March 30, 2012 / 7:26 AM / 7 years ago

UPDATE 2-Loss-making Allied Irish set for more big cost-cuts

* 2011 after-tax loss 2.3 bln vs 10.2 bln loss yr ago

* Net total provisions total 8.2 bln euros

* Deposits fell by 2 bln euros in 2011, up 1.5 bln in 2012

* CFO sees mortgage arrears peaking later this year, or next

DUBLIN, March 30 (Reuters) - Allied Irish Banks (AIB) said it will make aggressive cost-cuts, on top of job losses already announced, after it narrowed its 2011 loss to 2.3 billion euros ($3.1 billion) from more than four times that amount the previous year.

Forced to ditch its international ambitions after Ireland’s devastating property crash saddled it with huge losses, AIB was effectively nationalised late last year and saved from collapse by emergency European Central Bank (ECB) funding.

After announcing earlier this month that it would axe 2,500 jobs, the bank said on Friday further significant cuts were needed after seeing its net interest margin, the profitability of its lending, fall to 1.03 percent from 1.31 percent a year ago.

“It is reasonable to say that there will have to be overall aggressive cost cutting as we go forward,” the bank’s chief financial officer Paul Stanley told Reuters in an interview.

“Our challenge is to positively widen the gap between our operating income and operating cost lines. We have a funding cost to address going forward too.”

The bank’s 2011 after-tax loss narrowed from a record 10.2 billion euros the previous year and was helped by a 3 billion euro income gain from forcing losses on junior bondholders and a further 1.6 billion from exiting its Polish operations.

The loss was driven by a recognition of 8.2 billion euros in total provisions, almost half of which came from the residual property-related loans that were not hived off into Ireland’s state-run “bad bank”.

The bank said it expected provisions to drop significantly and that it was still on target to return to profitability by 2014.

Analysts said the bank still had a lot of work to do.

“It is too early to calibrate the extent of the problems at AIB,” NCB Stockbrokers analyst Karl Goggin wrote in a note.

“The trend continues to deteriorate in terms of income, impairments, and loan volumes. Loans to customers continue to contract, net interest margin continues to fall and provisions continue to trend higher.”


AIB’s loan book remained under pressure from rising mortgage arrears resulting from the protracted property crash and high unemployment, and with years of government austerity measures in the pipeline demand for credit also remained subdued.

After central bank figures last month showed that nearly one in seven Irish home loans were not being fully repaid, AIB said its proportion of Irish owner-occupier loans in arrears for more than 90 days rose to 10.9 percent compared with the sector average of 9.2 percent.

Arrears on buy-to-let loans, the most distressed segment of mortgage books across the sector, rose above 31 percent.

Stanley said arrears had not yet peaked and were unlikely to do so until towards the end of 2012 or into 2013.

Dublin has to radically shrink its banking system as part of an EU-IMF bailout. Along with Bank of Ireland, the only lender to avoid full state ownership, AIB will be one of two so-called “pillar banks” left in a once-crowded field.

AIB said it had met 62 percent of a 20.5 billion euros deleveraging target at-end 2011, trimming its loan to deposit ratio (LTD) to 138 percent. It had deleveraged a further 1 billion euros since and lined up further deals, Stanley said.

The government wants to move loss-making tracker mortgages off the balance sheets of some of its banks, a move that would further cuts LTDs.

AIB’s new chief executive, David Duffy, confirmed the bank was in talks about its mortgages that track the ECB’s interest rate but had not yet decided on whether they would move to another entity.

The bank’s deposits, which dropped dramatically in 2010, fell to 61 billion euros in 2011 from 63 billion a year earlier but the bank said levels had stabilised since August and had increased by 1.5 billion euros between January and March.

That compared unfavorably to Bank of Ireland whose deposits grew by 8 billion euros in the second half of 2011 to 71 billion, mostly thanks to its UK business.

Second only to scandal-hit, failed lender Anglo Irish Bank in the burden it has put on weary taxpayers, AIB said it believed it was adequately capitalised after its core tier one ratio, a key gauge of financial strength, rose to 17.9 percent.

The bank’s shares, which no longer trade on Ireland’s main stock exchange were up 1 percent at 0.09 euros by 0810 GMT. With little liquidity, the stock tends to be volatile.

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