Allied Irish Banks (NYSE: AIB ) had a good 2004, and it had little or nothing to do with the luck of the Irish. Rather, strong economic growth and loan demand in Ireland, coupled with improvements in investment banking and foreign operations, produced solid financial results.
Consolidated net profit for 2004 grew by 55%. While loans and deposits were up 30% and 16%, respectively, capital markets grew 30%, and profits in the company's 70.5%-owned Polish bank, Bank Zachdoni, tripled. For the year, Allied Irish Banks posted a return on assets of 1.2% and a return on shareholders' equity of 20.2%, and both figures are well above foreign bank averages.
In its home country, Allied Irish Banks operates in what is essentially a duopoly with the Bank of Ireland (NYSE: IRE ) . Although not often thought of in the U.S. as a growth economy, Ireland has been growing considerably faster than the whole of Europe and is projected to continue growing its GDP at a rate at least twice that of Europe as a whole. With this prosperity has come increased demand for mortgage loans, and Allied Irish Banks has been there to take advantage.
Realizing that Ireland is a small country (3.8 million inhabitants), though, Allied Irish Banks has also made strides toward building an international presence. To that end, the company generates meaningful amounts of business in the U.K., Poland, and in the United States (mostly through its 22.5% stake in New York's M&T Bank (NYSE: MTB ) ). As proof of the extent of this expansion, 50% of the company's 2004 earnings were denominated in currencies other than the euro, namely U.S. dollars, British sterling, and Polish zloty.
While the company produced 11% growth in 2004 from its Irish operations, U.K. operations grew 16%, and its profits from M&T Bank grew 43% over 2003. Looking at 2005, management at Allied Irish Banks continues to expect earnings growth in the high teens. While the company is suffering a bit from narrowing spreads (the 2004 net interest margin was down 28 basis points to 2.42%) and spreads continue to narrow, overall growth in the business should counterbalance that.
Shares of Allied Irish Banks have had a good run over the past year, despite some scandals relating to overcharging customers. With the shares trading at around 20 times earnings, valuation is at the high end of the historical range and somewhat high in general for this sort of bank. That said, Allied Irish Banks offers a respectable dividend and an interesting way to invest in several overseas banking opportunities all at once. While I won't be rushing to buy shares, the quality of this bank is no blarney.
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Fool contributor Stephen Simpson, a chartered financial analyst, has no ownership interest in any stocks mentioned but has been known to appreciate a good pint of Harp.
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