Friday 18 October 2019

AIB seeking to 'write off' €3.5bn of bailout loans

AIB chief executive David Duffy
AIB chief executive David Duffy
AIB Mortgage Bank is seeking judgment of €778,942 while AIB Plc is seeking €4.754m
Donal O'Donovan

Donal O'Donovan

ALLIED Irish Banks (AIB) is in talks with the Government that could see a €3.5bn portion of the bank's bailout loans effectively written off this year.

Chief executive David Duffy said the state-owned bank has begun discussions with the Department of Finance that could see €3.5bn of so-called preference shares, a type of debt the bank owes taxpayers, swapped for shares in AIB.

The bank will return to profit in 2014, he said.

With the Government already owning more than 99pc of the bank, the debt for equity swap wouldn't significantly change the shareholding.

However, management at the bank said that a potential conversion of preference shares into true equity is considered a step towards simplifying the bank's balance sheet ahead of potentially bringing in outside investment.

It would also boost the State- owned lender's financial position in advance of tighter banking rules, dubbed Basel III, that come into force towards the end of the decade.

In better news for taxpayers, he said the bank could be in a position to repay a share of a separate €1.6bn slice of its government bailout by the end of the year.

If AIB passes so-called European stress tests it could look to tap private investors for fresh loans and use the proceeds to repay some of the €1.6bn of contingent capital-convertible debt it owes the State.

It would be the first repayment of any of the €21bn in bailout capital received by the bank.

The bank is on target to be "investable" in early 2015, Mr Duffy said.

In financial results published yesterday, AIB said losses more than halved in 2013.

Excluding losses on boom-era assets, the bank returned to an operating profit, it said.

Stripping out a €1.9bn provision for loan losses, the bank made an operating profit of €445m in 2013.

Impairments were down 25pc compared to the previous year.

"We remain focused on sustainable growth and returning to profitability during 2014," said Mr Duffy.

He is increasingly optimistic about both prospects for the bank and for the economy, he said.

However, the results show that AIB's crucial net interest margin – a measure of how much it makes from lending – remains well behind rivals Bank of Ireland and Ulster Bank, at 1.37pc.

Unlike its two main rivals, mortgage arrears levels also continue to increase, the bank said, but at a slower pace.

AIB is meeting Central Bank targets to restructure loans in arrears and is on course to have cured two-thirds of problem home loans by the end of this year, Mr Duffy said.

The share of owner-occupiers in arrears for more than 90 days was 11.1 pc at the end of December, and almost one-in-four buy-to-let mortgages are three months or more behind on repayments.

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