AIB shares fall sharply as losses soar to over €2 billion

Shares in AIB fell sharply on the Dublin market today as the bank reported increased losses in the first half of the year, with bad debts increasing over the period.

The bank's stock fell as much as 13 per cent in early trade before regaining some ground to trade 5.6 per cent down at 93 cent by 5pm.

The bank recorded a pre-tax loss of just over €2 billion for first half of the year, with its Irish operations posting a €2.3 billion loss before provisions.

It warned it would need continued Government support and called for an extension to the State bank guarantee scheme which is due to expire in December.

AIB's managing director Colm Doherty said this morning the bank was losing money on mortgages and would have to "reluctantly" raise interest rates. "I think reluctantly we're going to have to follow all of the other banks in raising mortgage rates," he told  RTÉ's Morning Ireland.

In a statement this morning, AIB said operating profit before provisions and losses incurred from transferring loans to the National Asset Management Agency (Nama) was €976 million, down 42 per cent. This reduced the operating profit to €13 million for the six-month period.

"The profit for the six months included a gain of € 372 million from the capital exchange offering completed in March 2010," the bank said.

"Provisions for impairment of loans and receivables were € 2.3 billion and included € 1.2 billion related to loans that have been identified for potential transfer to Nama."

Speaking on RTÉ's Morning Ireland today, AIB's managing director Colm Doherty said the bank was losing money on mortgages and would have to "reluctantly" raise interest rates.  "I think reluctantly we're going to have to follow all of the other banks in raising mortgage rates," he said.

The bank incurred a loss of €963 million on the transfer of the first tranche of loans to Nama. This compares with an operating profit before provisions of € 1.7 billion in the same period in 2009.

"The six months to  June 30th, 2010 was a very difficult period for AIB and our customers. A significant level of credit losses was experienced in the period in addition to the loss on transfer of the first tranche of loans to the National Asset Management Agency," the bank said in a statement.

Impaired loans amounted to 15.6 per cent of total loans.

The bank must raise €7.4 billion by the end of the year to meet new capital standards laid down by the Financial Regulator. AIB is disposing of stakes in M&T Bank in the US and Bank Zachodni WBK SA in Poland as part of its plan to raise the capital.

This morning, it said plans for the sale of assets outside Ireland are at "an advanced stage". Mr Doherty said today he expects the bank to sell its Polish and UK units by the end of September.

In the UK, AIB's units incurred a £55 million (€66.4 million) loss in the first six months of 2010. Its Polish unit posted a profit of Pln560 million (€125 million).

AIB said its pension deficit increased to €943 million at the end of June. This compares with €714 million on December 31st and €1.26 billion in June 2009.

Bank of Ireland yesterday announced that its standard variable mortgage rate will jump to 3.49 per cent next week. Permanent TSB last week that its standard variable customers would be hit with a 0.5 per cent increase.