AIB pre-tax profits for first half fall

AIB has reported a 3 per cent fall in pretax profits for the first half of this year to €1.28 billion, down from the €1.32 billion announced for same period last year.

The bank said pretax profits were dragged down by slowing economies and difficult market conditions and pared its estimate for full year adjusted earnings per share to €1.85 to €1.90 compared with €2.059 last year.

The bank said it had reduced costs by 2 per cent over the first half of the year and that its loan book growth of 6 per cent lower over the period reflected lower customer demand.

AIB chief executive Eugene Sheehy said this was due to a combination of tighter lending rules and slowing consumer demand. He said while the sub-prime crisis was not impacting directly on the bank it had caused systemic problems which were.

"Funding costs and bad debts will increase relative to last year," the bank said in the statement, noting ongoing "difficult conditions" in the economies in which the bank operates.

He said due to the more difficult operating environment the bank's bad debt charge has increased to 21 basis points for the current period.

Chief Financial Officer John O'Donnell said full-year provisions for bad debt will increase to 0.35 per cent of loans, ahead of earlier guidance of 0.2 per cent.

Mr O'Donnell said he expects Irish house prices to fall by as much as 30 per cent from peak values and that the country won't see an improvement in the economy until 2010.

He said Allied Irish has a "strong" capital position and had no need to tap shareholders for funding. The bank's Tier 1 capital ratio was 7.1 per cent at the end of June and the total capital ratio was 10.6 per cent.

Customer deposits over the first six months of the year rose 9 per cent the bank said.

Adjusted earnings per share fell 4 per cent to 104.9 cents. The bank said retail banking profits in the Republic were 5 per cent lower with its capital market division reporting an 8 per cent decline in profits.

Adjusted earnings per share may fall as much as 10 per cent this year, AIB said. That compares with previous guidance of "low single-digit growth".

Underlying profits from its UK operations rose 1 per cent to £151 million (€191 million), while profits in Poland
grew by 4 per cent to 618 million zloty (€193 million). The contribution from M&T, the US bank in which AIB has a 24 per cent stake, was 11 per cent lower.

AIB said it continues to operate effectively in the current challenging environment and expects that its funding and capital positions will remain robust while its good operating performance continues through 2008.

The board recommended the interim dividend be raised 10 per cent to 30.6 cents per share. AIB cut its full-year earnings forecast after reporting first-half profit that was almost unchanged.

Additional reporting agencies