AIB shares raced ahead yesterday, jumping 40p in good volume trading to 635p after the bank announced stronger-than-expected first half results. Pre-tax profits rose by 20 per cent to a record £242.2 million. The results reflected strong performances in all the group's operations. Profits after tax rose 23 per cent to £164.4 million while earnings per share were 22 per cent higher at 22.3p. The bank recorded its strongest ever return on equity at 22.3 per cent. Shareholders are to benefit with a 14.3 per cent rise in the interim dividend to 6.8p per share.
AIB is now a much bigger bank in asset terms than it was the end of 1996 and its profits have a wider geographic spread. When the £840 million acquisition of Dauphin Deposit Corporation in the US is included, total assets have risen to £35 billion from £26 billion from the end of December, 1996; employment had risen to 23,000 from 16,000 while the group had £18 billion of funds under management compared with £13 billion.
A geographic breakdown shows that less than 50 per cent of group assets are now in the domestic market which accounts for 43 per cent of group assets compared with 51 per cent at the end of December. Some 34 per cent of group assets are in the US, up from 26 per cent. The UK accounts for 19 per cent of group assets while Poland, following the acquisition of 60 per cent of WBK Bank, accounts for three per cent and the rest of the world for 1 per cent.
As AIB spreads geographically, the Irish operation contributed 43.1 per cent of profits, down from 48.2 per cent at the end of December, the contribution from the US was unchanged at 26.3 per cent. The contribution from the UK rose to 25.6 per cent from 23.6 per cent and the rest of the world contributed 5 per cent of profits compared with 1.9 per cent. No profits from Dauphin are included in the latest results because acquisition was completed in July. But its Polish investment, WBK Bank, helped with a £12.3 million contribution.
Group operating profits before provisions were 20.7 per cent higher at £271.2 million. The outcome reflected good demand in the domestic market, Northern Ireland and Britain, good fee income growth in the US, a strong result from the capital markets division and the contribution from WBK Bank.
Total income increased by 16.6 per cent to £734 million while operating costs were 14.3 per cent higher at £462.8 million. Net interest income was 16.3 per cent higher at £475.5 million, reflecting strong loan demand and deposit growth in all markets and a O.15 of a percentage point rise to 3.69 per cent in the group net interest margin from the end December level. But the interest margin - profits from lending less the cost of funds - in the domestic market fell again. Stiff competition in the domestic loan and deposit market led to fall of 0.08 of a percentage point to 3.46 per cent. Group non-interest income was 17.1 per cent higher at £258.5 million boosted by fees earned from funds management, profits from Ark Life and treasury operations. But group provisions for bad and doubtful debts increased following losses on credit card business in the US. The group reported a 15.9 per cent increase in lending to £17.3 billion. But the underlying rise was 6.5 per cent when the impact of currency translation distortions and acquisitions are taken into account.
A 10.3 per cent growth in lending in the domestic market included a 26 per cent rise in leasing business, a 14 per cent rise in corporate lending and a 7.5 per cent rise in residential mortgage loans. Lending rose by 9.3 per cent in Northern Ireland despite some "uncertainty in the market". There has been some pick-up in demand following the announcement of the ceasefire, according to group chief executive Mr Tom Mulcahy.
Group deposits increased by 4.7 per cent which Mr Mulcahy described as good in a low inflation and low interest rate environment. Deposits increased by 4.9 per cent in the domestic market and 4.5 per cent in Northern Ireland.
A breakdown of performance by division shows at 24 per cent rise in profits to £130 million at AIB Bank which includes retail and commercial banking in the Republic, Northern Ireland, Britain, the Channel Island and the Isle of Man.
Profits from the capital markets division jumped 33 per cent to £42.6 million, helped by good positioning on international interest rates and strong performances in foreign exchange markets, corporate banking and treasury and investment banking.
