AIB’s Penny Stock Mystery

I know the government are desperately in search for some good news stories. So how about this one: Our stake in AIB is worth €30 billion; we’re saved! On second thoughts, um, er, maybe not. Anyone got an explanation of Felix’s puzzle that goes beyond “well, markets are dumb, particularly illiquid ones”?

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.