Bank will proceed on capital-raising before EU's verdict

AIB RESULTS:THE NEW managing director at Allied Irish Banks (AIB), Colm Doherty, has said he won't wait for the European Commission to rule on the bank's restructuring plan before selling assets or taking on a strategic investor in the bank to raise fresh capital.

Mr Doherty said AIB planned to boost capital in the first instance by selling its overseas businesses before tapping investors for cash in a rights issue of new shares.

“I know we need capital. We have a number of levers we can pull – we have a number of very valuable assets that people are materially interested in,” he said.

The bank’s share in US bank MT, in Bank Zachodni in Poland and in its UK business have been earmarked for potential sale.

“The jewel in the crown is our Poland business,” he said, adding that there were an “inordinate” number of interested suitors.

Mr Doherty said he didn’t know whether asset sales would raise enough capital, forcing AIB to ask the Government for more cash on top of the €3.5 billion already invested, or whether the State would take a majority stake.

This would depend on the capital thresholds set by the Central Bank and when they must be met, he said. In the meantime, AIB would proceed with its own capital-raising plan.

Mr Doherty said the bank would start by swapping debt shortly in a move he expects to generate a gain of some €300-€350 million.

AIB has held talks with a number of investors interested in taking a “strategic” investment in the bank, he said.

It was “highly likely” that the Government would take a direct stake in AIB after taking a 16 per cent stake in Bank of Ireland in lieu of a coupon payment on the State’s €3.5 billion indirect stake.

The EU’s view on the restructuring plan was “a little bit less relevant”, he said, as AIB had to proceed with its own capital-raising.

“We have to be focused on helping ourselves to raise the capital that we need – everything else, to a degree, is incidental,” he said.

AIB posted a pretax loss of €2.65 billion for 2009 – its first ever annual loss – after taking a bad debt charge of €5.4 billion, including €3.4 billion on €23 billion in loans moving into Nama.

Irish land and development loans account for €3.6 billion of the bad debts. Some €11 billion of total impaired loans of €17 billion – an increase from a total of €3 billion a year earlier – related to loans being transferred to Nama.

Analysts estimate that AIB requires up to €4.4 billion to bolster its capital reserves. “If the number is €4 billion, then we are capable of raising it from private sources,” said Mr Doherty.

He warned that the bank’s variable interest rates would rise in the “next couple of months”. Retail banking was “dysfunctional”, he said, as institutions were “paying more for the money we borrow than we’re charging our clients – that is unsustainable”.

Mr Doherty said the bank had reduced its headcount by 1,600 over 15 months to 23,000, including 10,000 in the Republic.

He would not consider further job cuts until the EU rules on the restructuring plan, he said.

The banks lending to Greek businessman Achilleas Kallakis, who had been charged with defrauding AIB and Bank of Scotland of up to £61 million on commercial property transactions in London, was “a normal arm’s length commercial transaction, said Mr Doherty. He said that he “wasn’t very happy” with the controls exercised by the bank in relation to Mr Kallakis.

AIB: 2009 results

Operating profit(before bad debt charge): €2.96 billion (-7%)

Bad debt charge:€5.4 billion (+200%)

Pretax loss:€2.65 billion (compares with €1 billion profit in 2008)

Adjusted loss per share:344.4 cent (compares with earnings of 67 cent in 2008)

SUMMARY

The country’s largest bank, Allied Irish Banks (AIB), posted its the first loss since the lender was established in 1966 after writing off €5.4 billion, primarily on loans to Irish land speculators and property developers.

The bank said that its various businesses were operating in “tough economic markets, none more so than the Irish market”.

The bank’s Republic of Ireland division was responsible for the bank’s problems.

It lost €3.6 billion, compared with a loss of €47 million in 2008.

AIB’s capital markets unit and the central and eastern European division remained profitable, while the UK division reported a loss of €16 million for the year.