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· The proposed Capital Reorganisation follows negotiations between the Department of Finance and AIB and will facilitate the first significant return of capital to the State. It also ensures that AIB will have a capital structure which is in full compliance with European regulatory requirements and is in line with market norms.
· Once finalised the Proposed Capital Reorganisation will allow for the redemption of €1.36 billion of the State’s Preference Shares for €1.7 billion in cash.
· The State will convert its remaining Preference Shares (€2.14 billion nominal) into €2.67 billion of ordinary shares at a price to be agreed with AIB.
· The cumulative effect of these measures, along with the expected issuance by the bank of Tier 2 and AT1 instruments, will provide AIB with a strong, market-facing capital structure.
Speaking on the announcement of AIB’s proposed capital reorganisation, Minister Noonan stated:

“The proposed reorganisation of AIB’s capital base will ensure the bank has a balance sheet that is fit for purpose and is an important initial step in our efforts to maximise our return from this important investment. The State will receive the cash relating to the Capital Reorganisation in the coming months, which will be followed by a return of another €1.6 billion in July of next year when our Contingent Capital (“Coco”) instrument matures. When income as well as capital returns are taken into account I am confident that the State is on track to achieve a return approaching €4 billion from our investments in the bank in the near term. As stated previously, any decision in relation to the ultimate sale of the State shareholding in AIB will be a matter for the next Government.

“With AIB back to profitability and recording strong growth in lending to Irish businesses and consumers, I am confident that the bank can play a vital role in facilitating the continued growth in the Irish economy. The changes announced today also lay the ground-work for the Irish taxpayer to ultimately recover the full value of their €20.8 billion investment in AIB”.

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Notes for editors

Background on the transactions involved
· The Department of Finance and AIB will finalise the terms of the Capital Reorganisation over the next few weeks following which the Board of AIB will issue a Circular to Shareholders to request approval for the transaction.
· AIB will issue Tier 2 and AT1 capital securities bringing its capital structure in-line with its peers. The completion of these issuances are pre-requisites to the redemption and conversion taking place.
· The 2009 Preference Shares contain a feature that if redeemed after five years, then the principal amount “steps up” by 25%. As a consequence the State receives €1.7 billion in cash for the redemption of €1.36 billion of the shares.
· The remaining Preference Shares (€2.14 billion) will be converted to Ordinary Shares at 125% of their subscription value. As such the State will receive €2.675 billion worth of new ordinary shares at a value to be agreed with AIB.