Another AIB Profit Warning

[code]Wire: RNS Newswire (RNS) Date: 2009-05-11 16:20:59
Allied Irish Banks ALBK Interim Management Statement

Allied Irish Banks ALBK Interim Management Statement

RNS Number : 0633S
Allied Irish Banks PLC
11 May 2009

For Immediate Release 11th May 2009

                       Allied Irish Banks, p.l.c.

                      INTERIM MANAGEMENT STATEMENT

In advance of its Annual General Meeting on 13^th May, Allied Irish Banks,
p.l.c. (“AIB”) [NYSE:AIB] is issuing the following update on business and
key performance trends. Please note that all trends in the update are in
constant currency terms.

The economic environment prevailing at the time of our 2008 results
announcement has continued to deteriorate in the intervening period. Key
features of our overall performance in the year to date are:

 * A resilient operating profit before bad debt provisions

 * Increased provisions as asset quality continues to weaken

 * Continued focus  on  funding  our  business  in  markets  that  remain 
   dislocated

In the US, M&T continues to outperform its peers and achieved net income
of $64m in the first quarter of 2009 despite increasing its impairment and
provision charges.

OPERATING PROFIT

Profit before bad debt provisions has been good in the year to date and up
on the corresponding period in 2008. However, this outcome benefited from
base period effects, most notably higher costs in the early part of
2008. The outcome reflects the very strong performance of Capital Markets
and Global Treasury in particular, driven by interest rate management
activities. This performance is continuing and will be a positive factor
for the full year. Performance in our other operating divisions is in line
with our expectations and therefore down relative to the same period last
year. For the group overall, both costs and income are down in the year to
date. Costs are being very actively managed and are down by a higher
percentage rate than income at this point. Downward pressure on income
is expected as the year progresses due to a continuation of poor economic
conditions and dislocated funding markets.

 * Loan and deposit volumes

Demand for credit remains weak and loan balances remain broadly in line
with the end of last year in each division.
In our Republic of Ireland business there has been a recent pick up in
home mortgage applications but no material increase as yet in drawdowns.
This increased activity reflects an attractive customer offering and very
weak competitor presence in the market

Customer deposits have stabilised in recent weeks following some outflows
earlier in the year. In the current recessionary conditions balances in
current (money transmission) accounts have reduced. In Poland, our
deposits are broadly stable and continue to exceed our loans.

Customer resources, which include deposit and current accounts, are down
by around 10% in the first four months of this year. This mainly
reflects seasonal factors and outflows from our foreign institutional
deposit base earlier in the year and a reduction from what was a very
strong position at the end of 2008. Customer resources were up c. 9% year
on year at the end of the first quarter.

 *  Margins

In highly competitive markets and a low interest rate environment,
customer deposit margins continue to contract. The elevated price of
wholesale market funding is also having an adverse effect on the net
interest margin. Though negative effects are being partly offset by better
margins on our lending, overall the net interest margin is expected to
reduce this year.

 * Non-Interest Income

Lower fees from banking activity, investment banking and asset management
and the cost of the Government Guarantee Scheme are expected to adversely
affect non-interest income for the full year.

 * Costs

Cost management is a key priority in the current difficult revenue
environment. All expense categories across our business are being closely
monitored and controlled. The successful drive to reduce costs in 2008 is
continuing; costs are significantly down in the first quarter of this year
relative to the corresponding period in 2008 and we are also targeting a
reduction for the full year 2009.

ASSET QUALITY

At our 2008 results announcement on 2nd March we outlined a base case and
a stress scenario. The bad debt charge in the first quarter of 2009 of
close to €800m was a little ahead of the upper end of that base
case. Conditions across our markets have worsened and there will be
further pressure on the bad debt provision charge for full year 2009. All
commentators broadly concur on the significant downward revisions
to expectations for Irish economic activity and employment that have
issued since the beginning of March. Therefore our
key macro assumptions for Ireland are now more negative than in the stress
scenario presented at our results announcement. The pace of change is
increasing loan impairment and bad debt charges. This continuing factor
means that the previous stress scenario charge is likely to be exceeded
and we now expect our bad debt charge for 2009 to be around €4.3 bn, c.
325 basis points of average loans.

