The Hard Luck Of The Irish

Published in Company Comment on 12 April 2011

Allied Irish Banks loses a record €10.4bn, or more than £2,000 per Irish resident.

Allied Irish Banks (LSE: ALBK) unveiled its full-year results for 2010 on Tuesday -- and what a horror story they were!

Irish eyes aren't smiling

Of course, Ireland has been one of the biggest victims of the global financial crash.

After gross domestic product (GDP) growth averaging 6% between 1995 and 2007, the Celtic Tiger went from boom to bust. Following the collapse of its housing and credit bubbles, Ireland's economy shrank by 3.5% in 2008, 7.6% in 2009 and an estimated 1.6% in 2010.

In Dublin and other property hotspots, property prices have more than halved from their 2007 peak. Of course, this unprecedented crash in house prices and credit put Ireland's banks under huge strain. Hence, the Irish government has been forced to shore up its crippled banking system with extraordinary capital injections, liquidity support and so on.

A broken bank

Allied Irish Banks was formed in 1966, although its constituent banks date back to 1825. In Ireland, it was second only to Bank of Ireland. In the UK, it trades as Allied Irish Bank (GB) and in Northern Ireland as First Trust Bank.

Allied Irish Bank's latest results show all too clearly what happens when bubbles burst. In 2009, the ailing bank made a loss of €2.7 billion. Today, it revealed that this loss had almost quadrupled in 2010, soaring to €10.4 billion (£9.2 billion).

Included in this gargantuan loss is a €7 billion loss relating to transfers to NAMA (the National Asset Management Agency), Ireland's 'bad bank'. Also, it includes a further €6 billion of credit provisions (a quarter of which are NAMA-related).

However, Allied Irish actually made an operating profit of €963 million in 2010, after stripping out losses and provisions totalling €13 billion. Of this, €577 million came from its capital-markets operation, €189 million from its Irish operations, and £141 million from its UK arm.

Shocking sums

For the record, Allied Irish's latest loss is the second-largest in Ireland's corporate history, beaten only by the €17.6 billion lost last year by Anglo Irish Bank. To put Allied's loss into context, it works out at over £2,000 for every person living in Ireland.

In December 2010, the Irish government all-but-nationalised Allied Irish, so it survives as a ward of the state. Had it not done so, Allied would have been insolvent, thanks to its exposure to massive losses on loans for land, commercial and domestic property.

In effect, Allied is insolvent, but the Irish government has indicated to holders of its senior debt that they will not lose out as shareholders have done.

What next?

Having 'kitchen sinked' its results for 2010, things should improve for Allied Irish this year. However, by international banking standards, it is still 'circling the drain'.

Indeed, more than a quarter (13.4%) of its total loan book is already impaired, with an even larger proportion looking shaky. Likewise, its tier-one capital ratio stands at a mere 4.3%, or less than half that of a healthy bank. Whether they like it or not, its loss per share of €5.64 will be borne by Ireland's taxpayers.

In summary, there's not much more that I can say about Allied Irish Banks. It's not so much a company or a bank as a huge pit in which billions of euros are burning. Like the statue of Ozymandias in Shelley's famous poem, Allied Irish is nothing more than a broken symbol of corporate arrogance, risk-taking and failure.

More from Cliff D'Arcy:

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jaizan 12 Apr 2011 , 10:45pm

Is this hard luck or bad judgement?

Ireland should never have joined the Euro.

CunningCliff 13 Apr 2011 , 12:47pm

To me, Ireland is a classic example of Stein's Law, namely, "If something cannot go on forever, it will stop."

Fifteen years of boom followed by the sharpest contraction since, perhaps, the Great Famine of 1845-52.

I really feel for Ireland and its people. :0(


AlysonThomson 13 Apr 2011 , 2:13pm

Yeah exactly, jaizan.

tru2me 13 Apr 2011 , 2:14pm

Many of them Cliff, are leaving the emerald isle.

Plus the ECB has just raised interest rates.

Also as Allied Irish Bank operates in the UK may it not have to pump up it's tier 1 to 10% loaned out, according to latest comments on the UK banking industry.

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