AIB to unveil extent of pretax losses

AIB’s PRETAX losses could be as high as €3 billion when the bank releases its interim results this week – a key week for the European banking sector as a range of banks provide updates on impairment charges, capital strength and cost reduction programmes.

The extent of the decline in the bank’s pre-provision operating profits and its update on impairments to development loans that have not been transferred to the National Asset Management Agency (Nama) are set to be under the spotlight on Wednesday.

Analysts will also be waiting to see if managing director Colm Doherty gives any indication on future job cuts at the bank and if any progress has been made in the sale of Bank Zachodni WBK in Poland and the bank’s stake in US-bank MT. AIB has so far declined to comment on its efforts to offload the two assets.

The sale of the assets is a key component of the bank’s commitment to raise €7.4 billion to satisfy capital requirements introduced by the Financial Regulator earlier this year. The process is also expected to include the disposal of AIB’s UK operation, however analysts expect it will be more difficult to find a buyer for this business.

The pretax losses at AIB – estimated to reach €3 billion, according to a forecast by banking analysts at NCB Stockbrokers – will be the highest in the bank’s history and double the loss recorded in the same period last year.

The estimate is based on AIB announcing total impairment charges of €4.2 billion, with €1.2 billion of this relating to non-Nama loans, NCB suggests. Non-Nama loans are development loans with an individual value of less than €5 million.

Davy Research analyst Stephen Lyons expects AIB’s pre-provision operating profits to be about €700 million, down from €1.2 billion in the first half of 2009, while NCB expects a slightly lower decline to €750 million.

AIB indicated in May that its pre-provision profits and net interest margins were under pressure as a result of factors including competition on deposits, elevated funding costs, reduced income on Nama loans and Nama administration costs.

The bank reporting season begins in earnest across Europe this week, with earnings updates expected from Spanish banking giant Santander and British bank HSBC tomorrow, from Britain’s Lloyds Banking Group on Wednesday and from Royal Bank of Scotland (RBS) – the owner of Ulster Bank – on Friday.

The sector will go into its interim reporting phase on a broadly positive note after being given the all-clear from European stress test results.

Recent trading updates from US banks exhibited a trend for lower bad debts, but higher trading losses as a result of stock market declines.