Group criticised loans (watch, vulnerable and impaired) have increased in
the first quarter to c. €24.3 bn, an increase of close to
€9 bn. Republic of Ireland division represents over 70% of the increase
and c. 75% of the group bad debt charge. Increases continue to be heavily
influenced by downgrades in the property, building and construction
sector. When established and implemented, the National Asset Management
Agency (NAMA) will seek to address problems in this sector. Informed by
the deteriorating environment and evidenced by the increase in criticised
loans, we are aggressively recognising impairment as it arises.

Increases in the levels of criticised loans in other sectors are now more
evident in the Republic of Ireland. Mortgage arrears stand at c. 2.0% of
total mortgages at the end of March up from c. 1.5% in December 2008 and
impaired loans have increased to €234m. Pressure on employment is a key
factor in these increases although the levels of arrears and impairment
remain well below available industry average comparatives.

In our UK division, growth in impaired loans also primarily relates to the
property, building & construction sector. That sector accounted for close
to 90% of the bad debt charge for the first quarter. There is also
deterioration in other portfolios in tough economic conditions with
increasing pressure evident in the leisure sector.

In Capital Markets there has been some negative grade migration across
portfolios though there are no material adverse trends in any particular
sector or geography. Our Treasury portfolios continue to be subject to
regular and intensive review and we remain satisfied that they will redeem
at par.

There is some deterioration evident in our Polish loan book, most notably
in the property and consumer cash loan portfolios. There is little current
activity in the property market, as is the case in other countries, but
the Polish market fundamentals remain relatively strong.

CAPITAL

Our capital remains well in excess of regulatory requirements. Our core
tier one capital ratio was c. 5.5% at the end of March and will be
strengthened in the event that the €3.5 bn Government recapitalisation
proposal is approved at the Extraordinary General Meeting on 13^th May. We
have previously announced our aim to further increase our core tier one
capital by €1.5 bn and will advise progress on this initiative as it takes
place.

The creation of NAMA will be a key event for the bank and the industry. We
support this Government initiative and will work with the Government to
expedite its implementation. It is premature at this point to estimate its
effect on our capital.

FUNDING

Despite challenging wholesale funding market conditions, we continue to
source funds across currencies, geographies and products through a range
of programmes. Our level of qualifying liquid assets / contingent
funding continues to be above the regulatory requirement. We continue to
develop contingent collateral and liquidity facilities to further support
our funding agenda. Market conditions improved during April and we
successfully increased our existing Government guaranteed issue maturing
in September 2010 by €1 bn to €3 bn. There was good demand for the issue
and overseas investors subscribed for 78% of the additional amount. We
have also recently seen very good demand for private placements.

Over time, we continue to target a reducing loan to deposit ratio although
the already referred to reduction in customer resources since the end of
2008 has subsequently increased that ratio.

Further details of our performance and outlook will be provided at
our 2009 Interim Results announcement on 5th August.

                                 -ENDS-

For further information please contact:

Alan Kelly Catherine Burke
General Manager, Group Finance Head of Corporate Relations
AIB Group AIB Group
Dublin 4 Dublin 4
Tel: +353-1-6600311 ext. 12162 Tel: +353-1-6600311 ext. 13894

                       Forward-looking statements

This document contains certain forward-looking statements within the
meaning of the United States Private Securities Litigation Reform Act of
1995 with respect to the financial condition, results of operations and
business of the Group and certain of the plans and objectives of the
Group. In particular, certain statements with regard to management
objectives, trends in results of operations, margins, risk management,
competition and the impact of changes in Financial Reporting Standards are
forward-looking in nature. These forward-looking statements can be
identified by the fact that they do not relate only to historical or
current facts. Forward looking statements sometimes use words such as
‘aim’, ‘anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’,
‘goal’, ‘believe’, or other words of similar meaning. Examples of
forward-looking statements include among others, statements regarding the
Group’s future financial position, income growth, business strategy,
projected costs, capital position, estimates of capital expenditures, and
plans and objectives for future operations. Because such statements are
inherently subject to risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
information. By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend on circumstances that
will occur in the future. There are a number of additional factors that
could cause actual results and developments to differ materially from
those expressed or implied. These factors include, but are not limited to,
changes in economic conditions globally and in the regions in which the
Group conducts its business, changes in fiscal or other policies adopted
by various governments and regulatory authorities, the effects of
competition in the geographic and business areas in which the Group
conducts its operations, the ability to increase market share and control
expenses, the effects of changes in taxation or accounting standards and
practices, acquisitions, future exchange and interest rates and the
success of the Group in managing these events. Any forward-looking
statements made by or on behalf of the Group speak only as of the date
they are made.

