Nationalised bank AIB is now making a 'real' profit
AIB has made a profit for the first time since the bank was nationalised.
The head of AIB yesterday confirmed that for the first time since the bank was taken into state hands, it made a profit between the start of January and the end of March.
And the bank is now on course to generate cash for taxpayers following years of losses.
The bank returned to profitability thanks to lower costs and fewer losses on boom-era loans.
The amount of profit will not be announced until half-year results are published in late summer, but chief executive David Duffy said the profit was real and significant.
"It is substantial, real, and will continue throughout the year," he told the Irish Independent yesterday. "There is no trickery in this, no accounting, the bank is capital generative."
AIB follows Bank of Ireland and Ulster Bank in returning to profitability.
At €21bn, its bailout by taxpayers was second only to Anglo Irish Bank and by far the largest of the remaining banks.
Mr Duffy credited AIB staff for the news, which provides a welcome morale boost to employees who have gone through years of financial losses, job cuts and restructuring since the crash, he said.
Returning to profit is a prerequisite for achieving the bank's ultimate goal of repaying capital to the State and taxpayers, he said.
Most analysts had expected the bank to return to profit in 2014, but not until later in the year.
"AIB had said they hoped to be back in profitability at some stage during 2014, but most people had assumed that would be in the later half of the year, and now they are saying they achieved that in Q1," said Ciaran Callaghan, an analyst at Merrion Stockbrokers.
"I think it represents an important milestone in the bank's recovery."
The latest figures were boosted by a "significant reduction in impairment charges", the bank said.
AIB has already said that talks have begin with the Government about "simplification" of its now multi-layered capital structure – the mix of debt and investment used to fund the bank.
Yesterday Mr Duffy said the conclusion of the negotiations was likely to have to wait until after European stress tests of all lenders due later this year.
One likely outcome of the talks would be the conversion by the State of a €3.5bn loan to AIB in the form of prefer- ence shares into equity in the bank.
The discussions with the Department of Finance about the simplification of the capital structure have commenced.
These include the possible conversion of some or all of the €3.5bn of preference shares into equity and options with respect to the €1.6bn July 2016 contingent convertible notes.
As part of these discussions, the bank is considering how to repay capital to the Irish Government.
It will also consider a share-capital reduction to create further distributable reserves.