AIB targets low earnings growth despite volatility

AIB IS sticking with its target of low single-digit earnings growth in 2008, despite the continuing financial turmoil, chairman Dermot Gleeson told shareholders at the bank's annual meeting in Dublin.

However, he said the bank was still susceptible to the global financial crisis. "In common with other banks, the actual outcome could be affected by highly volatile conditions and their effect on our businesses and the market value of our assets." Mr Gleeson said the bank was performing "very well" in the areas of capital, funding and asset quality, and that it would be well positioned to benefit when the markets eventually recover.

AIB's share price has almost halved in value since reaching a record high of €24.39 just over a year ago as the market volatility has had an even greater negative effect on Irish financial stocks than most banking shares because of concerns about the slowdown in the property market.

Mr Gleeson said the bank had a strong capital base - AIB had a 7.5 per cent Tier 1 and 10.1 per cent Tier 2 ratios, when the regulatory minimums were 4.25 per cent and 8.5 per cent respectively.

Referring to the £12 billion (€15 billion) Royal Bank of Scotland is seeking to raise from shareholders, Mr Gleeson said AIB's funding was "stable and robust". "AIB has no requirement for recourse to shareholders for supplementary capital."

He described AIB's residential mortgage loans as "a very solid and resilient portfolio with a very low level of arrears". Commercial property and construction loans were well spread. AIB would continue its dividend policy of paying about 40 per cent of profits to shareholders, he said.

AIB finance director John O'Donnell said the bank had not taken any further exposures since writing down $35 million on $287 million in subprime asset-backed securities since the end of last year, but the bank could not rule out the setting aside of more money to cover writedowns.

Responding to criticism from one shareholder about the sale of some of the bank's properties and its Ballsbridge headquarters in Dublin, AIB chief executive Eugene Sheehy said the bank needed to find new capital to fund loans that were increasing at a rate of 20 per cent a year, which had put "a very heavy drain" on the bank's capital requirements.

He said the bank had raised €618 million in profits from property sales and "that infusion of capital has allowed us to maintain strong capital ratios.

Mr Gleeson said the bank would continue to look at further acquisitions in eastern Europe. "We look at lots of different things there - we reject most of them."

Speaking after the meeting, Mr Sheehy said AIB had declined 20-30 acquisitions over the last five years because the prices were too high. It was "very hard to call" whether the bank would make more acquisitions this year. "We couldn't rule it out, but we have nothing planned."

AIB had €6 billion in term funding maturing this year and €4.5 billion next year but the bank could "comfortably sit out" a situation where term funding markets remain closed for two years.

Asked about the theft of laptops containing confidential customer data at Bank of Ireland, Mr Sheehy said AIB had strong procedures to reduce the likelihood of that happening. The bank has had an encryption policy in place since 1993. "We believe the procedures we have in place are strong enough that our customers can rest easy."

He said the Bank of England's £50 billion scheme to ease the credit crisis by allowing banks to swap mortgage-backed assets with Government bonds was "very sensible and balanced, and the market will take a lot of comfort from it".

AIB closed down 0.9 per cent at €13.03 in Dublin yesterday.