The Group cautions that the foregoing list of important factors is not
exhaustive. Investors and others should carefully consider the foregoing
factors and other uncertainties and events when making an investment
decision based on any forward-looking statement. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in
this Report may not occur. The Group does not undertake to release
publicly any revision to these forward-looking statements to reflect
events, circumstances or unanticipated events occurring after the date
hereof.

                  This information is provided by RNS
        The company news service from the London Stock Exchange

END

IMSBLGDURBBGGCB -0- May/11/2009 16:20 GMT

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Copyright (c) 2009

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So even with these *highly *competitive teaser rates, no one is biting.

XX

€24.3bn of the loan book might go bad! Need more shotgun smilies!

The money quote.
A 33% increase in three months. I believe the technical term is: KA-BOOOOOOOOOOM.

Bad Debt provisions of 106mn in 2007 - Profit 2.5bn
Bad Debt provisions of 1.8bn in 2008 - Profit 1bn
Bad Debt provisions est. of 4.3bn for 2009 - “Profit”, cough, cough

any guesses for 2010?

Be interesting to see what the write down by NAMA will be. Using my trusted beer mat…

If AIB admit to “criticised” loans (watch, vulnerable and impaired (few of which I suspect will become repaired in the current climate)) of 24.3bn ( or c18.33% of loan book based on 4.3bn being 325bp of loan book) I guess that is a good starting point based on today’s numbers. Factor in another 9bn per quarter or 680bp per quarter for the current & next quarters (Q2 & Q3 as we can’t expect NAMA to be constituted over the summer) and viola we have 30% start point by the time NAMA is up & functioning. Turf in a few more % as a safety net and we have a decent buzz cut

On the positive side they have some loan application forms filled out and added another 1bn to the Govt guarantee 8DD

And these are one of the good ones out there. Let them all expire.

Edit: My numbers are not Gospel - it was literally on the back of a beer mat.

moved to central bank forum

In fairness this quote is magic - “A resilient operating profit before bad debt provisions”. i.e. if it weren’t for losing loads of money we’d be making loads of money. Got to love that.

:laughing: :laughing:

to paraphrase

We are dilligently ripping off our solvent customers to pay for our dead beat developer cronies

If it’s anything like INBS, operating profit includes interest income from interest roll-up and a good portion of interest from non-performing loans. That’s before we move on to ecb repo subsidised cost of funds. But aside from that what did the romans ever do for us.

And to think Rusnak got 7 years porridge for losing a puny $691 million of AIB’s money.

I wonder how many of the plonkers who sanctioned these loans are still swinging their big dicks around Bankcentre…

irishtimes.com/newspaper/fin … 24328.html

Shares back to 1 euro.

On the detail:

  1. €4.3 billion (€4,300,000,000) is only the expected bad debt charge. Obviously, the maths has not yet been completed and it may be higher.

  2. What exactly does “for 2009” mean? Is this for accounting purposes where they are saying that this is a figure they will be using for contingent losses in the coming year (a.k.a. Big Recapitalisation Year).

  3. The Impaired loans of €24.3 Billion (€24,300,000,000) only refer to one sector of their business. The impaired mortgages of €234 million are a separate sector. We don’t know what other sectors are not included. Perhaps it included business start up loans, loans for post-grads, working capital for companies, overdrafts, car loans etc. Let’s hope they are notliable for credit card debt!

Has anybody noticed the humour in the numbers? “It’s as easy as 1, 2, 3, 4… I mean 24.3… I mean 234… I mean 4.3…”. How come the Regulator hasn’t spot that these fuckers only have three numbers on their calculators ???

Maybe because that’s still 2 more than Pat Neary can count up to :mrgreen:

Benford’s Law

lovely hurling NP

Ye are all correct but fair play to NC for spotting the smoothing algorithm .

If the PUBLISHED AIB NUMBERS did not comply with Benfords Law on the distribution of significant first digits then the AIB numbers would ‘look wrong’ to an Analyst . This sadly tells us that Auditors may worry more nowadays about compliance with Benfords Law than they should and that a true and fair picture is only so when it is compliant with Benfords Law.

Here is why ( explained)

businessweek.com/technology/ … _tc131.htm

Of course the same technology , deliberately misapplied, will ‘prove’ there is no accounting fraud …or will it ???