Profits at Anglo Irish Bank break billion euro barrier

Anglo Irish Bank's share price rose 10.4 per cent yesterday to €11.02 after the bank reported a 46 per cent increase in pretax profits to €1.243 billion for the year to September 30th, breaking the billion euro mark for the first time. Simon Carswell, Finance Correspondent, reports.

The strong results appeared to reassure investors, who had grown concerned about the impact of the credit crunch and the property slowdown on the Irish bank profits. David Drumm, chief executive of Anglo Irish Bank, acknowledged "the banking market has taken a hit in terms of sentiment". "Our stellar results are not going to fix the market, but it might silence a few people," he said.

The results were driven by strong growth in business lending. Net lending to customers rose 37 per cent to €67.1 billion, while the bank has works in progress worth €9.8 billion.

Loan growth in the US, which the bank sees as a key growth area, was particularly strong, rising 94 per cent to €7.6 billion.

Loans in Ireland rose 33 per cent to €37.8 million and in Britain by 30 per cent to €21.7 billion.

Underlying earnings per share growth rose 41 per cent to 131.7 cent, ahead of forecasts of 129.5 cent. The bank expects underlying earnings growth of over 15 per cent in 2008.

Mr Drumm estimated that lending growth would slow next year to a lower rate of 15-20 per cent. He said there was still "a decent amount of activity" among the bank's clients, but that it would be a more moderate growth rate than previous years.

"Activity levels are down across all markets. Why? Because there is a level of caution out there associated with the credit crunch. In the UK context, it has probably been placed a little bit unfairly at the door of commercial property when it is really about funding," said Mr Drumm.

The bank said it was well capitalised with 63 per cent of funding coming from customer deposits, which had grow by 46 per cent to €25.5 billion during the year. The bank said it was attracting €700 million a month in new deposits, compared to €500 million six months ago.

He said the bank was "erring on the prudent side" by writing down half the value (€67 million) of its investments in structured investment vehicles - entities that borrow in the short-term debt markets to invest in higher-yielding assets - as a result of the credit crunch.

He called on Minister for Finance Brian Cowen to provide certainty on stamp duty in the Budget as there had been "terrible confusion in the past".

He said most business people wanted the Government to control public expenditure and to "write the cheques on capital expenditure".

The bank said its lending had been prudent and that bad loans of €335 million totalled just 0.5 per cent of total loans in 2007.

Mr Drumm said the bank's lending margin of 2 per cent left "very little room for error", but the loan book was reviewed twice a year and that loans were provided only when every customer had been well vetted.

He said the bank ensured there was a strong cash flow proving a customer's clear ability to repay and then that there was sufficient collateral in the event of a default.