Irish
Allied Irish Banks announces over 2,000 job cuts after record €10.4bn net loss in 2010
By Finfacts Team
Apr 12, 2011 - 7:36 AM

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Allied Irish Banks announced today that it is cut over 2,000 job after reporting a record €10.4bn net loss on continuing operations in 2010.

On a continuing operations basis, AIB, which is now 92% owned by the Irish State, said the loss after taxation of €10.4bn in 2010, compared with a loss after taxation of €2.3bn in 2009. Operating profit before provisions was €963 million excluding the loss on transfer of assets to NAMA - - the State toxic property loans agency - - or a loss of €5.0bn including the loss on transfer of assets to NAMA, compared to an operating profit before provisions of €2.6bn in 2009.

Provisions for bad debts on loans and receivables were €6.0bn in 2010 and included € 1.5bn related to loans held for sale to NAMA and €4.5bn for non NAMA loans. There were also provisions for liabilities and commitments of €1.0bn in relation to loans at 31 December 2010 which had yet to transfer to NAMA. In total, provisions for credit deterioration coupled with the NAMA impact amounted to €13bn in 2010.

The loan to deposit ratio at 31 December 2010 was 165% compared to 123% at 31 December 2009. Customer accounts decreased by €22bn or 29% during 2010 to €52bn.

The bank said its long term future as a viable bank has been validated by the commitment of state authorities to support the bank. This commitment is being given because it is accepted that AIB is of systemic importance to the domestic economy and Ireland’s future economic success requires a properly functioning banking system. It said the very strong capital base that will result from the generation of €13.3bn of capital will enable AIB to provide long term support to its customers and play an active role in the recovery of the
Irish economy. It is intended to combine AIB and EBS (subject to State aid and regulatory approvals) to form one of two new strong universal pillar banks in Ireland. Business and market conditions remain challenging and the environment for operating income generation remains difficult.

AIB said this requires costs to be lowered. It is expected that a reduction of over 2,000 staff will take place on a phased basis over 2011 and 2012. A core bank, in line with AIB’s new strategic direction will be established with a restructured balance sheet achieved through the disposal and winding down of non-core assets. "This new AIB will form a strong foundation from which a profitable business can be rebuilt. The speed at which AIB recovers and returns to a position of profitability and self capitalisation is heavily influenced by Ireland’s economic prospects," it said.

AIB was formed in 1966, through a merger of the Provincial Bank of Ireland, Royal Bank of Ireland, and Munster & Leinster Bank. The loss in 2009 was the first full-year loss incurred by the bank.

Results detail (pdf)

Goodbody's Eamonn Hughes commented  -- "AIB has reported an FY10 pretax loss of €11.872bn (-€12.071bn on continuing operations) and net loss (after a tax credit) of €10.162bn (-€10.361bn on continuing operations). Net interest income in the period was down 36% to €1.844bn, with the margin down 53bps to 1.31% (-32bps to 1.52% ex the €306m cost of the ELG). Non interest income (ex NAMA markdowns) was down 28% to €946m. Operating costs were up 8% in the year to €1.649bn, though 2% lower ex last year’s retirement benefit gain. The bad debt charge was €13bn in the period (10.6% of period beginning loan book), with a combined €8.5bn of NAMA related provisions (on €18.2bn of transfers) and €4.5bn non-NAMA related losses (as per March 31 release and including 168bps on residential mortgages).

Criticised loans were €29bn at period end (30.2% of the loan book). There are €12.141bn of impaired loans in the non-NAMA book, or 12.9% of loans (up from €9.2bn or 8.4% in H1). On the funding side, the Loan to Deposit ratio (LDR) was 169% at year end (165% ex NAMA loans), from 151% last June. Deposits were already flagged at €52bn and while AIB notes additional outflows in Q111 (some cyclical), bear in mind that the Anglo transaction will have a positive LDR impact.

The absolute level of wholesale funding was up €5bn to €66bn and term funding was 26% of total wholesale funding (or 58% ex repos), from 46% last June. The bank held €46bn of qualifying liquid assets in December, with €36bn pledged (from €24bn pledged in June). AIB notes that rating downgrades in 2011 have had a negative impact on funding value for the group’s bond holdings and internal asset covered securities. At December, the bank had €25.2bn of ECB drawings and was accessing €11.4bn from the domestic central bank, a combined €36.6bn or 25% of the balance sheet, though the Anglo deposits and Polish sale will likely have reduced this since year end.

The Core Tier 1 ratio was 4.0%, from 6.9% in June. The recently announced PCAR tests required AIB to raise an additional €13.3bn of core Tier 1 capital (of which €11.9bn equity). There is no capital update in the release and as previously flagged, the extent of the capital raise and the existing government stake will likely limit private investment interest. “Business and market conditions remain challenging and the environment for operating income generation remains difficult”, with the pace of recovery “heavily influenced by Ireland’s economic prospects”. As such, AIB confirms recent speculation of 2,000 positions to be reduced on a phased basis over 2011 and 2012
(AIB has 14,000 staff in total)."


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