AIB's troubled loans soar to €10.8bn over first half
But shares rise on back of unchanged '09 loss guidance
AIB's outgoing chief executive Eugene Sheehy
THE level of troubled loans at Allied Irish Banks almost quadrupled to €10.8bn over the course of the first six months of the year as the property market went through the biggest downturn in the history of the State.
The bank, which received a €3.5bn capital injection from the State in May, plunged into a pre-tax loss of €872m for the period as it wrote down €2.37bn of bad loans.
However, shares in the group soared 8.4pc as it held onto its loan-loss forecast of €4.3bn for the full year.
Redundant
But outgoing finance director John O'Donnell said that this loss guidance would effectively be redundant as AIB began transferring loans to the National Asset Management Agency. The Government will decide what level of writedowns, or 'haircuts', AIB and other banks must take on their NAMA-bound loans.
When asked if AIB faced the prospect of another government bailout after NAMA, or majority state ownership, outgoing chief executive Eugene Sheehy said: "I don't know. So much depends on the valuation process or the pace of it."
AIB is the largest lender in the country to the deeply troubled sector, with €20.9bn of land and development loans out in Ireland and the UK. It expects to send over about €16bn of these loans (any individual loan over €5m) to NAMA, plus developers' associated loans.
NAMA is set to take over the loans relating to the country's top 50 developers by the end of this year, with the remaining 1,400 borrowers expected to be transferred within the first half of next year.
Mr Sheehy confirmed yesterday that "four or five" of AIB's developer clients have borrowings of more than €500m, though he declined to give a figure for those with over €1bn. Embattled developer Liam Carroll, who is fighting to keep his property empire from collapsing, is known to have in excess of €1bn out from AIB.
NCB analyst Ciaran Callaghan was impressed that AIB's profits before bad loan losses "remained relatively resilient". Operating profit before provisions rose to €1.7bn from €1.2bn for the same period last year. Profits were flattered by AIB's recent move to buy back some of its riskier -- or subordinated -- bonds at a steep discount in the market.
This generated a €1.1bn windfall, some €625m of which was booked as profit, with the remainder going straight into capital reserves.
The group has shaved 20pc off its staff costs over the past 18 months as payroll fell by 1,725 bodies, or 10pc. This excluded the effect of about 300 people hired to fill the branch rollout in its Polish unit.
Mr Sheehy said that the group has also taken about €400m out of its annual cost base as a result of significant investment in its IT systems.
"Although management declined to give any operating profit guidance, it acknowledged that operating profits are running ahead of earlier stress scenario expectations," said analysts at Davy.
Still, the Republic remains the problem teenager for the group. It booked €1.9bn of loan losses in this country in the reporting period -- the equivalent of almost 5pc of its Irish loan book. A quarter of this was for impaired loans outside of property and construction.
Mr Sheehy said that 42pc of the group's €1.1bn loans to the pub sector are now either impaired, vulnerable on 'watch'. Half of its €2bn hotel loans and 43pc of its €350m of advances to the motor industry are in the same boat.
- Joe Brennan
