B of I downgrades earnings growth to single digits

Bank of Ireland has cut its forecast for earnings growth for the year to March 31st, 2008, blaming the economic slowdown and continuing volatility in the financial markets.

The bank downgraded its guidance for growth in underlying earnings per share (EPS) yesterday from "low double-digit" to "high single-digit". The bank's chief executive, Brian Goggin, said the earlier forecast, made in September, was based on the assumption the financial turmoil would start to ease in January and markets would return to normal by February or March.

"This will probably go on well into 2008 and we are not prepared to make any statement with regard to earnings guidance for 2008 at this juncture," he said.

John O'Donovan, chief financial officer, said the bank was "very comfortable" with its balance sheet, 46 per cent of which is funded in the wholesale market.

The bank's shares fell almost 9 per cent yesterday before recovering to close down 5.5 per cent, or 57 cent, at €9.83, its lowest level since May 2004. Some 18.2 million shares, three times the daily average, were traded in Dublin.

Mr Goggin said the housing "correction" had been sharper than expected and that the bank had wrongly assumed the market would pick up in the autumn. The bank is predicting high single-digit mortgage growth, down from its 12 per cent forecast in September.

The bank's pretax profit rose 24 per cent to €1.091 billion for the six months to the end of September and underlying pretax profit rose by 12 per cent to €951 million.

Underlying EPS rose by 10 per cent to 80.1 cent in line with forecasts. The bank took a charge of €79 million on bad loans - up from €48 million last year.

Mr Goggin said the economy could continue to generate jobs and predicted economic growth of 4 per cent in 2008. "This economy is not about to go off a cliff." He said the bank spent more time selling the economy to international investors than it did talking about itself. He described the negative reaction to the Republic among international investors as "frustrating".

The bank said it would not be fundamentally altering the way it lends money in light of the High Court cases in which two solicitors availed of legal undertakings (a trust mechanism used in residential property transactions) to borrow multiple mortgages on the same properties.

The bank said the use of undertakings was not a major concern and that its exposure in the cases was "minimal". "The problem is with the Land Registry - it can take up to three years to perfect one charge," said Mr Goggin.

The bank complained to the Law Society last year about one of the solicitors, Michael Lynn, after he failed to fulfil an undertaking. Mr Goggin said yesterday: "Any regulating authority has a huge responsibility to act on information that comes into its possession so I would suggest that the Law Society itself has a lot of explaining to do in terms of how it has handled the two issues in particular."