AIB Hits Rock Bottom -- Is This the End?

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Not even two weeks after the announcement of the stress test results that exposed its truly miserable condition, Allied Irish Bank (NYSE: AIB  ) has disheartened its investors yet again by reporting a colossal $14.7 billion net loss for 2010. That is more than four times the loss of $3.4 billion in 2009. Has Allied Irish reached the depths of despair? Or is it just gaining momentum to the bottom?

The cause
This loss has largely been triggered by a provision of $12.3 billion that AIB was forced to take against its toxic portfolio. The reckless measures taken by the bank in good times are now making it pay penalties in the form of these enormous provisions against future losses from residential mortgages.

The effect
Losses on transfers of financial instruments to the National Asset Management Agency amounted to $12.3 billion. In 2010, customer deposits declined to $75 billion -- a decrease of a whopping $32 billion. Criticized and impaired loans of the bank stood at 30.2% and 13.4% of total loans, respectively. This may add to the mounting worries of the bank. Things are generally going from bad to worse -- and it’s showing.

Irish mortgages have also been troubling AIB as the level of arrears in owner occupier loans went up to 2.87% at the end of 2010 from 1.51% in the preceding year. Because of the loss it has incurred, AIB has also decided to trim its workforce by more than 2,000 on a phased basis.

The results of the stress test managed to pull off a surge in the shares of AIB and Bank of Ireland (NYSE: IRE  ) since the results were not as bad as expected. However, I would like to reiterate my standpoint where I had questioned the credibility of these momentary market movements in my article on the Irish Banking Fiasco. In fact, on the news of AIB’s loss, the shares plunged by 13% in intraday trading before recuperating. Such movements, therefore, shouldn’t sway prudent advisors.

And the Foolish prognosis
AIB, which is already standing on thin ice, still has a mountain to climb. And with the aforementioned burden being heaped on its back, chances of a recovery are looking slimmer at the moment. If I owned shares, I’d back out of investing in this tormented bank ASAP.

Fool contributor Zeeshan Siddique does not own any of the stocks mentioned in the article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (30)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 18, 2011, at 1:01 PM, Gonzhouse wrote:

    Regarding Irish banks: stick a fork in them, they're done. They are effectively nationalized. The only remaining question is when the EU nationalizes Ireland.

  • Report this Comment On April 18, 2011, at 2:59 PM, csbosox wrote:

    Once it was announced that the bank would be massively diluted I took my losses and got out of this stock, I would hope that anyone paying attention would have done the same.

  • Report this Comment On April 18, 2011, at 3:20 PM, kpggannon wrote:

    One has to wonder what Zeeshan's (and Motley Fool's) agenda is here. When headline words such as "catastrophe" and rock-bottom" are thrown around so freely, and when articles such as this, appear a full 5 days after annual results were published even though Zeeshan already commented on their annual results on the 13th. Hmmm. Just another shill in the employ of larger forces methinks.

  • Report this Comment On April 21, 2011, at 3:16 PM, TideGoesOut wrote:

    csbosox: I did as well. Before talk of nationalization I had thought that this was a possible situation where a star manager could pull it from the brink of collapse. Clearly however this is not the case and the Irish banks are doomed to be swallowed up by larger internationals or completely nationalized.

  • Report this Comment On April 21, 2011, at 4:54 PM, bretco wrote:

    and to think it was Motley Fool that got me into the AIB investment in the first place with such glowing predictions and such a rosey future....

    One would think i learned my lesson after KispyKreme, Legg Mason, Points International, Transact Technologies, among others.

    There have been some winners also, to be fair, but when you guys pick the dogs you seem to get the worse of the worse.

    Maybe back to the dartboard with the chimp ?

  • Report this Comment On April 25, 2011, at 4:25 PM, nofoolingforme wrote:

    The following statement is contained in the above article:

    "The reckless measures taken by the bank in good times are now making it pay penalties "

    When I bought AIB a couple of years ago, it was highly touted by the Motley Fool and contained in several of their portolios, including the Million Dollar Portfolio through which I foolishly paid hundreds of dollars to receive advice from them.

    Why didnt one of their so-called market experts uncover the problems with this bank's loans and mortgages before they touted it so highly? Isn't that what they get paid to do, by people like me, who buy their newsletters? AIB was in such deep trouble at the time, that one would think that someone, doing even the slightest amount of research, would have uncovered some problems and not recommended it to trusting people like me who are their subscribers.

    The Motley Fools stated that AIB was safe and had not taken the same risks that the other banks had and that it would weather the crash which sent the stock markets tumbling. Motley Fool stated that it would increase in share price and continue paying substantial dividends.

    Why didnt the Motley Fools, Tom Gardner et al, conduct proper research on this bank before including it in their recommendations? It certainly makes me wonder if they can ever be trusted to stand behind their recommendations.

    It is true that investing in the markets can be risky and there are no guarantees, however, I paid these guys alot of money to take some of the risk out of investing. In return, they gave rotten advice that was not backed up by the truth of the matter.

    They should not be allowed to lie to potential investors and get away with it. They should have to repay the subscription fees that I paid to them if not compensate me for the thousands of dollars I lost by taking them to know something about companies and the markets.

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