Allied Irish loss soars to €10.4bn

City A.M. Reporter
Allied Irish Banks' full-year loss more than quadrupled to €10.4bn (£9.2bn) in 2010 and the lender said on Tuesday it would axe over 2,000 jobs as it seeks to re-invent itself as a locally-focussed bank.

A former stock market darling with international ambitions, AIB has been effectively nationalised and saved from collapse by emergency ECB funding after being shut out of debt markets and losing €22bn in deposits last year as investors fretted about its future.

Dublin has put a €70bn price on drawing a line under its banking crisis and AIB is second only to Anglo Irish, the poster child for Ireland's casino-style property lending, in the burden it is putting on recession-weary taxpayers.

A charge of six billion euros, mostly against potential loan losses from residential mortgages and transfers of commercial property loans to a state-run bad bank, drove AIB's whopping loss, a company record.

AIB will be one of two so-called "pillar banks" under Dublin's plan to radically shrink its banking system to just two players from six before the crisis struck in 2008.

The bank, which employs over 15,000 people in Ireland and the UK, said it would cut over 2,000 jobs over 2011 and 2012 on a phased basis. Such cuts come ahead of a merger with state-controlled EBS Building Society.

Crunch stress tests, carried out as part of an EU-IMF bailout, showed that AIB had to raise €13.3bn in additional capital to bullet-proof it from future shocks and any losses arising from the sale of some €19bn worth of assets over the next three years.

Much of the €13.3bn is expected to come from state coffers.

AIB has already swallowed €7.2bn in state funds, sold prized overseas assets, including its Polish business, and generated €1.5bn from buying back junior debt at a discount to shore up its balance sheet.

Under the stress tests, which were conducted on the country's four remaining banks, AIB had the worst loan loss rate under a stress scenario, 13.4 per cent, compared with a sector average of 10.1 per cent.

AIB itself had forecast a loan loss rate of 11.5 per cent in a worst-case scenario.