Allied Irish (ALBK) said in its trading update that conditions have worsened in Ireland, and that the bank continues to struggle with its profitability and funding. The bank's update does little to dissuade us that AIB will soon be effectively nationalised, and we do not expect to re-rate the sinking bank.
While AIB raised some capital during the quarter by selling its stake in M&T (MTB), it is halting the sale of its UK operations, leaving it far short of its requirement to raise EUR 10.4 billion by the end of the year. As a result, AIB has increased the size of its planned capital raising from EUR 5.4 billion to EUR 6.6 billion (compared to the bank's current market capitalisation of EUR 530 million). We anticipate that nearly all of the shares will be purchased by the government, as they are being offered at EUR 0.50 per share, above the current market price, which will effectively nationalise AIB.
In other bad but not surprising news, AIB said that it was losing corporate deposits, and was increasingly relying on monetary authorities for funding. Loan losses are increasing in both the retail and wholesale portfolios, and we do not expect the bank to report a profit for quite some time.
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