Allied Irish gets ready to repay state after profit surge

By Padraic Halpin

DUBLIN (Reuters) - Allied Irish Banks (ALBK.I) (AIB) almost tripled first-half pretax profit as it clawed back money put aside for bad loans, cut costs and increased margins, improving the prospects of it beginning to pay back a state bailout.

The rescue of AIB has cost taxpayers 21 billion euros (15 billion pounds), the most given to any Irish bank still trading, and the government hopes to recover it all, beginning with a 25 percent stake sale later this year or more likely next.

Before any sale, the bank must first conclude talks with regulators and the government on reorganising its capital structure, including how much the state can redeem of the 3.5 billion euros of preference shares it owns in the bank.

"That conversation is advanced with all parties," AIB chief financial officer Mark Bourke told Reuters on Friday.

"The last leg of it is how do you cut the preference shares, how much redeemed, how much converted to equity, and there will be an element of both. There is a near-term possibility of giving a large level of capital back."

After AIB's Core Tier 1 capital adequacy ratio, excluding the preference shares, rose to 8.3 percent under the so-called fully-loaded Basel III banking industry rules, Davy Stockbrokers estimated that 1.3 to 2.5 billion euros could be redeemed.

Alongside the planned redemption of 1.6 billion euros worth of state-owned contingent capital notes (CoCos) next July, the capital re-organisation could yield up to 4 billion euros for the state before an initial public offering (IPO), Davy said.

AIB reported underlying pretax profit of 1.24 billion euros in the six months to June 30, up from 437 million a year earlier and more than the 1.1 billion it made in the whole of 2014.

Like most Irish banks, AIB last year returned to profit for the first time since the 2008 financial crisis and began writing back some of the billions of euros in provisions it had racked up before Ireland's economy began to recover strongly.

The 99.2 percent state-owned bank said it was able to take an overall provision writeback of 540 million euros in the first half as its total stock of impaired loans fell by 19 percent.

Bourke expects writebacks to continue in the second half and into early 2016 but said the results were "uniformly strong", with pre-provision operating profit at 701 million euros.

AIB, which also announced its third 25 basis points cut to standard variable-rate mortgages in the space of year, said its net interest margin, excluding government guarantee fees, rose to 1.92 percent.

Net loans increased marginally to 63.8 billion euros, although, like other lenders whose repayments still outpace new lending, this included positive foreign exchange movements.

(Editing by Jason Neely and David Holmes)