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News : Irish Economy Last Updated: Nov 19, 2010 - 3:34:59 PM


Allied Irish Banks says operating profits down; Outflow of €13bn of deposits from the beginning of 2010
By Finfacts Team
Nov 19, 2010 - 3:04:16 PM

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Allied Irish Banks (AIB) said today that challenging economic and market conditions are reducing operating profits overall, and in each of the divisions, relative to the same period in 2009. There has been an outflow of €13bn worth of  of deposits in 2010.

AIB said in an interim management statement, customer accounts remain the largest source of funding and comprise 50% of overall funding at the end of September. Excluding Poland, the loan to deposit ratio at 30th September was 159% compared to 151% at 30th June.

The bank said customer accounts have been affected by current adverse international sentiment towards the Irish sovereign and banking sector and are down by c.€13bn from the beginning of 2010 to the close of business on 16 November. This reduction was primarily due to lower institutional and corporate balances.

Operating income has declined year on year to 30th September 2010, mainly due to lower business volumes, an increase in Government guarantee costs of c.€190m and a lower net interest margin. The bank said factors reducing its net interest margin this year include lower capital income, lower treasury income, lower income on loans pending transfer to NAMA and higher wholesale funding costs. AIB said it is continuing to improve margins across non-NAMA loan portfolios and deposit margins, particularly in the Irish market, have stabilised in recent months.

The domestic mortgage book arrears continued to increase in the three months to the end of September. However, the rate of increase was lower than in the previous quarter. Owner occupier mortgages (c.65% of the total mortgage book) in arrears for over 90 days, including impaired loans, accounted for c.2.6% by value of owner occupier mortgages. This compared with c.2.1% at the end of June. The overall market figure for the same arrears published by the Central Bank of Ireland was c.6.6% at the end of September. AIB said the future trajectory of arrears will be strongly influenced by the rate of unemployment in Ireland.

The losses that AIB is incurring continue to reduce capital. The Central Bank's requirement for AIB to raise €10.4bn capital will significantly improve the capital position and ratios.

The bank says significant components of this capital raising have already been achieved, including the sale of US bank M&T and the agreed sale of Polish interests which is subject to shareholder and regulatory approval. These sales generate a combined total of c.€3.4bn of equivalent equity capital.

The bank noted the decision tohalt the current sales process of AIB Group (UK) p.l.c. AIB intends to increase the size of its planned capital raising from €5.4bn to €6.6bn. AIB said the capital raising will be structured as an open offer and  placing at a fixed price of €0.50 per new ordinary share with existing qualifying shareholders invited to subscribe for all or part of their pro rata entitlements. New institutional shareholders may also be permitted to subscribe for new shares under the offer. The National Pensions Reserve Fund Commission has agreed to underwrite the total transaction size of €6.6bn.

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