A Tough Half Year for AIB

“The six months to June 2010 was a very difficult period for AIB and its customers.”  So begins management’s overview of AIB’s interim results for 2010—and it’s hard to disagree.   Bank watchers were looking for news in three main areas: impairments on non-NAMA bound loans, operating profits, and progress on asset disposals.   Today’s release managed to disappoint on all three. 

Provisions for impairment were 2.3 bl. (including 1.2 bl. for loans “identified for potential transfer to NAMA”).   Operating profit before provisions fell 46 percent from the same period last year, with significant falls in the net interest margin.   And Colm Doherty was not especially forthcoming on how well the disposals of Polish, UK and US assets are going, although his presentation to analysts did give the sense that AIB were being forced into a fire sale in poor market conditions—hardly encouraging. 

Other “news” included the (inevitable) plan to follow BOI in raising the rate on variable-rate mortgages by about half a percentage point, and the (sensible) call to extend the guarantee on both shorter- and longer-term liabilities given the continuing difficult funding environment. 

The interim report is available here.   Colm Doherty’s presentation and Q&A is available here. 

21 replies on “A Tough Half Year for AIB”

How are there still shares in these banks being traded on the stock exchange? That is an outright fraud. Every cent in shareholder valuation that the banks have is money taken from the taxpayer. It was bad enough to guarantee their bonds, but underwriting their equity is outrageous.

Horrible set of results and highlights the problems of non nama loans which everyone seems to be forgetting about. The only decent part is M&T and Poland both of which will be sold and the subsequent results will deteriorate even more. Hard to see how they are going to extricate themselves from the downward spiral.


AIb will be a SOE/SSB soon enough. It will then be able to support economic development and social progress. Its new managment and board will consist of representatives of all the appropriate soical partners. At that stage we should be petrified.


The current (& immediate past shower) shower set a tough benchmark to match. However, I feel their “achievement” would be surpassed by their successors in a nationalised entity. Just think what a few local pols, ommunity activists & social partnership luvvies would achieve.

See namawinelake and the perfidious scheme to deprive our glorious NAMA of the temporarily performing UK market…

What is most alarming to me in the results is this bit:
“Operating profit before provisions and NAMA loss was € 976 million, down 42%”
We may have some idea of how much of the profit they were previously earning was spoof…

Some of the spin in the report is spintastic:
“Criticised loans, both stock and increases, remain heavily weighted to AIB Bank RoI”
Eh, that would be RoI that is criticised at 29% as opposed to AIB UK at 32% and UK reclassified at 69%? The truth is that the Irish market has been one of the better performing ones for AIB, and that really isn’t saying much.

So they have 16,880,000,000 in criticised loans of which 5,889,000,000 and they have 2,587,000,000 in provisions? Methinks they will go hungry…

I’d like to see a breakdown in their RoI book of the Staff/others figure – 7% of their mortgage book seems very high. It’s the best part of 2bn euro. I believe they have about 10,000 staff in Ireland? Which would mean each staff member has a debt of €189,700…

I feel a long way from the hills of San Salvador where Paddy Stronge reached out to puff AIB almost two years ago… http://www.independent.ie/business/irish/global-reach-will-help-aib-weather-storm-1462162.html

@tull mcadoo

How fortunate that there is a third alternative to socialist banking and to ruinous public support of a failed private business. The bank resolution law can just be drafted to oblige the government (or whatever quangous entity the law sets up to “resolve” banks) to sell all the shares in the bank on the open market within x weeks of a bank entering resolution. Even if AIB is (disgracefully) not placed into resolution, and instead has its guarantee extended leading to another taxpayer recapitalisation and majority State ownership, why couldn’t or shouldn’t Minister Lenihan simply exercise self-discipline and promptly sell enough AIB shares to bring the government back down to a minority stake? Ideally after first clearing out the board and senior executives, though I know there are genuine problems with restaffing boards just before a prompt resale (and without a nice bankruptcy/resolution to strip away the pensions and other benefits).

@ Tull

“Just think what a few local pols, ommunity activists & social partnership luvvies would achieve.”

Not to defend the current Anglo operation for a second but wouldn’t your theory of nationalised banks have seen a bunch of trade unionists appointed to its board by now?


I don’t think the Anglo analogy is close enough to disprove Tull’s assertion. To begin with, Anglo’s name is poison and the public perceives it as a failed business with massive losses that needs to be wound down, not as a honeypot there to be raided. Also, Anglo’s lack of present involvement in consumer lending, home loans, (IIRC) SME lending and so on means that the psychology is very different. There’s no Liveline factor: “why is Brian Lenihan taking my house away, Joe?” If the government takes over AIB and tries to continue anything like business as usual with it then the pressures for politicised lending will be much stronger than they are in relation to Anglo.

Also, the future will be different. As the credit contraction continues the pressure for the government to make the banks lend will grow stronger. And Labour will be entering government at some point. On the whole I think Tull’s prediction may turn out to be pretty close to the mark.

@ KW

No self respecting SP luvvy will go near Anglo. There is no kudos in that. Board membership is confined to ex pols (Alan Dukes) , those with a future political career behind ( Senator Eames) them and SOE insiders.

AIB will be a much more attractive gig. It IS systemically important, will be handing out money and has a good corporate dining room with some excellent reds. The luvvies will queue up to get that gig.

By the way if you want to see a proper nationalised bank board look at the CB board. Worthies such as Danaher, Begg and Deirdre Purcell are on it. Personally, if we need a novelist on the board, I would have gone for Sheila O’Flanagan. But then she probably knows too much for a non exec.

