Source: online.wsj.com
DUBLIN (Dow Jones)–Allied Irish Banks PLC (AIB) Wednesday reported a deeper first-half net loss due to provisions for bad debts related to unpaid property loans after the collapse in Ireland’s construction sector.
“Business and market conditions remain challenging,” AIB said in a statement. It expects a cumulative non-National Asset Management Agency credit charge of EUR2.9 billion for the three years from 2010 to 2012.
AIB posted a net loss of EUR1.73 billion, deeper than the EUR786 million loss for the same period in the year earlier
At 0740 GMT, AIB stock was down 8.9% at EUR0.90 in Dublin in a flat overall market as the bank says the environment for operating income generation remains difficult. The stock is down from EUR19.04 three years ago. There was no interim dividend.
The government’s stake in AIB recently reached 18.6% and the bank’s core Irish business continues to face challenges from weak consumer demand and higher costs of funding, as the bank fights for its survival as an independent entity.
For the six months to June 30, AIB posted a net loss of EUR1.73 billion, deeper than the EUR786 million loss for the same period in the year earlier.
First-half basic loss per share deepened to 163.7 cents versus a loss of 43.2 cents a year earlier. The adjusted loss per share deepened 19% to 195.3 cents versus 164.4 cents a year earlier.
Total operating income fell 24% to EUR2 billion, excluding EUR963 million in NAMA losses, from EUR2.78 billion a year ago and the bank posted a pretax loss of EUR1.06 billion, excluding NAMA losses, versus a loss of EUR872 million a year earlier.
AIB received a EUR3.5 billion government recapitalization to help offset its bad debts in return for 25% voting rights. Unless the bank pays the coupons on the preference shares, the state can ultimately convert its investment into a 25% stake in the bank. It must also raise EUR7.4 billion by year-end to meet its capital requirements.
AIB’s 22% stake in M&T Bank Corp., the U.S. business, is up for sale as is its 70% stake in Poland’s Bank Zachodni. The bank said plans for their disposal are at an “advanced stage.”
Alan Kelly, AIB’s general manager of corporate services, told Dow Jones Newswires, “The disposal process is ongoing and proceeding inline with our expectations and we would expect to have something more to say in September.” In relation to the sale of the Polish operations, he added, “We are in confidential discussions.”
“The Irish state has underwritten the EUR7.4 billion, and we’re working hard in terms of disposals,” he said. “The government will make up the difference in the event that we don’t raise the full EUR7.4 billion ourselves. We want to ensure that the burden on the Irish taxpayer is kept to a minimum.”
“In the fourth quarter of this year when agreements are in place, we intend to go to the equity market to raise the balance from shareholders,” Kelly added.
Last month, AIB exceeded the threshold of 6% Tier 1 capital adequacy ratio agreed exclusively for the purpose of the industry’s EU-wide stress testing exercise.
AIB recently made its second transfer to the National Asset Management Agency of EUR2.7 billion, which isn’t accounted for in these interim results, bringing its total to date to EUR6 billion–at an average discount of 45%–of an eligible EUR23 billion in loans to be transferred.
“It’s impossible for us to estimate the rest [of the discount] until the valuations are complete,” Kelly said. “There will be variability in tranches. But we expect to complete the transfers by early next year.”
Criticized loans were 33.3% of total loans, while impaired loans were 15.6% of total loans, AIB added. At June 30, 2010 AIB’s core Tier 1 ratio was 6.9% and the total capital ratio was 9.0%.
AIB targets a net interest margin of 1.80% by 2013 and a cost/income ratio of around 50% by 2013 versus 62.7% currently.
Kelly said the property market in Ireland “is still very difficult. You’re not going to see any real or meaningful recovery until 2011/2012.” However, he sees growth returning to the Irish economy next year.
