* AIB FY loss halves, operating profit 445 mln euros
* Targets net interest margin of over 2 pct over medium term
* Eyes preference share conversion, CoCo sale over time
* Does not expect to need fresh capital after stress test
By Padraic Halpin
DUBLIN, March 5 State-owned Allied Irish Banks
(AIB) more than halved its full-year loss in 2013 and
returned to an operating profit as it set new medium-term goals
on Wednesday ahead of its potential reprivatisation next year.
It cost taxpayers more than 20 billion euros to bail out
AIB, the most given to any lender that survived Ireland's debt
crisis. The bank has shut branches and is cutting almost a fifth
of its staff in an effort to return to profit during this year.
The bank said it was on track return to profitability and is
aiming to increase its net interest margin above 2 percent over
the medium term. It also announced a review of its capital
structure to prepare the bank for sale in 2015.
"If you look at an investor viewing AIB as the macro-equity
play on the country, they want to see clarity around capital,"
Chief Executive David Duffy told Reuters in an interview.
"We want to get to a position this year where we prove there
is no need for more capital under the stress element, we have
delivered on sustainable profitability and on that basis, there
is an investable bank."
The bank said the review would include examining the 1.6
billion euros ($2.2 billion) of contingent capital notes (CoCos)
that act as a buffer against any need for future capital and a
potential conversion of its preference shares into equity.
Alongside the target to bring the net interest margin - a
measurement of the profitability of its lending - in line with
rival Bank of Ireland's at 2 percent, the bank said it would aim
to keep its core Tier 1 capital ratio above 10 percent complying
with more demanding Basel III capital rules due to be phased in
The bank's core Tier 1 capital ratio, a measure of financial
strength, was at 14.3 percent at the end of December, 10.5
percent complying with Basel III, while it finished the year
with a net interest margin of 1.67 percent.
While lenders shrunk their balance sheets as part of
Ireland's EU/IMF bailout, soured loans have made a return to
profitability elusive and AIB made a post-impairment loss of
1.68 billion euros in 2013 versus 3.72 billion a year earlier.
Part state-owned Bank of Ireland became the country's first
lender to fully return to profit since the start of Ireland's
financial crisis when it said this week that its first two
months of the year had been profitable.
Excluding a provision of 1.9 billion euros for impaired
loans, down a quarter on a year ago, AIB said it made an
operating profit of 445 million euros last year, driven by a 16
percent year-on-year fall in operating costs.
The bank also said the pace of increase in residential
mortgages in arrears decreased in the second half, a day after
data from Ireland's central bank showed that the number of
homeowners in arrears for more than 90 days fell for the first
during the downturn.
The bank's proportion of owner-occupiers in arrears for more
than 90 days stood at 11.1 percent at the end of December, while
almost a quarter of all buy-to-let mortgage holders were behind
on payments for the same timespan.
"Given recent positive macro developments coupled with
recovering fundamentals, AIB's capacity to articulate an
attractive investment case is improving, which bodes well for
the bank's planned reprivatisation," said Ciaran Callaghan, an
analyst at Merrion Stockbrokers.