Allied Irish Banks (AIB)

[was builder]

Report From Press Release.
http://www.rothmanresearch.com/


Stock Rating: HOLD
Report Date: October 22nd, 2009
Brief Description:
Allied Irish Bank p.l.c., together with its subsidiaries, provides retail and corporate banking, investment banking, and
asset management services in the Republic of Ireland, the United States, the United Kingdom, Poland, and rest of the
world. The company accepts demand deposits, time deposits, and current accounts, as well as provides lending
services, such as vehicle, equipment, and fleet leasing; retail and investment property loans; vehicle and equipment hire
purchase; insurance premium financing; and personal loans. It also offers wealth management services, such as
retirement, investment, and estate planning, as well as a range of life and pensions products. In addition, the company
provides corporate finance, treasury, risk management, stock broking, and outsourced financial services. Further, it
offers specialist services comprising home mortgages, Visa and Mastercard credit cards, invoice discounting, asset
finance, loans and overdrafts, payment services, and foreign exchange facilities; and electronic banking services, which
facilitate account accessibility via telephone, mobile phone, and the Internet. Additionally, Allied Irish Banks provides
financial planning and custody services; and mutual funds, and leasing and factoring products. The company was
founded in 1825 and is headquartered in Dublin, the Republic of Ireland.
Allied Irish Banks plc (NYSE: AIB) Financial ‐ Foreign Money Center Banks Previous Close: 8.05 Last Trade: 7.78
Recent Developments:
• On September 24, 2009: AIB announces EUR1bn 3 year senior unsecured unguaranteed bond issue.
• On August 5, 2009, the company reports its half yearly results; sees huge losses.
• On June 12, 2009, the bank announces bond swap for notes.
Company Analysis:
The continued volatility and uncertainty in world financial markets and rapid deterioration in global economic
conditions resulted in a very challenging time for the banking industry generally. Many financial institutions incurred
substantial losses, received state aid or were nationalized. The half-year to June 2009 represented a very challenging
period for AIB during which market and economic conditions were unprecedented. The economic environment and
conditions across AIB’s markets worsened and AIB experienced deterioration in its lending portfolios particularly in its
property portfolios in Ireland and the United Kingdom.
In the period, the Minister for Finance and AIB formed a view that to strengthen AIB’s capital position, a total amount
of m 5 billion new core tier 1 capital was appropriate. As a result, AIB received m 3.5 billion of core tier 1 capital from
the Irish Government having received shareholder approval on 13 May 2009. In addition, a capital exchange offering
process was completed in June 2009, generating m 1.1 billion of core tier 1 capital. The establishment of the National
Assets Management Agency (NAMA) will seek to address problems relating to the property, building and construction
sector. The creation and rollout of NAMA will be a key event for the bank and the industry. AIB supports this
Government initiative and is working with the Government and NAMA to expedite its implementation; however it is
premature at this point to estimate the effect on AIB’s capital.
AIB’s funding comprises of broadly based resilient customer deposits, capital and debt. The Group’s liquidity levels
continue to represent a surplus over the regulatory requirement. The m 3.5 billion of core tier 1 capital from the Irish
Government and the core tier 1 capital gain of m 1.1 billion from the recent capital exchange offering underpins AIB’s
capital position. At 30 June 2009 the core tier 1 ratio was 8.5% and a total capital ratio was 10.7%.
Keeping in mind the points above, we would maintain our HOLD rating on AIB’s stock at current levels.
Upcoming Events
Date Event
No Upcoming Events
Recent Events
Date Event
5-Mar-09 Price hit new 52-week low ($0.72)
4-Mar-09 Price hit new 52-week low ($0.86)
3-Mar-09 Price hit new 52-week low ($1.00)
Sector Analysis:
Disruptions in the financial markets, increased regulatory complexity and operational risk are major challenges for
domestic and international banking institutions and capital markets-securities firms. These challenges, along with
event-driven opportunities and new technologies have transformed the sector. In the current risk-adverse climate,
institutions seek innovative solutions and ways to reduce their exposure.
Financial Analysis:
Against the backdrop of global economic and market conditions, AIB reported operating profit before provisions of
m1.7 billion (m 1.1 billion underlying), a pre-tax loss of m 0.9 billion and an adjusted loss per share of EUR 164.4c.
Asset quality deteriorated further, most notably in property portfolios, with the overall bad debt charge increasing to
358 basis points and criticized loans increasing to 25.0% of customer loans of which 8.1% were impaired. Customer
loans decreased by 2% and customer deposits reduced by 12% with the loan to deposit ratio increasing from 140% at
31 December 2008 to 156% at 30 June 2009. In response to the slower revenue generation, active management of
AIB’s cost base yielded a 7% reduction in costs generating a neutral income/cost growth rate gap and a reduction in the
underlying cost income ratio of 0.9% to 48.3% with operating profit before provisions reducing by 6%.
Technical Analysis/Analyst Opinion:
The overall trend has been really bullish over the past three months with the first support level at $7.07. Uptrend
supported by higher volumes on purchasing activities.
Research Coverage Undertaken by Shanghai Equity Partners
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