M&T profits down 68% to $64.2m over loan arrears

PROFITS AT M&T, the US bank in which Allied Irish Banks (AIB) has a 24 per cent stake, fell 68 per cent in the first quarter as rising unemployment forced more borrowers into arrears on loans.

Net income fell to $64.2 million (€49.6 million) at the end of the first quarter from $202.2 million a year earlier, the bank based in Buffalo, New York said in a statement.

The results fell below expectations and the shares fell to a low of $46 in trading, cutting AIB’s potential gain from the sale of its stake to €400 million from €660 million at the start of this week.

M&T has resisted reducing its dividend or selling new shares, even after taking $600 million from the US government’s bailout programme last year.

The bank, which counts Warren Buffett’s investment firm Berkshire Hathaway among its largest shareholders, wrote off $158 million in credit losses in the first quarter, compared with $60 million a year earlier and $151 million in the final quarter of last year.

The bank attributed higher “net charge-offs” to “the continuing recession” within the US. “Sharp declines have been experienced in residential real estate values, which has adversely impacted businesses and investments tied directly to the residential real estate marketplace,” the bank said in a statement.

Declining profits at M&T will put AIB under increased pressure to look elsewhere for fresh capital in a bid to raise extra cash after the Government forced it to build up higher capital reserves to cover potentially higher future losses.

AIB has said it plans to raise an additional €1.5 billion in capital – on top of the State’s €3.5 billion investment – by the end of this year, possibly through sales of some of its businesses.

The bank said in a circular to shareholders yesterday that the failure to conclude the State’s €3.5 billion investment in the bank “could have material adverse consequences for the group’s business, operating results, financial condition and prospects”.

AIB said that if the investment was rejected by shareholders at the extraordinary general meeting on May 13th, it would “need to assess its strategic and operational position, and would be required to find alternative methods for achieving targeted capital ratios”.

AIB said on Monday that proposed asset sales marked a “reappraisal” of its earlier position, signalling that it may seek to sell its 70 per cent stake in Polish bank, Bank Zachodni WBK. Earlier this year, AIB denied it would sell the Polish bank to raise capital.

The bank could also boost its pure equity capital by buying back debt from investors at discount.

AIB announced plans to raise more capital after the Government pressured it to set aside more in reserve after performing “extreme stress test scenarios” as part of its due diligence ahead of the €3.5 billion State investment.