Allied Irish Banks doubled an estimate for loan loss provisions this year and warned that soured debt may only peak in 2011, painting a bleak picture for the UK and Irish property markets. AIB's shares and bottom line have been ravaged by its exposure to plummeting commercial property markets and under a base case scenario for 2009 and 2010.
The lender sees prices falling by 20-40 percent in the UK and Ireland. On a stress test basis, commercial property values would fall by 50 percent in 2009-2010. "These are pretty horrendous figures no matter how you look at them," Finance Director John O'Donnell said. For next year, bad debt provisions would be up to 2.9 billion euros ($3.65 billion) under AIB's base case scenario, rising to 4 billion euros under a stress test. The bank set aside 1.8 billion euros to cover soured assets last year.
The bank's shares shrugged off the sobering outlook to trade up 19 percent at one point but investors said the increase was due to private clients taking a punt and the stock's very low close on Friday after it was removed from an MSCI equity index. The bank's current market value at around 340 million euros is a fraction of its potential loan losses.
"The bigger institutions that did own it have all sold out. It's going to be quite a while before we get them to buy an Irish bank share again," said one Dublin-based dealer. Ireland has suffered an outflow in funds in recent weeks as a string of banking scandals hammered the international reputation of the former "Celtic Tiger", prompting foreign investors to steer clear of Irish securities.
AIB has seen some outflows in institutional deposits since the start of the year but said they were not significant. AIB had already flagged a near doubling of bad debt provisions for 2008 which dragged underlying earnings down by around two thirds to 66.5 euro cents per share. At 1444 GMT, AIB shares were 17 percent stronger at 0.45 euros outperforming the general index which was 2 percent in the red.
Sebastian Orsi, an analyst with Merrion Capital, said while last year's cost control and revenue growth were strong the overall trends for this year were concerning. "Certainly it's not going to be a set of results that drive a lot of conviction in the stock in the short-term.