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AIB warns of rate hike as it posts record losses

BAILED-OUT bank AIB reported the largest first half pre-tax losses in its history and warned of a hike in mortgage rates along with massive job cuts.

The group was hit with pre-tax losses of just over €2bn for the first six months of the year, which was double the losses recorded for the same period last year.

Although the losses were expected, managing director Colm Doherty confirmed that the bank would now consider increasing interest rates for its mortgage customers.

"I think reluctantly we are going to have to follow other institutions," Mr Doherty said. "In order to ensure that we continue to be active in the mortgage market, we will have to put prices of mortgages on a sustainable basis and follow our competitors."

AIB, which is 18.6pc owned by the taxpayer, confirmed that the six months to June 30, 2010 was a very difficult period for the bank and its customers.

The institution needs to raise €7.4bn to meet new capital reserve rules put in place by the Financial Regulator.

The managing director reiterated that the bank would have to take into consideration cutting back employee numbers.

"AIB will inevitably be a smaller bank," he confirmed. "We are carrying out an internal and external review of the bank and the cost and structure of the bank will be to the forefront of this. We are developing a plan in terms of reorganising the institution.

"I have said before that the institution will be smaller and we can expect job losses."

However, Mr Doherty refused to be drawn on how many employees might face the axe.

And he would not disclose how the bank is progressing with plans to sell off its British, Polish or US subsidiaries.

Mr Doherty said that negotiations regarding raising the required capital were progressing well.

"We are very focused on raising €7.4bn in a series of asset disposals," he said, but added that higher borrowing costs remain an issue.