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Allied Irish Rebounds to Profit and Readies for Sale

Allied Irish Banks Plc, the state-owned lender being prepared for a stake sale, returned to profit in the first half as loan losses plunged and interest income soared.

AIB reported net income of 411 million euros ($551 million) for the six months through June, compared with a loss of 758 million euros a year earlier, the Dublin-based lender said in a statement today. The loan impairment charge fell 88 percent to 92 million euros as loans in default fell and the bank released some provisions after restructuring soured debts.

“These are a very strong set of results, with AIB setting a high bar for the other Irish banks,” said Ciaran Callaghan, an analyst with Dublin-based Merrion Capital. “The bank’s improving fundamentals and internal capital generation bode well for the commencement of its planned equity privatization next year.”

Chief Executive Officer David Duffy, 52, who took over in 2011 after AIB received a 21 billion-euro bailout amid western Europe’s worst real estate collapse, said today the bank may be ready for a stake sale next year. Facing European Central Bank stress tests later this year, the bank said its capital position is strong.

“In the very unlikely event that there actually was not sufficient buffering, there are a number of internal actions that the bank could take to increase it further,” Mark Bourke, chief financial officer, said in an interview.

The bank could boost its reserves by retaining profit and selling assets, he said. The bank’s core equity Tier 1 ratio, a gauge of financial strength, rose to 11.8 percent at the end of June from 10.5 percent on Jan. 1.

Interest Income

Net interest income rose 36 percent to 807 million euros as margins widened, helping AIB’s return to underlying profit for the first time since 2008.

The bank’s net interest margin, the difference between the average rates at which it borrows and lends to customers, rose to 1.6 percent from 1.28 percent. Irish banks have been boosting their margins by lowering deposit rates and increasing borrowing costs.

AIB’s first-half pretax income of 437 million euros compared with an 838 million-euro loss a year ago. That beat the 195 million-euro median estimate of four analysts surveyed by Bloomberg.

The government controls 99.8 percent of the bank’s stock, leaving 0.2 percent available for private investors to trade. AIB rose 2 percent as of 8:53 a.m. in Dublin trading.

“The negligible first-half loan loss provision catches the eye, as write-backs materialize in the restructuring unit and provides comfort over the bank’s capital position ahead of the ECB stress tests,” said Stephen Lyons, an analyst with Dublin-based securities firm Davy.

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