/418421/bank-of-ireland-needs-e2-2bn/

"The Governor and Company of the Bank of Ireland (The Bank of Ireland) Statement on Capital Requirements"

The Governor and Company of the Bank of Ireland (The Bank of Ireland)

Statement on Capital Requirements

28 November 2010

Bank of Ireland (“the Bank”) notes the announcement by the Central Bank of Ireland on 28 November 2010 that, having considered the additional capital required to reach new capital targets, the Bank requires an additional €2.199 billion of capital to be generated by 28 February 2011.

The Bank intends to seek to generate the required capital through a combination of internal capital management initiatives, support from existing shareholders and other capital markets sources.

The Irish Government will subscribe for the incremental capital, should the Bank not be in a position to raise sufficient capital within the proposed timeframe.

On the basis that all of the required incremental capital is equity and taking account of the guidance provided at the Bank’s Interim Management Statement on 12 November 2010, the estimated pro forma Equity Tier 1 and Core Tier 1 ratios as at 31 December 2010 are circa 10% and circa 12.5% respectively.
 
"Allied Irish May Be 90% State-Owned By Year-End, Davy Says"

http://www.bloomberg.com/news/2010-...-be-90-state-owned-by-year-end-davy-says.html

"Ireland to Force Loss-Sharing on Junior Debt Holders"

http://www.bloomberg.com/news/2010-...or-bank-bondholders-to-share-loss-burden.html

Irish Finance Ministry announcement regarding loss-sharing, and capital raisings for Irish banks:

http://www.finance.gov.ie/viewdoc.asp?DocID=6623&CatID=1&StartDate=1+January+2010&m=n

snippets:

* The Bill will be debated in the Dail on Wednesday and it is expected to be enacted by the Oireachtas by the end of this week.

* In the first instance, the provisions in the Bill once it is enacted by the Oireachtas will be available to the Minister to effect, in part, the injection of capital into Allied Irish Banks prior to year end as necessary to ensure the bank is compliant with the regulatory capital requirements as set by the Central Bank of Ireland.

* The Bill can be accessed at

http://www.oireachtas.ie/viewdoc.asp?fn=/documents/bills28/bills/2010/5810/document1.htm
 
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