Allied Irish Banks expects the operating environment to remain “extremely difficult” in 2009, chairman Dermot Gleeson said in the company’s annual report published today.
He said the 90 per cent fall in the bank’s share price last year was a matter of “deep regret” and the strength of the downturn had been a surprise. Mr Gleeson was unable to state when the share price might recover, saying this was based on the market view of AIB.
“I realize that AIB’s shareholders will want to know when the steep decline in our share price will be reversed,” Mr Gleeson said. “There is no easy answer to that question.”
As a result of the economic turmoil the capital levels being sought by the markets had increased, he said, and AIB was forced to accept a Government recapitalisation of €3.5 billion on February 11th.
This recapitalisation is subject to approval from the bank’s shareholders and the European Union with the State taking a 25 per cent stake through preference shares.
If the recapitalisation accepted by shareholders this will see the bank’s core Tier 1 capital ratio rise to 8.4 per cent.
The bank will hold its AGM at Bankcentre in Ballsbridge, Dublin on May 13th at 2pm and its egm at 10am on the same day in the same venue.
Mr Gleeson added that the Government guarantee scheme was a vital component in stabilising the Irish financial sector and said AIB would welcome any moves to extend its lifetime beyond 2010.
In reference to credit risks AIB said the outlook for the global economy this year has “significantly deteriorated in recent months, including an expectation of continued deterioration of the economies of Ireland, the United Kingdom, the United States, Poland and other European countries”.
Allied Irish has set aside €1.8 billion for impaired loans last year which is equivalent to 1.37 per cent of average loans, up from €106 million a year earlier.
In relation to Ireland AIB said there was an expectation of “further reductions in residential and commercial property prices, higher unemployment rates and reduced profitability of corporate borrowers”.
AIB said it expects to see adverse changes in the credit quality of its borrowers and counterparties, with “increasing delinquencies and defaults across a range of sectors”.
“Ultimately, this trend will lead to higher impairment charges, higher costs, additional write downs and lower profitability for AIB.”
AIB’s ability to engage in routine funding transactions may be adversely affected by the actual or perceived failure or worsening credit of other financial institutions.
Shares in AIB fell as much as 5 per cent after it the publication of the report but by 11.25am was trading at €1.18, down 0.2 per cent on the day.
AIB shares have fallen 91 per cent over the last 12 months and at the current share price it has a market value of €988 million.
