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.