THE STATE’S largest bank, Allied Irish Banks (AIB), has recorded its first loss in Ireland since the group was set up in 1966.
The bank posted the loss as it dramatically increased the amount it is setting aside to cover rising losses on loans, primarily to Irish property developers.
The bank’s Republic of Ireland division made an operating loss of €121 million for 2008 after writing off €1.3 billion from losses on loans, 81 per cent of which relate to property and construction .
A spokesman for the bank confirmed that this was the first loss made in Ireland by AIB since it was formed almost 43 years ago.
AIB reported a 62 per cent fall in pretax profits for the overall group, which includes its operations in the UK and Poland, and its capital markets division.
The group’s pretax profits fell to €1 billion in 2008 from €2.5 billion a year earlier as loan losses surged to €1.8 billion from just €106 million a year earlier.
Eugene Sheehy, chief executive of AIB, described the results as “disappointing”. He said he would not be stepping down, and that he had not offered his resignation to the bank, nor had he considered it.
“I have plans to run the bank and lead the bank through this crisis,” said Mr Sheehy.
He said the bank had received €3.5 billion from the Government in the recapitalisation deal, under which the bank will pay 8 per cent interest a year and could give up a 25 per cent stake in the group to the taxpayer.
“This could be a very good deal for the taxpayer. . . and I want to be leading the bank to make sure that happens,” he said.
Asked if he would retire after the bank had recovered, he said he would retire when he turned 60 and that he would be 55 in July.
Mr Sheehy said that the rate, depth and severity of the international banking crisis was “much greater than anyone anticipated, certainly than we anticipated”.
He expressed regret over aspects of the bank’s lending record, particularly on loans provided to developers and builders.
“The mistake was that we believed a soft landing would still give you a good chance to get out without serious damage. The fact is there hasn’t been a soft landing and there isn’t going to be one.”
Mr Sheehy said he would take a 60 per cent pay cut for 2009, leaving him with a pay package of “less than €700,000” for each of his remaining years at the bank.
He said he had taken a 10 per cent pay cut last October and a further 25 per cent cut in January.
He didn’t disclose how much he would be paid for 2008. He received €2.1 million in 2007.
He said that he had been with the bank 38 years and “hit the high numbers for a couple of years”.
AIB’s share price rose 19 per cent, or 7 cent, to €0.46, valuing the bank at €406 million, a drop of 98 per cent from its peak.
The bank gave no forecasts for its performance this year. It raised its expectations for further writeoffs on bad loans, particularly on property investment and development.
AIB said impaired loans could peak at €9.5 billion in 2011 and at €17.9 billion in a potential stressed scenario in which unemployment would reach 14.3 per cent in 2010 and house prices would halve in value from their peak.
The bank said that it may write off up to €4 billion on bad loans in 2009 and €2.65 billion in 2010 under this stressed-case scenario.
AIB maintains that, with the Government’s €3.5 billion injection, capital reserves will remain above the regulatory minimum.
Mr Sheehy said that there was “no need” to nationalise AIB as even in its stress test the bank was “still adequately capitalised”.
Describing the revelations emerging from Anglo Irish Bank as “very troubling”, Mr Sheehy said they had led to “an erosion of morale” within Irish banking.
He said it had been “a very trying task” explaining developments to international investors.
