'No daylight until 2011' forecast by bank chief

ANALYSIS:Some overseas analysts believe Anglo Irish Bank will make losses in the coming years, writes Simon Carswell

ANGLO IRISH Bank had the daunting task of being the first bank in Ireland or the UK to report full-year results since the collapse of US bank Lehman Brothers in September knocked the banking world off its axis.

Anglo boss David Drumm described the crisis as the "most extraordinary financial upheaval" in the bank's lifetime before revealing the full-year figures.

The bank posted a sharp drop in pretax profits as it took a bad debt charge amounting to 1.03 per cent of loans in the year to September 30th - far worse than projected by the bank over three months ago.

The bank blamed higher projected bad loans to developers.

Curiously, while the bank intends to write off up to 11 per cent of its €8.9 billion development loan book over the next three years due to the sharp deterioration in the building sector, it actually increased its loan exposure to developers in the six months to September 30th. Analysts expressed surprise at this.

The bank said about 23 per cent, or €16.9 billion, of its €73 billion loan book was exposed to development at the end of September, compared with 15 per cent, or €10.4 billion, in March.

The bank said that it had reclassified loans, included interest roll-up in the new figure and was lending more to developers to help them finish their projects.

The market gave a resounding thumbs down to Anglo's 2008 results and its bullish forecast that it may have to write off up to €2.76 billion over the coming three years but can still make annual profits of about €700 million.

Anglo's share price slumped 29 per cent to 67 cent, its lowest price in 11 years. The bank is valued at €509 million, well short of the annual pretax profit of €784 million unveiled yesterday.

Some overseas analysts believe the bank will make losses in the coming years as it works through a loan book heavily focused on the property sector during a severe slump in property markets.

The bank kicked to touch on whether it needed to raise funding from outside investors to shore up its capital to absorb higher losses.

The bank said it wouldn't be rushed into a decision on this and that it would keep existing shareholders' interests in mind first. Anglo is also the first Irish bank to unveil full-year results since the State guarantee was introduced on September 30th, which was the last day of its financial year.

The previous day, Anglo's collapsing share price - it fell the most of the four Irish banks - prompted the Government to guarantee all deposits at all Irish-owned banks.

Yesterday, Mr Drumm said the bank had lost €4 billion in large corporate deposits during September, suffering "quite severe" outflows of wholesale funding, mostly foreign, as these deposits fell from €10 billion to €6 billion.

He said no bank could have "weathered" that kind of leakage had it continued at that level.

The bank has since attracted €6 billion in deposits and aims to attract more to reduce its loans-to-deposits ratio to 100 per cent from its current level of 120 per cent.

To achieve this, it will also slow loan growth, increasing lending by only a "low single-digit" percentage over the next 12 months.

The bank is also aggressively tackling costs. Executives have taken a pay cut and salaries have been frozen. No bonuses would be paid to senior managers, while smaller bonuses would be paid to lower ranking staff. Top managers would be taking a 50 to 60 per cent pay cut, Mr Drumm said.

The Anglo boss painted a dark outlook, concluding that he expected "no daylight until 2011".