If, as AIB chief executive Mr Tom Mulcahy contends, the only defence against a take-over is a strong performance, then AIB Group is producing a very good defence indeed.
Record 1998 results ensure that any potential acquirer would face such a hefty premium and goodwill write-off that the deal would be too expensive for many. But strategic alliances or share swaps should not be ruled out and AIB is more likely to be an acquirer in its key markets in the medium term. On the latest figures the group could spend £700 million to £800 million, including debt, on suitable acquisitions without going to shareholders for funds. And with its US acquisition now fully integrated, the group is alive to acquisition opportunities in the US, Britain and Poland.
AIB was firing strongly on all cylinders in 1998 with all divisions producing good profit growth. But group shares closed one euro weaker at €15.70 largely on the scotching of the recent bid rumours.
Because interest rates are low or falling in all its markets and markets are competitive, AIB has focused on growing its non-interest income as a proportion of total income. Increasing non-interest income is a target for all banks in the current environment because profits from core lending and funding operations, or net interest margins, are tightening.
At AIB other income accounted for 38 per cent of total income up from 36 per cent last year as the bank generated fee and commission income from the sale of new products and services. The US division produced a very strong 55 per cent rise in fee and commission income in line with this strategy.
Falling net interest margins is one problem facing AIB this year. Mr Mulcahy expects a fall of more than 0.3 of a percentage point in the group margin this year with Poland expected to be worst with a fall of 0.5 of a percentage point. In 1998, the margin at AIB Bank fell by 0.15 of a percentage point to 4.42 per cent while in the US it was down 0.43 of a percentage point to 2.83 per cent and the fall in Poland was 1.1 per cent to 5.68 per cent.
Lower margins could be partly offset by higher volumes of business. In the underdeveloped Polish market, AIB has the opportunity for significant expansion.
The group has "high expectations" for its British operations this year despite a slowing economy and for its operations in Northern Ireland where significant infrastructural spending is required in the economy. In the domestic market it sees potential for organic growth through customer segmentation, service initiatives and new product development. And AIB sees potential in e-commerce as a business channel.
