AIB  - - Allied Irish Banks - - today reported a loss before tax of €2.0bn in the first half of 2010. Income fell 24% with operating income at €2.0bn before NAMA losses, down from €2.8bn in 2009.

The bank said the six months to 30 June 2010 was a very difficult period for AIB and our customers. A significant level of credit losses was experienced in the period in addition to the loss on transfer of the first tranche of loans to the National Asset Management Agency (NAMA).

The operating profit before provisions was €976m excluding the loss on transfer of loans to NAMA, or €13m after the loss, compared to an operating profit before provisions of €1.7bn in the comparative period to 30 June 2009.The profit for the six months included a gain of €372m from the capital exchange offering completed in March 2010. Provisions for impairment of loans and receivables were €2.3bn and included €1.2bn related to loans that have been identified for potential transfer to NAMA.

Customer deposits as a percentage of funding was 53% of balance sheet requirements compared to 51% at 31 December 2009.The loan/deposit ratio at 30 June 2010 was 143% (127% excluding loans held for sale to NAMA) compared to 146% at 31 December 2009.

At 30 June 2010, AIB’s equity core tier 1 ratio was 3.8%, core tier 1 ratio was 6.9% and total capital ratio was 9.0%.

The cumulative non NAMA credit charge is expected to be c. € 2.9bn for the three years 2010 to 2012.

- Loan deposit ratio, following business disposals and transfer of loans to NAMA, target of below 120% at 31 December 2013.

- Equity capital is expected to trough at c. 8% following the implementation of the Capital Plan and rise thereafter.

Results detail

AIB Group (Add, Closing Price €0.99): H110 First Glance - Results in line at headline level; Goodbody's Eamonn Hughes commented - - "AIB has reported a H110 pre-tax loss of €2.027bn, which compares to our -€1.6bn forecast. However, as we flagged in our preview note, the timing of impairment recognition on NAMA losses was a massive swing factor. The base impairment charge on non-NAMA loans was €1.1bn in the period (in line), though adding €963m for the first NAMA tranche (which is reported as an income charge by AIB) adds a further €1.2bn for NAMA provisions in H1 and brings this figure up to a gross €3.3bn (we had pencilled in €2.7bn). More importantly, pre provision profit (including associates) was €1.251bn, including liability gains of €0.37bn, whilst backing out goodwill write-backs of €185m brings the figure right back into line with our €1.055bn estimate, so a reasonable performance (better on net interest income, behind on non-interest income and broadly in line in costs).

On the balance sheet, the Core Tier 1 ratio was 6.9% at the end of June, from 7.9% in December 2009. The Core Equity ratio finished at 3.8%, which compares to 5.0% in December. On the funding side, the Loan to Deposit ratio was 143% at the end of June from 146% in December and 156% in June 09. Ex NAMA, the pro-forma figure is 127% from 123% last December, though AIB has transferred €3.3bn of NAMA eligible loans back into the UK business ahead of its disposal. Customer resources nudged up from 51% of total funding in December to 53% in June. The absolute level of wholesale funding was down €3bn to €61bn, from €64bn in December and €69bn in June 2009. Term funding was 46% of total wholesale funding, up from 30% last December, so moving in the right direction. The bank held €49bn of qualifying liquid assets in June, from €48bn in December (approx €25bn pledged).

In terms of the outlook, there is no explicit profit guidance for H210, however, AIB outlines some key metrics for the medium term, which would be directionally in line with our own estimates. The net interest margin is targeted at 1.80% by 2013 (troughing in 2011), a c.50% cost/income ratio by 2013, a cumulative credit charge ex NAMA of €2.9bn over 2010-12, a Loan to Deposit ratio sub-120% by 2013 and equity capital to trough at 8% following its capital plan (includes the capital buffer). There is no specific update on the Capital Plan in the statement (there may be more detail at the 8am presentation), other than to state that "AIB is actively addressing" its capital requirement, whilst in the notes to the accounts it classifies AIB UK, BZWBK (Poland) and M&T (US) as discontinued operations, 'with plans for their sale at an advanced stage.' Finally, in relation to the EU, AIB expects 'based on the current state of its negotiations, that the European Commission will not have any major objections' to its restructuring plan, all of which are helpful."