09 Apr 2019

AIB Group: Large cuts to fixed rates announced

AIBG Group has this morning announced a significant set of price cuts to its fixed rate mortgage product suite, as well as the introduction of a new 10 year fixed rate product. The rate cuts for 1-7 year fixed rates range from 5-45bps, with the largest of these cuts being to the flagship 3 year (-35bps to 2.85%), 4 year (-45bps to 2.85%) and 5 year (-45bps to 2.85%) products which are the most popular with borrowers.



The move to cut rates brings AIBG’s previously lagging fixed rate suite more in line with the rest of the market, and should shore up some of the market share leakage the bank has seen over the last 12-18 months (37% down to 32%). This drop in market share for the bank has been the main reason we have expected a rate cut from AIB for some time now, particularly as the fixed rate product set was the one weak spot in its offering (they are market leaders on variable rates). The decision to cut rates also suggests new CEO Dr. Colin Hunt is keen to hit the ground running and initiate his tenure with a decisive move to push the bank to the front of the pack on all mortgage pricing and reverse a previous management decision to focus primarily on variable rates (given their future repricing potential).


The rate cuts will act as a modest headwind to NIM/NII in FY19, but we had built in some element of price cutting potential into our model so we do not make any changes as a result of today’s decision, particularly as we see some small upside potential to AIBG’s market share as a result.


Brexit – any progress?

Conservative ministers will meet their Labour equivalents today to try and break the Brexit impasse. It is understood that the PM has agreed to take up various EU employment and environmental protection laws after the UK leaves but is not committing to remaining in a customs union.


Mrs May is due to have talks with both Angela Merkel and Emmanuel Macron today ahead of the emergency EU Summit tomorrow evening. The UK’s official request at the end of last week was for an extension to membership until 30 June. This is largely thought to be unrealistic, with the EU more likely to make an offer for a longer delay (minimum 1 year) to departure and on the condition that the UK fights the European parliamentary elections in late May and that Britain agrees not to be obstructive within the EU during its prolonged membership. The EU emergency summit is due to kick off late tomorrow evening with rolling announcements due to emanate in/around the 9pm mark. While we are of the view that the EU will grant an extension, we should point out that the UK’s default path (i.e. if nothing happens), is that it leaves without a deal on Friday.    



USTR goes after EU 

While the US/China trade negotiations continue to dominate the newsfeed at present, today it was the turn of the EU to face the wrath of the US Trade Representative office (USTR). The USTR earlier today published a list of EU products which could be subjected to penal tariffs if the EU continues to subsidise the European aviation giant, Airbus. The USTR office has said the subsidies have consistently generated “adverse effects to the United States.” After the WTO reports back with what they feel the value of the countermeasures will be it is thought the USTR will riposte with the implementation of tariffs on some $11bn worth of goods and products in the civil aviation sector.


BRC retail sales 

BRC retail sales were soft in March falling 1.1% (yoy) on a like-for-like basis, representing the largest fall in sales since April 2018. Consensus had been for a more moderate fall of -0.8%. Total sales also fell for the first time since April 2018, recording sales growth of -0.5%. The weakness of the March numbers in part reflects the timing of Easter, which is much later this year than in 2018, but there is also some genuine softness in the numbers with BRC noting the continued uncertainty over Brexit.


Economic releases 

15.00 US JOLTs Job Openings