AIB has been badly hit by plummeting commercial property markets, losing 95pc of its value since its share price high in early 2007. On Monday, it warned that bad debts could hit €4bn (£3.6bn) this year compared with €1.8bn in 2008. “We are now effectively doubling our previous guidance on bad debt charges,” finance director John O’Donnell said.
The bank is stress testing its book under a base case scenario where property prices fall 20pc-40pc, which would lead to €2.9bn of bad debts. Under its worst case scenario, a crash of 50pc, the bank would need to set aside €4bn. “These are pretty horrendous figures no matter how you look at them,” Mr O’Donnell added. AIB expects only modest loan growth this year and its lending margin will be down. It has seen outflows in institutional deposits since the start of the year but said they were not significant.
Investors are waiting to see whether Dublin will follow the UK’s lead and set up an insurance scheme for toxic debts or create a “bad bank”. Dublin is injecting €3.5bn into AIB and the same amount into rival Bank of Ireland to bolster their capital position and revive the flow of credit.
Eugene Sheehy, the chief executive, on Monday rejected suggestions he should resign. The 54-year-old is the only boss of a major listed Irish lender still in his job after peers either left under a cloud following a scandal or retired early in the face of large loan losses.
“I have a plan to run the bank and lead the bank through this crisis,” Mr Sheehy said, adding he intends to retire when he reaches 60.
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