AIB hits blackspot after gains
By John Mulligan
Wednesday July 23 2008
DAVY Stockbrokers said it expects a further downward revision of AIB’s full-year earnings guidance on foot of the contracting economy, where growth was partly fuelled by a corpulent property sector.
A spike in impairment provisions and a cut in earnings guidance are likely at AIB, as trading conditions continue to deteriorate for the country’s biggest bank.
Davy’s comments coupled with a record $8.9bn (€5.6bn) quarterly loss by US banking giant Wachovia, helped push AIB stock down over 8pc in Dublin to close at €8.05, erasing gains made over the previous couple of trading sessions.
In May, AIB had said it was targeting low single digit percentage earnings growth, and added at the time that overall performance for the first four months had been good.
Last week ratings agency Fitch lowered AIB’s debt outlook to negative from stable, saying the group’s riskier lending to the construction industry could lead to an increase in impaired loans.
Davy Stockbrokers said yesterday that conditions in the Irish property market and in the general economy have deteriorated significantly since AIB issued its interim management statement in May.
Davy said that just how quickly a likely spike in impairment provisions at the bank occurs will depend on how long Irish financial institutions continue to support struggling property developers.
Davy said recently that it expects earnings per share (EPS) to decline 10pc this year at AIB, and by a further 19pc in 2009, and by 13pc in 2010 as its bad debt losses rose 10-fold from 2007’s level to €1.1bn.
In its research note yesterday, Davy Stockbrokers said that EPS for the first half at AIB is guided to decline by 6pc. The broker expects it to fall 8pc. AIB releases its first-half results next Wednesday.
“Unfortunately, these results may give us little incremental insight into what is coming down the tracks,” said Davy analysts.
Yesterday Fitch reaffirmed its stable ratings for Bank of Ireland, saying that the bank is “relatively well-placed” to cope with a reasonable amount of stress in the markets.
“Although the bank has reported a notable increase in impaired lending in the commercial portfolio, loan impairments in the mortgage and much smaller personal loan portfolios remained negligible,” said Fitch.
The ratings agency added that BOI is adequately capitalised and has a “sound funding base” of customer deposits and “well-diversified wholesale” funding.
In the last financial quarter, Bank of Ireland management said that while the group’s residential mortgage portfolio is “proving resilient” in a weakened housing market, there has been some credit grade slippage in the period, particularly in its business portfolios.
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