Investec lifts its AIB rating in anticipation of loan sale

AIB’S efforts to bring its stack of bad debts in line with European rules will reach a “major milestone” later this year with the expected sale of the near €3.7bn Project Redwood portfolio.

That’s the verdict of Inves- tec’s Dublin-based financials analyst Owen Callan, who lifted his investment rating on the stock yesterday to an ‘add’ from a previous ‘hold’ recommendation.

He cited the looming Redwood deal as a factor behind the rating upgrade, along with the State-backed bank’s solid underlying performance over the past financial year.

AIB’s shares underperformed the broader index yesterday to close up 0.4pc at €5.16.

According to Mr Callan the potential Redwood disposal will accelerate the bank’s plans to lower its non-performing exposures “to below 5pc of gross lending” and help unlock “the excess capital capacity of the group”.

Investors piled in to AIB’s €3.4bn flotation last year, partly in anticipated that write-backs would fund a special distributions or share buy backs.

Mr Callan argued “the capital distribution potential of the bank is still only in its infancy”.

But until legacy-era debts are “more fully dealt with, excess capital will continue to accrete on the balance sheet and management’s ability to fully access or utilise it will be at least somewhat restricted from a regulatory perspective”, he said.

Meanwhile, new Eir CEO and AIB board member, Caroline Lennon, has snapped up 5,700 shares in the lender. It takes her and husband Sean Wickham’s holding to 7,700 share. Investec reduced its target price on AIB to €5.40 from €5.75.