Profits fall, bad debts soar at Allied Irish Banks

Ireland's largest bank, Allied Irish Banks PLC, reported a 57 percent fall in its net 2008 profits as its written-off debts soared amid crumbling property markets in Ireland and neighboring Britain.

Allied Irish _ which has subsidiaries or stakes in banks in 12 other countries, chiefly the United Kingdom, United States and Poland _ said its 2008 net profit fell to euro885 million ($1.1 billion) from euro2.07 billion in 2007.

The Dublin-based bank said euro15.5 billion of its loans, or 11.7 percent of its total book, faced a risk of future payment failures _ 80 percent of that within Ireland. This represents a dramatic deterioration from 2007, when the bank puts its exposure to "criticized loans" at euro6.8 billion, or 5.3 percent.

Allied Irish shares rose 19.5 percent to close at euro0.46 ($0.58), bucking broadly negative trade on the Irish Stock Exchange _ but still barely one-third of their price last month before the government unveiled a deal to invest euro3.5 billion in the bank. Analysts said Monday's rise reflected investors' lessening fears that the government would have to increase the size of its aid.

AIB shareholders still must approve that bailout _ which would give taxpayers a 25 percent stake and require the bank to pay a euro280 million annual dividend to the government _ in an extraordinary general meeting expected later this month.

Chief Executive Eugene Sheehy said he regretted some of the bank's loans, particularly as the decade-long Celtic Tiger boom ground to a halt two years ago and nose-dived into recession in 2008, trapping indebted property developers with unsold apartments and unrented office blocks.

"It's a question of timing," he said in a telephone interview. "The building cycle went on for a long time, and the bad loans you make are the ones at the very end of the cycle. I regret the ones at the end. We made plenty of good loans at the start."

But he said Allied Irish would prove resilient, and well able to absorb rising write-offs from bad loans, because of its leading retail position in Ireland and diverse banking interests overseas.

Sheehy said Allied Irish shares have plummeted more than 90 percent over the past year "because nobody can really call how deep or long this cycle is going to be." AIB shares hit a record high of euro23.95 in February 2007.

Written-off loans in 2008 soared to euro1.82 billion, representing 1.37 percent of the loan book. In 2007 those figures were euro106 million and 0.09 percent.

Home owners failing to make their mortgage payments fueled sharp rises in both the Republic of Ireland and the United Kingdom, where Allied Irish's British subsidiary is an important market player, particularly in Northern Ireland.

Bad loans in the Republic of Ireland, chiefly from mortgages, reached nearly euro1.3 billion in 2008, representing 1.74 percent of loans, compared to euro104 million and 0.16 percent in 2007.

The bank's British unit identified euro257 million in bad loans in 2008, 1.1 percent of total loans. The 2007 figures were euro18 million and 0.08 percent.

Even in Poland, where Allied Irish has a 70.5 percent stake in an expanding Bank Zachodni WBK, the rate of defaulters jumped _ chiefly in personal loans _ from virtually nothing in 2007 to 1.16 percent of the loan book, or euro98 million, in 2008.

And in the United States, Allied Irish's 24.2 percent stake in M&T Bank Corp. of New York produced a 17 percent decline in its share of net profits to $138 million (euro94 million). Allied Irish cited M&T's shareholdings in bailed-out mortgage giants Freddie Mac and Fannie Mae as the key U.S. negatives.