Fraud triggers 47% collapse in AIB profits

The massive fraud at AIB's US subsidiary has triggered a 47 per cent drop in profits at the State's biggest bank to €612 million in 2001.

The bank should have reported a 10 per cent increase in profits to €1.4 billion last year but was forced to give up almost half of its profits to cover losses incurred by one of the foreign exchange dealers at Allfirst over a five-year period.

The bank has reduced the total cost of the fraud from its initial estimate of $750 million to $691 million following further investigation.

The bank has decided to take this loss as a once-off charge against last year's profits and is predicting a return to profit growth of around 10 per cent this year on the figures it had expected to produce this year.

Its pre-tax profits were boosted by its adoption of a new accountancy rule on pensions, which allowed the bank to add €39 million to its final results. The bank also made a €93 million profit on the sale of its interests in Singapore last year.

The directors have sanctioned a 13 per cent increase in the dividend paid to shareholders to 43.8 cents per share on the back of this performance.

The results were broadly in line with market expectations and had little impact on its shares. By close of business, AIB was trading two cents lower at €11.95.

AIB group chief executive, Mr Michael Buckley, said the bank is very focused on minimising any disruption to the bank's business going forward. "It was an excellent performance in a tough and volatile year. We see the fraud apart from the damage done to shareholders as it has also robbed our 31,000 employees of the satisfaction of having generated €1.4 billion in profits" he said yesterday. In Ireland, the bank continued to make strong progress with profits up 9 per cent to €562 million in 2001. The bank has been very aggressive in winning market share in the mortgage market and has also capitalised on the Government-backed Special Savings Incentive Account scheme, claiming to have the won most of that business since it was launched last April.

Costs were higher, up 8 per cent over the 12 months, some of which was due to the cost of the changeover to the euro as well as pay increases to staff.

The bank's capital markets unit, which includes corporate banking and treasury and Goodbody Stockbrokers, enjoyed a good year, reporting a 22 per cent increase in profits to €194 million.

The division benefited from strong growth in loans to large companies and high levels of activity at its international and stockbroking businesses.

The US division, which includes Allfirst and Allied Irish America, suffered a €434 million loss due to the impact of the fraud.

Before this was uncovered Allfirst had been on track to deliver profit growth for the first time in three years.

In Poland, profits at the merged BZ WBK bank fell 16 per cent to €36 million. During the year the bank incurred €38 million in costs associated with merging WBK and Bank Zachodni and also saw income reduced by sharp falls in interest rates in Poland.Mr Buckley said it would continue to build that bank, the fifth largest in Poland, and that it was on target to remove $50 million in costs by 2003.

AIB's business in Britain and Northern Ireland performed well, with profits up 8 per cent to €223 million. The division enjoyed continued growth in its lending and deposit businesses and is keen to expand into the not-for-profit sector.

AIB has made a €50 million additional provision for bad debts in relation to its loan portfolio across the group to guard against any marked deterioration in economic conditions. Mr Buckley said it believed this was prudent and left the bank well positioned to cope with any significant downturn.