Anglo shares slump to lowest level in 11 years

ANGLO IRISH Bank's shares plummeted 29 per cent to their lowest level in 11 years as the bank reported a 37 per cent drop in pretax profits after setting aside more money to cover future losses on loans to the property market

The State's third-largest public bank reported pretax profits of €784 million in the year to September 30th, after setting aside €500 million to cover future losses on loans, mostly to developers. The share price fell to 67 cent, its lowest since 1997, valuing the bank at €509 million, as the profits came in well below expectations, while the bad debts were almost seven times higher than the bank had forecast in August.

Anglo's chief executive David Drumm said the €500 million charge against unspecific loan losses was "quite a whopping provision to take, but it's recognising the world we are in".

The bank also took a bad debt charge of €224 million against losses on specific loans, 81 per cent of which are to developers in Ireland and the UK.

Anglo has written off €128 million on the value of treasury assets, including investments indirectly linked to US subprime mortgages. The bank has also taken a bad debt charge of €155 million on other investments, including a €27 million exposure to the state-rescued Icelandic banks and a loss of €4 million arising from the collapse of the US banks, Lehman Brothers and Washington Mutual.

Anglo said it expected to take a bad debt charge of between 0.8 and 1.2 per cent of loans - or about €720 million - each year for the next three years, again mostly from losses on loans to developers.

Finance director Willie McAteer said that in a worst-case scenario the bank could lose up to €2.76 billion in total over the next three years, but could still be able to make profits similar to the bank's 2008 level in each year.

Mr Drumm said the bank could double the loan losses estimated in this scenario and still remain at break-even level each year.

The scenario would involve Anglo writing off up to 11 per cent of its €8.9 billion residential development loans, which accounts for 12 per cent of overall loans.

The bank based its figures on house prices falling 20 to 40 per cent from their peak and land values dropping 30 to 50 per cent, and said they were at the halfway stage of their decline.

Mr McAteer said the €500 million charge was "a demonstration of prudence" but also showed the bank could take "very significant charges" and still remain in profit.

Anglo said its core tier one capital ratio - a measure of a bank's cushion to absorb future losses - totalled 5.9 per cent, or 6.7 per cent if unspecified loan losses are excluded, at September 30th.

Anglo said it expected to increase this ratio to the "new emerging benchmark" of between 7.5 and 8.5 per cent by retaining profits over the next three years.

Mr Drumm said the bank could reach 7.8 per cent by retaining a year's profits similar to 2008 levels. The bank said it would "consider opportunities to accelerate the achievement of this benchmark, ever cognisant of the interests of existing shareholders".

He said the bank had not yet decided on whether it would accept additional capital from external investors or the State.