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Allied Irish Banks (AIB) |
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WIKI ANALYSIS
Allied Irish Banks (NYSE: AIB) is the second-largest bank in Ireland by assets. The firm offers various financial services, including lending and capital markets activities. Debt contagion in Ireland has caused the bank to suffer losses in the past two fiscal years, as interest rate changes cause the bank to make less net interest income. In addition, the bank's Irish clients are failing to repay loans, as Ireland's economy is drowning in debt.
Business Overview
In the past fiscal year, Allied Irish Banks turned a loss due to debt contagion in Ireland.[1] As the debt crisis consists,[2] AIB and other Irish banks may continue to turn losses.
Trends and Forces
AIB Suffers from European Debt Contagion
AIB is directly and indirectly affected by market conditions. For example, changes in interest rates could adversely affect net interest margin — the difference between the yield the bank earns on assets and the interest rate it pays for deposits and other sources of funding — which could in turn affect earnings. Market risks include fluctuations in interest and currency exchange rates, and equity and futures prices. Such risks affect loans, deposits, securities, short-term borrowings, long-term debt, trading account assets and liabilities, and derivatives. In the past fiscal year, these risks have had a negative affect on European banks, as the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) have been at risk of default.
AIB has Exposure to Lending and Credit Risks
A number of AIB's products expose it to credit risk, including loans, leases and lending commitments, derivatives, trading account assets and assets held-for-sale. As one of the Ireland’s largest lenders, AIB relies heavily on accurately predicting how well its customers will repay their loans. The corporation must constantly weigh ongoing economic factors and should they overestimate its customers' ability to repay loans, the bank's overall performance will suffer.
Competition
- Bank of Ireland (IRE) The largest bank in Ireland by assets,[3] IRE is AIB's primary competitor.
- Royal Bank of Scotland (RBS-LN) RBS is another bank that competes with AIB for clients in the Northern U.K.
- Barclays (BCS) The U.K.'s largest bank by assets,[4] Barclays also has a dominating presence in Ireland.
- Lloyds Banking Group (LYG) LYG is another bank centered in England that competes with AIB.
References
- ↑ AIB 2010 20-F
- ↑ Seeking Alpha, "The Biggest Loser in Ireland's Ongoing Debt Crisis," 12/02/2010
- ↑ Bloomberg, "Bank of Ireland Becomes 'Slave' to Country's Sovereign Debt Woe," 06/15/2011
- ↑ Retail Banker International, "Barclays overtakes RBS to rank UK no.1 by assets," 08/06/2010
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