AIB Falls Most in Four Months After New Mortgage Scandal Charge

(Bloomberg) --

AIB Group Plc fell the most since September after the Irish bank more than doubled a provision to cover costs tied to a mortgage overcharging scandal, setting aside an additional 300 million euros ($331 million).

More redress “may be due to a previously identified group of customers,” the Dublin-based lender said in a statement Tuesday. The bank will take the charge in its full-year earnings, which will be published next month.

The shares fell as much as 6.1% on concern that the cost overhang may limit the bank’s ability to pay dividends. Banks in Ireland have paid about 693 million euros to more than 40,000 customers caught up in the so-called tracker scandal, where incorrect interest rates were applied to mortgages.

“The magnitude of the provision represents a further unwelcome regulatory hit to AIB’s surplus capital and returns potential,” Stephen Lyons and Diarmaid Sheridan, analysts at Dublin-based securities firm Davy, said in a note.

AIB said the revision followed a preliminary decision on an individual mortgage case by the nation’s financial ombudsman.

The bank said it still expects to propose a dividend “in line with our approach of between 40% to 60% of attributable earnings, subject to regulatory approval.” AIB added that its capital strength exceeds regulatory requirements.

The lender had previously made provisions of about 272 million euros. AIB is one of several banks under investigation by the Irish central bank for its role in the scandal.

“The provision comes as a surprise given our understanding that the industry-wide Tracker Mortgage Examination had moved on to the enforcement stage,” the Davy analysts said.

Tracker mortgage loans were closely tied to the European Central Bank’s key interest rate and were popular in Ireland before the financial crisis in 2008. Then, bank funding costs surged as the financial system teetered on the edge of collapse, meaning such loans became money-losers for banks as interest rates plunged. Many customers were subsequently placed on an incorrect rate.

AIB’s shares were down 2.5% to 2.57 euros at 10:14 a.m. in Dublin.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.