February 17, 2011
By Staff Reporter
Eugene Sheehy, the 50-year-old Dubliner who took on the top job at Allied Irish Banks (AIB) at the start of July, announced robust profits at a press briefing in the Irish capital last week. The group reported profits of EURO851m ($1.05bn), to the end of June this year. That figure represented a 21 percent increase on the profits for the same period last year.
Sheehy also claimed that the kind of growth the group had shown over the period was not a one-off:
“Our success is founded on sound business strategies in good markets executed by top-quality staff,” he said. “We are confident that this level of performance is sustainable.”
The results were uniformly good across the group. Total income increased12 percent to EURO1.8 bn ($2.2bn), deposits rose six percent and loans grew by eight per cent.
With exceptional costs excluded, profits rose 34 percent in the Republic of Ireland. The group’s other operations also did well. Its profits in Poland increased 17 percent, while the combined Britain and Northern Ireland operation grew by 13 percent.
Perhaps just as importantly, the period was free of serious trouble for the bank. In recent years, AIB has been rocked by two major scandals. The more grave of the two came at the group’s U.S. subsidiary Allfirst – a currency trading fraud perpetrated by John Rusnak cost the bank about $750m.
Then, last year, it emerged that AIB in the Republic of Ireland had systemically overcharged customers of its foreign exchange business for almost a decade. The bank has subsequently refunded about $35m to customers affected by the farrago, which executives ascribed to an administrative error.
While Sheehy will be happy that nothing similar to those stories has emerged to blight the early days of his tenure, he also faces two tricky strategic decisions. Both concern AIB’s foreign interests.
In the wake of the Allfirst scandal, AIB sold the subsidiary to the US-based M&T bank in a complex deal that also saw the Irish group take a 22 percent stake in M&T. According to a recent report in the Irish Independent, the stake has appreciated in value by about EURO500m ($619m) since the deal was struck, giving it a value of about EURO2.4bn ($3bn). The question is whether AIB will sell up sometime soon and try to put the money to better use.
The other issue concerns its operations in Poland, where it holds a majority stake in the relatively small Bank Zachodni WBK. The potential for rapid growth in the Polish economy might encourage Sheehy to stay in that market; however, there has also been rapid consolidation within the Polish banking sector, and that trend does not help AIB.
The most testing decisions Sheehy has to make in the short-term are whether or not to keep these involvements in the US and Poland.
One analyst who spoke to the Echo when Sheehy was appointed to his new role, Scott Rankin of Davy’s Stockbrokers in Dublin, contended that the bank would get out of America and stay in Poland.
“Both of those decisions will be good for shareholders,” Rankin claimed.