3rd UPDATE: Bank Of Ireland Fiscal Year Net Profit Slumps On Weak Economy
May 19 2009 - 10:02AM
Dow Jones News
Bank of Ireland PLC (IRE) Thursday said its fiscal full-year net
profit slumped as the housing market crash burdened it with
restructuring and impairment charges, but said that its plan to buy
back up to EUR3 billion worth of outstanding bonds should boost
earnings.
The bank is making tender offers relating to six Tier 1
securities with a nominal value of around EUR3 billion. The
indicated maximum size of the tenders is a nominal EUR1.4
billion.
It said the bonds have been trading at significant discounts to
par value and it is buying them back at in order to generate a
profit. The bank expects them to be "equity accretive."
Separately, the bank's Governor Richard Burrows also announced
his retirement from the Annual General Court in July 2009.
"Accountability for these losses must be taken at the top," the
governor said in a statement.
The bank sees loan impairments rising to EUR6 billion from
EUR4.5 billion in the three-years to March 2011, citing a change in
the economic forecasts in Ireland where 50% of the credit risk on
the bank's lending portfolio is based.
"This is based on existing economic forecasts," Chief Executive
Officer Richie Boucher told Dow Jones Newswires in a post-results
briefing. "Based on further stress testing, we believe we will be
adequately capitalized."
In Ireland, the impairment charge rose to 129 basis points
versus 28 basis points last year. Of the increase in the charge to
EUR708 million from EUR129 million, 10% relates to residential
mortgages, 12% is consumer lending and 78% to property and
construction.
The bank said that 12,200 of its Irish residential mortgages
were now in negative equity - equivalent to 6% of its mortgages -
and added that the percentage of those mortgages in arrears had
nearly doubled in six months.
Boucher said that the bank faces "another difficult financial
year" in the 12 months to March 31, 2010.
The bank posted a net profit of EUR59 million in the 12 months
to March 31, 2009, down from a net profit of EUR1.68 billion a year
earlier, while operating income fell 5% to EUR3.9 billion, and
underlying earnings-per-share fell 80% to 30.2 cents versus 150.3
cents last year.
It posted a pretax loss of EUR7 million versus a profit of
EUR1.93 billion after several costs, including EUR304 million in
impairment of goodwill and other intangible assets and EUR83
million in restructuring charges. Before these charges, pretax
profit fell 81% to EUR332 million from EUR1.79 billion last
year.
The underlying quality of results was weaker than expected,
according to London-based Keefe, Bruyette & Woods, but the
brokerage said the earning were supported by a continued strong
performance in capital markets in the second half of 2008. KBW has
a market perform rating and EUR0.50 target price on the stock.
But investors were pleased that it wasn't worse. At 1305 GMT,
the bank's shares were up 24% at EUR1.34 on the Irish Stock
Exchange. However, Irish banking shares are volatile and they are
still down from EUR8.69 this time last year.
In relation to the structure of the new National Asset
Management Agency, Boucher said that none of the scheme's perceived
legal issues are "insurmountable" as long as the government's
approach is "pragmatic and sensible."
Boucher said that at least EUR12.2 billion of land bank and
commercial property development loans will be covered under NAMA,
but said it isn't clear whether all those loans will be transferred
or managed by NAMA.
The bank is part of the government's EUR440 billion industry
deposit guarantee and received EUR3.5 billion in capital from the
government in return for a 25% stake. The government has said it
will take a controlling stake in Bank of Ireland or Allied Irish
Banks PLC (AIB) if necessary.
However, Group Financial Officer John O'Donovan said it was
"dramatic" to assume that the government will take a majority stake
in Bank of Ireland after assets have been transferred to NAMA, the
so-called bad bank.
Boucher added that the bank's engagement with the government has
been "positive, realistic, pragmatic and sensible." But he said the
bank's property assets may come under further due diligence by the
government.
Merrion Capital said it was premature to consider Bank of
Ireland "investable" until greater certainty emerges about
potential losses to be crystalized on transfer of assets to NAMA.
Merrion has a hold on the stock.
Company Web site: http://www.bankofireland.com
-By Quentin Fottrell, Dow Jones Newswires; 353-1-676-2189;
quentin.fottrell@dowjones.com