Richard Curran: 'Government's missed chance to sell more AIB stock could cost billions'
A report by Barclays did little for the AIB share price during the week. The report suggested AIB faced a risk of cutting its dividend and disappointing the market with the scale of its excess capital that it will return to shareholders.
No shareholders will take greater notice of this than the Department of Finance, which is still 71pc buried in AIB shares. The problem for AIB is similar across the sector but the Barclays analysis, if proven to be correct, would likely compound the criticism of the Government’s decision not to sell more of the bank when it had the chance.
Bear in mind AIB management themselves told the Government to sell more while the going was good.
Shares in AIB are trading at around €2.90. Two years ago, they were trading at €5.28. Put in context, this has seen a fall in the value of the State’s shareholding from €11.5bn two years ago to €5.8bn now.
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It is quite a hit to take, especially when the State has yet to get back all of the €20bn it spent bailing out the bank during the financial crash.
There was a sort of logic pedalled for not selling more of the State’s shareholding at the time. Firstly, it was a strategically important bank for the economy.
However, its relative importance to Ireland’s consumer and business community would not be any different if the State held 51pc or 35pc, instead of 71pc.
The other big reason was around dividends. Why not hold on to the shares, watch them increase in value as the economy expanded and collect hefty dividends for the Exchequer as the investment grew?
Last year, AIB jacked up its dividend payout by 42pc, which saw around €327m go to the State. Barclays has suggested that dividend might reduce by 24pc to 13c per share this year. This would lead to a €247m dividend for the State – down €80m on the previous year.
Sustained low interest rates are hurting all of the banks and there isn’t an end in sight. Well, they certainly don’t think so at Ulster Bank, which came out during the week with the cheapest mortgage rate offering in the market.
Ulster reduced its five-year rate to 2.2pc and is offering a 10-year fixed rate of just 2.95pc. This ups the ante on its competitors and won’t be music to the ears of AIB either, which has around 32pc of the new mortgage market.
AIB chief executive Colin Hunt is expected to announce details of his new strategic plan in March. This should shed new light on what his priorities are for the bank in the coming years. Cutting costs will likely be high on the agenda, but Barclays points out how difficult this can be to achieve.
The State had recovered around half of its bailout outlay when the bank was re-floated on the stock market in June 2017.
The bank has plans to buy back some more of the State’s shares, but that has been put back to 2021. The size and timing of any buyback will be dependent on the amount of excess capital the bank has available.
This September will see the 10th anniversary of the State’s majority ownership of the bank. It seems the taxpayer is invested in AIB for the long haul.
Glancey to leave after having put the fizz back in C&C
Stephen Glancey will retire as chief executive of C&C at the end of next month after quite a rollercoaster ride with the drinks company since he joined in 2008. He was part of a new management team that came in when the share price had taken a pasting and was trading at around 75c.
Together, they took the group into a few different directions before settling with the product mix and business model it has today. Glancey leaves having had a good start, a bad middle and a good end to his tenure.
The bad middle came around 2015 when intense price competition in England and Wales dented profits, while a €235m acquisition of US cider maker Vermont Hard Cider backfired. The chairman was forced to assure investors he had confidence in Glancey when C&C’s assault on the American market failed to deliver. When the chairman admits, as Brian Stewart did in 2015, that the US has been a “major disappointment”, you know it isn’t going well. By 2018 the Vermont business was written down to just €45m.
But Glancey survived and did a good deal when C&C bought the top drinks distributor in the UK and Ireland hospitality sectors: Matthew Clark and Bibendum. Bought for just £1 (€1.17) while under financial difficulty, C&C invested another £76m turning it around. The deal has completed Glancey’s concept of building a vertically integrated drinks firm. The group supplies over 35,000 pubs, bars and restaurants, has the leading Irish cider brand, craft beers, Tennent’s, and an investment in Admiral Taverns, which owns 800 pubs.
He leaves the firm having earned millions of euro in the course of the turnaround. The business is very different to what it was in 2008 and, last October, dropped its Irish listing in favour of a London-only listing.
The move has been good for the share price, as C&C entered the FTSE 250 index and the company has returned €181m to shareholders in the past few years through buybacks and dividends.
Glancey himself has received around €1.5m in dividends alone since 2016. Last year, his remuneration package came in at €1.7m and his 4.2 million shares in the firm are worth over €16m. He also has share options under a long-term incentive plan and a conventional share option scheme.
According to the 2013 share option plan, if an executive leaves the company to retire, his options can still be exercised within six months after the third anniversary of when they were granted. This would put Glancey in line for another €2.5m to €3m, based on the current share price. C&C remains an Irish company but with €1.3bn of its €1.5bn in revenues generated in the UK.
Election timing is ‘winner all right’ for online betting firms
There will be no more gambling with credit cards for punters in the UK. The new Gambling Commission rule seems sensible, given how easy it is to rack up debt through losses. But it won’t impact that much on betting firms, especially not Flutter Entertainment, says Davy Stockbrokers.
The Gambling Commission estimates that around 7.6pc of online gamblers use credit cards to deposit funds. However, Davy notes that deposits relating to customers who use credit cards exclusively are lower (<2pc in the case of Flutter). Nevertheless, Davy is quick to point out that this latest regulatory change highlights how the UK is no longer the opportunity it once was.
When will such a ban be placed here? The gaming legislation designed to regulate the sector and bring in a regulatory commission was passed before Christmas.
It just needs to be signed into law – by the next government. Even if this happens quickly, the new regulator will have to have consultation periods before making significant policy decisions.
The election has come at a great time for the bookies because it may well delay regulation even further. And they may even make a few quid from punters (some using credit cards) betting on the outcome.
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