Another Bleak Result for Allied Irish

Little room for optimism as AIB faces higher losses, impaired loans, and assets sale

Erin Davis | 12-08-10 | E-mail Article

Allied Irish Banks lost EUR 1.766 billion in the first half of 2010, compared to a loss of EUR 1.584 in the trailing half and a loss of EUR 829 million in the year-ago half. We plan to leave Allied Irish unrated for now, as the struggling lender still needs to raise EUR 7.4 billion, which we think will be difficult given the bank's EUR 800 million market capitalization.

Allied Irish's bottom line slid in the first half mainly because net interest income halved as the bank struggled to attract deposits and funding at affordable prices, and because the bank absorbed a EUR 956 million loss on the transfer of assets to NAMA, Ireland's 'bad bank.' We see little reason for cheer in the bank's results. Impaired loans continued to rise, to 15.6% of total loans from 13.5% at the end of 2009. While NAMA will take over many of the bad loans, 25.3% of the non-NAMA loans are currently considered 'criticized' and 8.4% are impaired. Ireland's GNP fell an estimated 17% peak-to-trough, and Dublin faces a 25% commercial vacancy rate, according to bank executives. We think hefty loan losses will eat up slim net interest margins for some time.

Clearly, Allied Irish's capital base is inadequate. The bank is in the process of selling off several key assets, including its bank in Poland and its roughly 25% stake in M&T. Even if it gets a high price for these assets, which we doubt, given the bank's rapidly closing window to do so, we think the Irish bank will need a substantial amount of additional capital. We expect that Allied Irish will get most of it from a highly dilutive government bailout.

 

Erin Davis is a Morningstar equity analyst.  You can contact the author via this feedback form.
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