Analysis: Bank of Ireland back in the black with share price racing ahead

In time to come, 2013 might be pinpointed as the year when Bank of Ireland’s fortunes turned decisively for the better after five years of pain post the global financial crash.

The underlying message from chief executive Richie Boucher yesterday was that the bank was no longer in fire-fighting mode.

It still has issues to resolve for sure but it also now has the space and capacity to think about how it might grow the business.

Milestones
Numerous milestones were achieved last year. Its restructuring plan was given the green light from the European Commission.

The commission even allowed the bank to keep New Ireland, its life and pensions business that is relatively low risk and a good cash cow.

Boucher managed to buy out the Government’s interest in the contingent capital notes, or CoCos as they are more commonly known, and preference shares. The latter was completed in December, with the backing of private investors, a signal of external confidence in the bank.

Mortgage drawdowns and lending to SMEs is increasing, albeit at a slow pace, and the bank’s British business appears to be motoring as the economic recovery there outstrips expectations.

The pace of arrears and default is slowing, while its capital buffers look robust enough to withstand the European Central Bank’s stress tests later this year.

It has also nudged its net interest margin above the target level of 2 per cent.

Perhaps more importantly, the bank is back in the black and generating capital and the share price has been racing ahead.

While Bank of Ireland might be largely out from under the skirt of the State, Boucher seems determined not to trip himself up in the glow of this achievement.

Every time he speaks, he reiterates his gratitude for the €4.8 billion in State aid and he talks consistently about how it was right that taxpayers were rewarded for this act of faith. Bank of Ireland has returned more than €6 billion to the exchequer to date.

Executive remuneration
Yesterday, he described his relationship with the Government and the Central Bank as professional and there will be no resolution put to shareholders at its agm in April on the thorny issue of executive remuneration or bonuses, thereby avoiding a potential landmine.

That’s not to say that Bank of Ireland has no issues. An impairment charge of €1.66 billion in 2013 is no joke.

Buy-to-let mortgage arrears continued to increase last year and amounted to 27.7 per cent of the book by year end while 10 per cent of its Irish owner-occupied residential loans were in arrears of 90 days or more. For context, in Britain , which is similar in size to the Irish mortgage book, the bank’s level of default is just 2.37 per cent.

Some 450 voluntary redundancies remain to be implemented. And the bank is still about three years away from paying a dividend to shareholders. There is also the small matter of dealing with the State’s residual 14 per cent shareholding.

A lot done, more to do, as they used to say in Fianna Fáil.