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Allied Irish Banks plc (NYSE: AIB)

Allied Irish Banks p.l.c. (AIB) is diverse banking and financial services organization. Together with its subsidiaries, it offers a full range of personal and corporate banking services in the Republic of Ireland, the U.S., the UK and Poland – the Company’s principal countries of operation. Its business is conducted through five operating divisions: AIB Bank Republic of Ireland (ROI) (which holds approximately 44% of the group’s assets), Capital Markets (33%), AIB Bank UK (12%), Central & Eastern Europe (7%) and Group (4%).

Furthering its international presence, AIB has acquired interests in AmCredit, a mortgage provider in the Baltic states of Estonia, Latvia and Lithuania, and also entered into an agreement to purchase a 49.99% interest in BACF, a Bulgarian-based specialist provider of secured funding to small and medium businesses. The Company has also established representative offices in several other key locations including Budapest, Paris, Luxembourg, Sydney, Frankfurt and Zurich.

AIB was incorporated in 1966, and is headquartered in Dublin, the Republic of Ireland.

Source: Reuters.com, SEC Filings, FY ending December

Financial Summary

Operating amid continued volatility and uncertainty in world financial markets and the rapid deterioration in global economic condition,  AIB reported operating profit before provisions of €1.7 billion (€1.1 billion underlying), a pre-tax loss of €0.9 billion and an adjusted loss per share of EUR 164.4c, for the six months of 2009.

For the same period, AIB Bank ROI posted a loss of  €1.5 million and a 33% decline in operating profit, while AIB Bank UK posted a loss of pounds 28 million and a 17% operating profit. Capital Markets posted a profit of €252 million but was down 13% while operating profit was up 55%. Poland recorded a profit of złoty313 million, down 49%, while operating profit declined by 4%. M&T’s dollar contribution was down 71%, with impairment charge of €200 million taken against investment.

While revenue generation continued to be challenging, AIB’s active management of it cost base yielded a 7% reduction in costs generating a neutral income/cost growth rate gap and a reduction in the underlying cost income ratio of 0.9% to 48.3%(2) with operating profit before provisions reducing by 6%.

Analyst Consensus

Source: Reuters.com

Analysts rate shares of AIB a “Hold.” This is the consensus forecast amongst 11 polled investment analysts.

Source: http://markets.ft.com/tearsheets/analysis.asp?s=AIB

Investment Highlights

Overview

AIB, together with its subsidiaries (collectively referred to as the AIB Group or the Group) provides retail and corporate banking, investment banking, and asset management services in the Republic of Ireland, the United States, the United Kingdom, Poland and rest of the world. The Company’s business is conducted through five operating divisions: AIB Bank Republic of Ireland, Capital Markets, AIB Bank UK, Central & Eastern Europe and Group.

AIB Bank ROI division consists of the group’s retail and commercial activities in the Republic of Ireland, which also includes its life and pensions subsidiary and other specialist businesses offering credit cards, car finance and leasing products, home mortgages and other services. Through the AIB Bank UK division, the Company provides retail and commercial banking services in Great Britain, where it operates under the name Allied Irish Bank (GB) and Northern Ireland, where it trades as First Trust Bank. AIB Capital Markets comprises Investment Banking, Asset Management, Corporate Banking and Global Treasury activities of the group as well as the Allied Irish America network, which caters for the community and charity sector in the U.S. The Company also owns 70.5% of Bank Zachodni WBK S.A., one of Poland’s leading financial institutions.

