AIB warns euro will lower profits

AIB Group, the country’s leading bank, said that the strengthening of the euro will result in lower than previously expected profits in the current financial year.

It also said it is to embark on another share buy back, but did not give any details of its plans in pre close statement issued yesterday prior to publication of first half results on 29 July.

The bank said full-year earnings per share would be affected by the gains made by the sharp rise in the value of the euro in the current year.

As a result the bank is forecasting low single digit earnings growth, less than previously forecast.

The euro’s advance will cut profits from the US, Britain and Poland, it said. As a result Earnings Per Share excluding some costs will increase by a “low single digit” percentage.

Previously the bank had indicated slightly higher earnings in the mid digit category and the markets had been factoring in a figure of around 6% for the year.

However, the bank said it is storming ahead in the Irish market where it sees no sign of slowdown and it has gained revenues and market share in both its retail and commercial lending in the early part of the year.

The bank is due to post first half profits in late July and previously group finance director Gary Kennedy indicated that growth in earnings would be in the “mid single digits.”

Overseas analysts said the statement was slightly disappointing based on previous indications and analysts had been anticipating an EPS growth of 6% which the bank now says is not going to happen for the reasons outlined.

In the run up to the statement AIB share price was off about 6% and brokers say the retraction on earnings had already been anticipated given the way the euro has been storming ahead this year.

In 2003 alone the euro is up by almost 12% against the dollar and its impact has been felt, not just in Ireland but across Europe, as firms with exposure to the US market felt the impact on the bottom line. In terms of Britain the euro has gained about 8% since January and the fear is that the euro will hold much of its gains in the coming months as the US economy continues to struggle.

In its statement AIB described growth in its domestic retail and commercial banking business as excellent.

Shares in the bank rose 7 cents to €12.55 in Dublin, recovering some of yesterday’s sharp 4% dip.

Allied, which last month completed a €483 million euro share buyback plan begun after the sale of Allfirst in the US to M&T Bank Corp said it will plans a “further rolling buyback,” but did not give any details.

EPS will show marginal growth because of a lower Allfirst performance in the first quarter.