Bank of Ireland plays down dividend expectations

Bank of Ireland, which paid its first dividend in a decade earlier this year, has moved to rein in investors' expectations surrounding next year's payout.

The bank on Thursday issued a trading statement that was broadly in line with market expectations.

It is understood to have signalled to analysts that it is setting aside dividend provisions that would set it up to pay a 14 cent dividend per share early next year on 2018 earnings, which is below a figure of in excess of 16 cent that analysts, on average, have pencilled into their forecasts.

The final call will not be made by the board of the bank until next February. Bank of Ireland paid investors 11.5 cent per share earlier this year on 2017 results, amounting to a total outlay of €124 million.

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The group, led for the past year by chief executive Francesca McDonagh, said in its latest interim management statement that its loan book rose by €500 million to €76.6 billion in the 12 months to the end of September, leaving it on track for the first expansion since the onset of the financial crisis in 2008. Still, the figure remained unchanged compared to the end of June.

While Goodbody Stockbrokers analyst Eamonn Hughes said some investors may focus on the flat net lending figure in the third quarter, the final three months of the year “is traditionally the strongest lending quarter, so we are likely to leave our €400 million second-half growth estimate unchanged”.

New lending in the first nine months of the year was 15 per cent higher than in the same period in 2017, including a 24 per cent jump in new mortgage lending in the Republic, where the group’s market share was 28 per cent for the first eight months, the bank said.

The company said that it will take a “modest” loan-loss impairment charge in the second half of the year, while it continues to review strategies for non-performing loans.

ECB review

As part of a review under the eyes of regulators at the European Central Bank, Bank of Ireland’s risk weighted assets (RWA) will rise to the effect that its key common equity Tier 1 capital, a measure of financial strength, fell to 13.4 per cent or RWAs from 14.1 per cent.

Bank of Ireland said that it expects its operating expenses for the second half of the year to be lower than in the first six months. The group went about cutting up to 400 jobs earlier this year by axing 15 per cent of middle-management roles and closing its 27 back-office service centres around the country.

Ms McDonagh said in June that Bank of Ireland was setting aside €250 million for restructuring, including redundancies, as she expanded the scope of the group’s four-year technology overhaul and transformation programme. The total project will cost €1.4 billion, up from €900 million when it was originally unveiled in 2016.

Analysts have speculated that the bank’s 10,892-strong workforce as of the end of last year will have fallen by up to 20 per cent by the end of 2021.

“Overall, BOI continues to make progress towards its strategic objectives and looks significantly undervalued, trading at 0.7 times 2020 tangible book value,” said Davy analyst Diarmaid Sheridan.