Products and Services

The Company accepts demand deposits, time deposits and current accounts, as well as provides lending services, such as vehicle, equipment, and fleet leasing; retail and investment property loans; vehicle and equipment hire purchase; insurance premium financing; and personal loans. It also offers wealth management services, such as retirement, investment, and estate planning, as well as a range of life and pensions products. In addition, the Company provides corporate finance, treasury, risk management, stock broking, and outsourced financial services. Further, it offers specialist services comprising home mortgages, Visa and Mastercard credit cards, invoice discounting, asset finance, loans and overdrafts, payment services, and foreign exchange facilities; and electronic banking services, which facilitate account accessibility via telephone, mobile phone, and the Internet. Additionally, AIB provides financial planning and custody services; and mutual funds, and leasing and factoring products. It serves various customer segments, including individuals, small and medium sized businesses, farmers, and commercial and corporate clients.

Operating in a fragile financial sector, AIB has posted heavy losses for first six months of 2009, as its core market in the Republic of Ireland and  the neighboring United Kingdom reflected lost deposits and weak business. In addition, the Company’s loan book suffered from customers’ late-payments and non-payments, pushing the Company to write off euro2.37 billion of loans.

The Irish government is moving its €54 billion (50.4 billion pound) “bad bank” draft business plan forward as it responds to financial crisis and the deflation of the Irish property bubble. The country’s National Asset Management Agency (NAMA), with a primary goal of improving the availability of credit in the Irish economy, will acquire property development loans from Irish banks in return for government bonds.

As recently reported by Reuters, “NAMA is seen generating net cash of 5.48 billion euros over its lifespan and it is expected to be in the black from the first year and to stay there for almost a decade until its interest income dwindles and debt repayments rise.”

The Minister for Finance has reportedly indicated 24 billion (gross) of AIB loans, in respect of which the economic interest could be transferred to NAMA. The Company expects the transfer to take place on a phased basis beginning in November this year with completion targeted for mid 2010.

On September 24, AIB announced a €1 billion three-year Senior Unsecured Unguaranteed Bond Issue, the first from any Irish bank since the Irish Government Guarantee was introduced in September 2008. “The positive reaction of the international markets by investing in unsecured and unguaranteed bonds of AIB reflects the clarity and certainty brought by NAMA,” Colm Doherty, managing director of AIB Capital Markets, stated in a report. “This deal represents a very significant step towards the normalisation of the international credit markets stance towards Irish banks and bodes well for future unguaranteed issuance from the Irish financial system.” According to the Company’s report, the deal was reportedly priced at a spread over mid-swaps of 250 basis points with in excess of 230 international investors reflecting a well diversified geographic profile and was oversubscribed by 2.9 times.

While the government’s move to socialize bank losses is expected to give Irish lenders the much needed boost, AIB is leveraging its diverse franchises and strong competitive position to emerge from the downturn. It is also maintaining an active focus on costs, as well as on asset quality and risk management. The Company yielded a 7% reduction in costs generating a neutral income/cost growth rate gap and a reduction in the underlying cost income ratio of 0.9% to 48.3%, with operating profit before provisions reducing by 6%, for the first six months of 2009, thanks to its active management of its cost base.

Cramer recently expressed bullishness on two Irish lenders, recommending a buy on AIB and Bank of Ireland (ADR) (NYSE: IRE). On September 30, shares of AIB surged more than 550% in the last six months.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

Moving Average

AIB is currently below its 13-day moving average. This is generally considered to be an indication of a bearish trend.

MACD

AIB’s MACD is indicating a weak bearish signal. Although the indicator is above the critical level of 0, which implies that the underlying moving averages are bullish, the MACD has crossed below its 9-day moving average or signal line. This suggests that positive momentum has begun to slow.

Bollinger Bands

AIB has been relatively stable recently. This is evidenced by the width of its Bollinger Bands which are tighter than normal. Additionally,  AIB is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

Source: http://www.scottrade.com

Comparative Analysis

AIB has a negative Return on Assets of -0.54%, compared with an industry average of 0.75%; and Return on Equity of -6.15%, compared with an industry average of 8.29%.

Source: Yahoo! Finance, Analyst Estimates.

Insider Trading Activity

NET SHARE PURCHASE ACTIVITY

Data provided by Thomson Financial

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