Anglo shares fall over IFRS concerns

Shares in Anglo Irish Bank weakened for the second consecutive day yesterday as concerns mounted over how new accounting standards would affect the bank's profits.

A research note released by Goodbody Stockbrokers banking analyst Eamonn Hughes yesterday morning suggested that the new International Financial Reporting Standards (IFRS) could lead to an 8 per cent fall in Anglo's reported profits in 2006.

A reduction of this extent had not previously been expected by the market and Anglo tumbled by 4.6 per cent at €18.70 in morning trade, as nervous sellers offloaded their stock. The move came after a 2 per cent fall during the previous session, when the IFRS concerns began to emerge.

However, worries were soothed later in the day, as industry sources began to argue that a more likely result of IFRS would be close to 6 per cent.

This news helped to steady Anglo's shares, and the bank moved back up to close at €18.90, down 70 cents on the day.

Anglo Irish has yet to formally offer guidance to the market on IFRS, in contrast to the other Irish banks. It is, however, expected to update the market on the matter when it releases interim results on May 4th.

Mr Hughes yesterday described the new standards as "a bit of a black box" for banks, since they will affect different companies in different ways.

In Anglo's case, he expects the biggest impact to come in the treatment of "arrangement fees" earned by the bank when it advances a loan.

Under existing standards, these fees are treated fully as revenue in the year they are received. However, IFRS will require that the fees are amortised over the life of a loan.

This will automatically lead to a reduction in reported profits when IFRS takes effect for the bank's 2006 numbers.

Confusion on the matter has centred on how Anglo will be able to treat historical arrangement fees under the new standards. If the bank restates these and they are amortised, as industry sources expect, this will reduce the 2006 impact of IFRS on reported numbers.

In a separate development yesterday, Anglo Irish non-executive director Lar Bradshaw bought 5,000 shares in the bank. He paid €18.85 per share.