Bank raises 2009 bad debt charge by €1 billion

AIB has increased its bad debt charge from €4.3 billion to €5.3bn for 2009.

The substantial rise in the provisioning reflects the impact of expected asset writedowns incurred on the transfer of loans to the bad bank, NAMA.

The group had kept its guidance steady at €4.3bn for several months.

And analysts said there was little surprise that the bank has had to eat a bit more humble pie as the NAMA process continues to unfold.

The figures are contained in the bank’s interim management statement released to the markets.

On the plus side the group says operating profit before the massive writedowns it faces will be close to €2bn in 2009, a figure in line with market expectations.

One broker said the increase in the debt charge to €5.3bn for 2009 did not come as a major surprise given it had held its guidance of €4.3bn for bad debt in 2009 since May ahead of the impact of NAMA, so there was obvious potential for an increase.

Despite the controversy over the salary to be paid to the newly appointed managing director, Colm Doherty, and the €1bn additional bad debt provisioning, the markets have refused to be unnerved by the squall of political controversy that has engulfed the bank since it emerged on Tuesday that it was proposing not to cap Doherty’s salary at €500,000 as instructed by Finance Minister Brian Lenihan.

The bank climbed down rapidly yesterday and has ended up with further egg on its face, not for the first time since the banking crisis erupted in September of last year.

Mr Doherty has now been nominated to succeed Eugene Sheehy, who retires at the end of the month.

Sean O’Driscoll, head of the remuneration committee on the AIB board, said Mr Doherty will get no bonuses for a number of years and that €500,000 will be the sum total of his earnings from the bank for the foreseeable future.

In 2008 Mr Sheehy earned over €1.1m in pay and bonuses, well under the €2.1m he took home for his stewardship of the bank in 2007. The bank, now 25% owned by the state, said weak credit demand will see little change in the level of lending to customers by the end of the year.

Shares in the bank rose fractionally by the end of trading yesterday to €1.78 per share. After bad debt write offs, etc, the bank is projected to suffer losses of over €2.5bn for the year.

It may still require further funding from the state on top of the €3.5bn it has already received.

The bank is projected to make substantial losses again in 2010.

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