AIB shares drop despite rise in profits

SHARES in AIB slumped by just over 6% yesterday despite posting a rise in underlying earnings for 2003. The bank saw profits, excluding a number of one-off items, increase by 3% to €1.01 billion.

Despite this the shares fell by 83 cents to €12.47 on the Irish stock exchange as the lacklustre results failed to excite the markets.

Although earnings were ahead, the bank took a hit on several fronts. The weakness of US dollar, sterling and the Polish currency against the euro knocked 4% off its earnings per share (EPS), while the bank also booked a loss on the disposal of its British fund manager Govett.

Overall, profits for the year to end December 2003 were down €361 million on the profits recorded in 2002. Earnings per share for the year, excluding the restructuring of its Polish banking arm, the sale of the US bank Allfirst to M&T Bank and an early retirement package saw EPS of the year come in at 109.5 cents, down 11% on 2002.

According to brokers yesterday the share price suffered as the results were full of "noise", making it hard to assess the underlying business.

"Overall, the results have been clouded by a number of one off items, with 2003 representing a transitional year for the group. That said, high single digit growth (before the impact of the currency) is respectable and the shares remain undervalued," David Odlum of NCB Stockbrokers said yesterday.

Another broker said one of the reasons for the drop in the share price was that the bank was expected to announce the acquisition of the pension and investment firm Eagle Star.

Though AIB chief executive Michael Buckley said that it wanted to expand its pensions and insurance business he made no comment on whether an acquisition was imminent.

One concern highlighted by other analysts was the 0.21% fall in its net interest margins to 2.7%.

But Mr Buckley said: "Half the 21 basis point margin attrition was due to the fact that we are growing our loan book more quickly and our deposit book is running at about half [of the growth rate of the loan book] and that creates a funding gap, which means we go to the wholesale market for funding ... which is more expensive," Mr Buckley said.

On the issue of its stake in the US bank M&T, in which AIB has a 22.5% stake Mr Buckley said he saw no rational for selling it and that M&T's share price is 25% higher than when the stake was acquired last April.

Looking ahead to this year Mr Buckley forecast that the bank's profits would rise by "high single digits" but currency affects would bring the figure back down to 5%-6% for the year.