May 24, 2024

Allied Irish Reports $15 Billion Annual Loss

A former stock market darling with international ambitions, Allied Irish Banks has been effectively nationalized and saved from collapse by a bailout from the European Central Bank after being shut out of debt markets and losing 22 billion euros in deposits last year.

There were further “slight” deposit outflows this year, mainly from overseas corporate funds, but recent stress tests that require the bank to raise 13.3 billion euros in capital and an overhaul of the sector had stopped that outflow. “The news of the bank’s recapitalization has been viewed positively by the market and we hope that that now represents a turning point and we can now rebuild the bank from here,” the executive chairman, David Hodgkinson, told the state broadcaster, RTE.

Much of the 13.3 billion euros is expected to come from state coffers although the bank is expected to generate some capital from buying back 2.6 billion euros in subordinated debt at a discount.

Dublin has pledged to shrink its banking system as part of a bailout by the European Union and the International Monetary Fund and Allied Irish Banks will be one of two so-called “pillar banks” left.

Allied Irish Banks is hoping that 2010 will mark the nadir in terms of group losses but has said that it is too early to call the peak. The monetary fund slashed its 2011 growth forecast for the Irish economy to 0.5 percent from 0.9 percent on Monday, underlining the challenge ahead.

Dublin has put a price of 70 billion euros on drawing a line under its banking crisis and Allied Irish Banks is second only to Anglo Irish in the burden it is putting on recession-weary taxpayers.

A charge of 6 billion euros, representing 5.25 percent of loans, against potential losses helped drive bank’s loss, a company record, and more than four times higher than the 2.3 billion euros shortfall generated in 2009.

Allied Irish Banks said the scale of losses going forward would be different and that it hoped to return to profit on an operating level in 2012 and possibly on a net basis too.

Analysts said the bank had taken a lot of pain up front.

“They are hoping that 2010 is the peak,” Oliver Gilvarry, head of research at Dolmen Securities, said.

”There is no sense in not coming out and putting as much forward as you can in 2010 numbers when everyone is expecting the numbers to be poor.”

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