That will depend on whether Anglo is “the only gig in town”. Besides, the hatchet men get to do their jobs first, just to avoid the sensitive having to be part of any job-cutting board.


any self respecting insider would love to get on the board of An Bord AIB. It will be well renumerated, you get to hand out cash to your buddies 9all in the interest of social cohesion) and the dining will still be above average.

John McManus has a nice piece of analysis in the Irish times: http://www.irishtimes.com/newspaper/finance/2010/0805/1224276242140.html 

The Time’s leader writers also gets in on the nationalisation debate (very much alive in the comments above and on the earlier privatisation thread).   Although they are not ready to support nationalisation yet, the leader argues that a nationalised entity would be under less pressure to raise interest rates and thus profits.   Along similar lines one could argue that with a bigger injection of state capital that the bank would less likely to deleverage — notably by not relending the funds from maturing loans — in order to hit capital adequacy targets.  Even so, I am generally with Tull on the dangers of a politicised banking system.   But it looks likely that the State will become a majority owner.   The pressures for politically oriented banking decisions will grow.    Thought should be given on how to best insulate the majority owned banks from political interference.   One small contribution is to continue to point out the dangers of a politicised banking system.   Bad commercial decisions may have got the banks into the mess.  But the answer is hardly to start making non-commercial decisions.   


@J McHale:
“Bad commercial decisions may have got the banks into the mess. But the answer is hardly to start making non-commercial decisions.”

That’s really a matter of how you classify decisions. I think it equally valid to classify banks’ past decisions as political, driven by two aims: the enrichment of senior bankers (through salaries, bonuses and share options) by enriching their mates (by lending money to developers and so on), and where necessary ensuring that the formal, constitutional system supports what they’re doing. I notice that you want a one-way valve, to “insulate the majority owned banks from political interference”, but less attention seems to have been given to insulating the state from banks’ interference.

Of course it may also depend on how you define “commercial”, but (to put it mildly) it is not clear that the behaviour of senior bankers in recent years has been in the long-term interest of the banks or of their shareholders.


@John Mc Hale -“Even so, I am generally with Tull on the dangers of a politicised banking system. ” – it is worth noting that many of the State owned banks in Germany (Landesbanken) have ended up in terrible trouble. On the other hand there appears to be at least one good example in Gemrany – KfW which has a specific remit to lend for development (you won’t get a car loan from them but they will finance your factory extension or school!).


They can also be used to by the Government to bailout other Countries like Greece!

Didn’t they also once earn the title ‘Germany’s dumbest bank’ for paying Lehman Brothers a few hundred million on the day they filed for bankruptcy!

Good point about the Landesbanken. They are a perfect example on how dangerous it can be to have politically driven banks. Of course on the flip side, people can with some justification point out that the banks didn’t do a very good job when publically owned.

@J McHale

” the leader argues that a nationalised entity would be under less pressure to raise interest rates and thus profits.”

John McManus’ claim that AIB are raising interest rates on standard variable mortgages to boost captial doesn’t really stack up. The increase in profits from higher rates on SVM for the next 4-5 months will be trivial compared with the €7.4 billion the bank needs to raise in new capital. In addition, AIB is doing exactly what Bank of Ireland did a couple of weeks ago in increasing SVM rates. But Bank of Ireland is not trying to raise capital to avoid nationalisation. More likely, both banks are trying to put their mortgage books on a more sustainable footing.

“Along similar lines one could argue that with a bigger injection of state capital that the bank would less likely to deleverage — notably by not relending the funds from maturing loans — in order to hit capital adequacy targets”

I don’t see the logic of this. The target set by the Regulator is €7.4 billion. Importantly, this target is in euros — not a ratio. Of course the €7.4 billion figure was calculated by reference to a 7/8 per cent capital-asset ratio, but AIB must raise €7.4 billion. Deleverging reduces assets and for a given amount of capital increases the capital-asset ratio. But it contributes nothing to the €7.4 billion that the bank has to raise and therefore does not help the bank “to hit capital adequacy targets.”

@Colin Mc

I would agree that the drive to improve profitability through an improved net interest margin is not being done solely to improve capital adequacy. But it is a significant part of the motivation, particularly for AIB. Even if BoI has met its requirements under the PCAR, the FR capital targets are at the low end of what the market is demanding.

On the deleveraging point, I see the real target as being the equity captial ratio. The 7.4 bl. is simply being backed out based on what is needed to meet the target. Karl Whelan had an excellent post on shortly after the targets were announced. See in particular the section on asset disposals.


@ J. McHale

Thought should be given on how to best insulate the majority owned banks from political interference.

Surely the simple and effective way to do this is for the State to sell out of its majority position right quick. It don’t even have to swear off bank guarantees or bailouts to do so.

Of course this is to give up on the wonderful windfall that is surely to be made by holding AIB shares. In fact that is a bargain price to prevent AIB from completing its reverse takeover of the Irish state – and not only because of uncertainty about the size of the windfall. But if we really can’t give up on the promise of AIB riches yet, then it would surely be perfectly possible to bind the State’s hands by putting the shares to be sold into some kind of offshore SPV with an obligation to sell the shares when they hit a certain price or a deadline is reached, whichever comes first.

In any case it may well not arise, as I think the EU will likely force the government to get rid of its majority fairly quickly.

@ Edgar Morgenroth

One could mention the US’ government-supported mortgage lenders as well. But the cajas are probably even uglier than the Landesbanken or the US GSEs. Apparently they’re thoroughly pillarised, and so each one acts as a slush fund and agent of influence for the Spanish left or right.

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