Allied Irish Banks (AIB) reported a pretax loss of €872 million today for the first six months of the year as a €2.37 billion charge for impaired loans ate up its bottom line.
The group said it was premature to estimate the impact on its capital base from the establishment of National Asset Management Agency (Nama) but, in some relief to investors, it did not alter its provision charge for this year.
AIB’s pretax loss included a €623 million gain from a bond swap in June. Excluding that boost, the lender would have reported a pretax loss of €1.5 billion, compared with a €1.3 billion profit a year ago.
The bank said it expected bad debts to peak this year after a surge in the first-half, helping boost its shares 7 per cent as investors bet on a new chapter for the beleaguered lender.
One in four of AIB's loans are now either impaired or at risk compared to around one in ten at the end of last year as the country’s spectacular property crash lays bare the lender's exposure to struggling developers.
This morning shares in Allied Irish were up 6.64 per cent at €1.83, outperforming a flat general index
"We do believe that the provision (for bad debts) will peak this year. It's simply a fact of the mathematics. We have gone at it aggressively," chief executive Eugene Sheehy, who will leave the lender once a successor is found, told analysts.
Dealers said investors were betting on the "bad bank" giving AIB the opportunity to put its past behind it.
"Operationally, they have done a good job, they have taken their costs down and their margins are better than we had been expecting. If they hadn't written any bad loans they would have done a pretty good job, performance wise," said one trader.
But that view was not universal.
"Maybe people are looking at it like three out of four borrowers are able to service their debts, like the glass is half full," said Oliver Gilvarry, head of research at Dolmen Stockbrokers in Dublin.
"But I'm not buying it. The results are quite poor and there's no real guidance that it's not going to get any worse."
After swallowing a €2.37 billion bad debt charge in the first half, Allied Irish stuck to its full-year guidance for loan loss provisions of €4.3 billion but admitted that with the Irish economy set to be the worst performer in the west this year, the risks were on the downside.
Allied Irish's finance director John O'Donnell admitted that AIB's full-year guidance would be torn up once the government decided what sort of discount it would demand for relieving banks of their risky property assets via the state-run National Asset Management Agency (Nama).
"If Nama happens it is no longer a relevant number," he said.
Allied Irish Banks will transfer around €16 billion euros of land and development loans and an undisclosed amount of associated loans over to Nama this year and next.
Analysts have said a total of between €20 billion and €25 billion of assets will likely be transferred by AIB and depending on the discount, it may have to seek an injection of state funds, on top of a possible sale of its Polish and US businesses.
Allied said it expected the operating environment this year to remain extremely difficult amid weak demand, increased competition for deposits and higher funding costs.
Allied Irish Banks boosted its capital base by €1.1 billion through a bond swap earlier this year and chief executive Eugene Sheehy, who is set to resign once a successor is appointed, has said he is confident they will raise a further €400 million without having to sell any overseas businesses.