ANGLO SETS ASIDE €0.5 BILLION FOR BAD DEBTS - Anglo Irish Bank has announced pre-tax profits of €784m for the twelve months until the end of last September. The figure represents a decline of 37% on profits in 2007. The bank also says that it is putting aside €0.5 billion in anticipation of losses on loans. Earnings per share fell by 34% to 88.4 cent. The bank's board says it is not paying a final dividend for the current year in an effort to further strengthen its capital ratios. Anglo Irish Bank says that it charged €27m for the year to September 2008 in relation to exposure to Icelandic banks. The bank also incurred losses of €4m arising from the collapse of Lehman Brothers and Washington Mutual in the US.
Anglo Irish Bank's group CEO David Drumm the bank's recurring profits, which roll through in a year by year basis, rose to €1.8 billion from €1.4 billion. But these were offset by once-off special charges, which came from the bank's Treasury division and were made up of mark-downs on bonds and bad debts of €0.25 billion. This brought the bank's profits down to €1.3 billion, but on top of that the bank is also putting aside another €0.5 billion for future bad debts. He says the move is an 'ultra-prudent stance' as the bank recognises what is going on in the world. He points out that the bank's loan book is in very good shape with 94% of loans ranked as 'high quality' or 'quality'. He says that the bank has made the provisions it needs to make in the accounts and on top of that it has made the €0.5 billion provision to bring its profits down to roughly where they were in 2006.
He says the bank has enough capital to absorb losses and adds that the bank's profits in the future will also be enough to absorb any losses. He says that while the bank's capital is strong, the definition of strong has changed. He says that banks are required to have 4% core capital and Anglo Irish Bank has a core capital of 6.7%, but the markets are now suggesting a new level of 8%. He said that if the bank does out and raise capital, it will look for it on terms that suit the bank and will also recognise the bank's existing shareholders.
The lender's CEO says that merging with another bank is not on the bank's agenda. He says the need for competition for a specialist business bank - like Anglo - has never been greater. 'Anglo as a banking force in Ireland is much more relevant than it ever was,' he states.
Mr Drumm also said that the bank's executives will see a pay cut next year. He said that no bonuses will be paid, while salaries will be frozen. He said this would result in a 50 to 60% cut in annual remuneration for the bank's top management. Mr Drumm was paid about €3m last year.
Simon Carswell, from the Irish Times, says that Anglo Irish Bank is following what other banks have done in relation to their bad debts. The bank's bad debts have quadrupled in the past year while loans in arrears have more than doubled. He says the bank's pre-tax profits of €748m equates to about €70m more than the bank is worth based on yesterday's closing share prices. He says that investors are either pricing in significant increases in bad debts or the bank going out to raise more capital, probably from existing shareholders.
