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.