Wednesday 21 February 2018

Bank chief 'sorry' as AIB writes off €2.9bn

Sheehy regrets lending huge amounts before bubble burst

Joe Brennan and Fionnan Sheahan

THE country's biggest bank is facing its first loss-making year as it prepares to write off up to €2.9bn in bad loans.

And yesterday Allied Irish Bank chief executive Eugene Sheehy expressed his "regret" at lending massive amounts of money to developers -- who account for the vast majority of the bank's toxic debt -- in the final months of the property bubble.

However, despite the bank's share price being almost wiped out over the past year, Mr Sheehy said he had no intention of quitting his €700,000-a-year post.

The Government is preparing to invest €3.5bn in AIB as part of the recapitalisation scheme.

Yesterday it was confirmed the bank managed to post a pre-tax profit of €1bn last year, even after a loan-loss charge of €1.85bn.

However, the group is on course to record its first annual loss this year since its formation in 1966.

The bank is working on the assumption it will have to write off between €2.5bn and €2.9bn in toxic debts this year.

But it admitted that, in a worst-case scenario, it could post €8.5bn of loan losses over three years. Its group finance director, John O'Donnell, said: "Virtually all construction activity has now ceased. We do not expect the (property) market to recover until 2011."

Meanwhile, the Irish Independent has learned that the Government is planning to change the name of disgraced lender Anglo Irish Bank to prevent it being mistaken for AIB.

The two banks share the same initials and AIB has been working hard to correct misleading headlines that mistake it for Anglo.

The raid by the Garda Fraud Squad of Anglo's headquarters last week resulted in international reports that "AIB" had been raided.

AIB had to move swiftly to correct mistakes by media organisations, including Sky News, the 'Financial Times' and the 'Daily Telegraph'.

Shares in AIB rallied by 13.8pc yesterday as investors concluded the bank may finally be coming up to speed with the extent of its toxic assets.

"We're starting to get (bad debt) numbers that the market is viewing as meaningful," Scott Rankin, an analyst with stockbrokers Davy, said.

Yesterday it emerged that between 30 and 40 clients account for half of the bank's €10.8bn of residential development loans -- meaning they owe an average of up to €180m each.

AIB chief executive Eugene Sheehy confirmed that four or five developer clients owe the bank more than €500m each.

However, the 54-year-old executive said he had no intention of following in the footsteps of executives at other banks by standing down.

Helm

Mr Sheehy, who had a total pay package of €2.1m in 2007, said he expected to remain at the helm for another five years until his retirement. "I see myself as being an experienced banker who wants to work through this cycle," he said.

However, analysts were impressed last night at the way AIB was able to hike its operating profits, before bad debt charges, by 18pc to €2.7bn last year. This was largely as a result of a clampdown on costs.

AIB is Ireland's biggest private sector employer with about 13,500 staff. Its payroll fell last year as 457 employees who left were not replaced. Also, 250 outside contractors were let go. Overall costs dropped 5pc to €2.3bn.

"The banks that'll come through (the other side of the downturn) will be ones with profit engines," said Mr Sheehy, adding that the group's spread across 13 markets will also help.

AIB Bank Republic of Ireland, the group's biggest division by far, recorded its worst-ever pre-tax loss, of €52m, last year -- dragged down by bad loan charges.

However, the banking giant was saved by strong earnings across its capital markets, UK and Polish divisions, and a solid contribution from M&T in the United States.

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