AIB to sell Polish units to Santander for 3.1 billion euros

DUBLIN/MADRID (Reuters) - Allied Irish Banks ALBK.I is selling to Spain's Santander SAN.MC its 70.36 percent stake in Bank Zachodni BZWB.WA, Poland's third largest bank, and its 50 percent stake in an asset management joint venture for 3.1 billion euros ($3.93 billion).

AIB said on Friday the sale of Zachodni, the jewel in its crown, would generate 2.5 billion euros in equity tier 1 capital giving it a third of the 7.4 billion euros in additional capital it needs to raise before the end of the year to avoid the Irish government taking a significant equity stake.

“This sale will generate significant capital for AIB and represents the first step of our recapitalization plan that was set out in March,” AIB Group Managing Director Colm Doherty said in a statement.

“We continue to make progress on other elements of the recapitalization plan and will make further announcements in due course.”

AIB has been forced to put its overseas assets, including a 22 percent stake in U.S. bank M&T MT.N, and its British business up for sale to compensate for massive losses on its Irish property portfolio and to meet tougher capital targets.

The cash proceeds from the sale of Zachodni will be used as an additional source of liquidity for the bank, AIB said.

Ireland’s second-largest bank said Santander’s acquisition would be carried out through a public tender offer for 100 percent of the capital of Zachodni, which AIB will accept for its stake, and the disposal is subject to regulatory and shareholder approval.

Shares in AIB closed down nearly 1 percent at 0.743 euros in Dublin before the deal was announced. Shares in Santander were down 0.1 percent at 9.9 euros.

Santander, Spain’s largest bank, said it expects the deal for Zachodni to close next year and generate an 11 percent return on investment after the third year of the acquisition.

“From a strategic point of view, the purchase makes all the sense in the world because it means entering fully into a company in a country with clear economic growth perspectives” said Nuria Alvarez, a Renta 4 analyst in Madrid.

Additional reporting by the London equities desk; Editing by Greg Mahlich