AIB

Business Plus - - SHARES -

It be­came very clear a dozen years ago that AIB is not a share for wid­ows and or­phans, and that’s been re­in­forced as the Ir­ish econ­omy plunges into re­ces­sion once again. Like the last one, no­body knows how deep or en­dur­ing this lat­est down­turn will be, and the guess­ing game leads to swings and round­abouts in the AIB share price.

The share bot­tomed out at 77c dur­ing the Paddy’s Day Panic. A week later the price was up to 121c – a gain of over 50%. Then it was down again be­fore a re­bound to 132c at the end of April, fol­lowed by a drift back to 87c and then back up again to the 100c level.

At that price, the mar­ket val­ues AIB at €2,700m. Last year’s net profit was €330m but for the 2020 re­sults it will all be about the im­pair­ment charge, with €210m sucked up al­ready for the Jan­uary to March pe­riod.

A May 12 trad­ing state­ment iden­ti­fied €6.6bn of loans out­stand­ing in Covid-im­pacted sec­tors rang­ing from bars to builders. Of these, €1bn were cat­e­gorised as trou­ble­some be­fore the pan­demic struck. With mort­gages, €2.3bn were in some form of strain and €2.3bn were fur­ther down the road to dis­tress.

The May up­date dis­closed that mort­gage breaks have been availed of re­lat­ing to to­tal loan val­ues of €2.7bn. Circa 14,000 SMEs have sought for­bear­ance (€1.5bn), while in the cor­po­rate and real es­tate fi­nance seg­ment c.€2.6bn was up for dis­cus­sion. In the UK, the bank said it had put in place over 5,000 mod­i­fi­ca­tions re­lat­ing to €1.5bn of com­mer­cial loans, with c.80% re­lated to pay­ment breaks.

Bro­ker Davy’s best guess is that AIB’s im­pair­ment charge for 2020 will be c.€920m, with an­other €860m of loan write-offs to fol­low in 2021 and 2022. That would mean a net loss of €600m this year, breakeven next year and a re­turn to profit, and pos­si­bly a div­i­dend, in 2022.

The scale of the im­pair­ments are spec­u­la­tive, as the bro­ker ac­knowl­edges. As with BofI, even in the gloomy sce­nario out­lined the bro­ker be­lieves the bank has ad­e­quate cap­i­tal buf­fers to cope.

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