Bank of Ireland taking flak over role in tracker scandal

The sorry saga around tracker mortgages took another twist on Thursday when Bank of Ireland announced that another 6,000 customers’ accounts, including a large number of staff members’, would be included in its redress programme.

This will come at an additional cost to shareholders, including the State, which owns 14 per cent of the bank, of between €150 million and €175 million.

A statement on the same day from the Central Bank of Ireland made it very clear that this reclassification of customers by Bank of Ireland only happened on its insistence.

In a note to clients on Friday morning, Merrion analyst Darren McKinley didn’t pull his punches. “We are concerned about the broader implications of such an announcement, weeks after Bank of Ireland had stated that they had the issue under control post an internal review in 2010,” he said.

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“It questions Bank of Ireland’s ability to communicate honestly about the bank’s operational and financial performance. To rebuild trust with investors, we assume that there needs to be further changes to management and culture.”

Ouch.

Bank’s stock

He noted that “investors are not happy” with the bank’s stock trading down by 8 per cent year-to-date. This is significantly behind the European banking index, which is trading up by 7 per cent.

McKinley noted that the additional provision would reduce the bank’s “clean net income” in 2017 by about 20 per cent, and could weigh on plans to pay a modest dividend to shareholders next year, which would be its first since the crash a decade ago.

As a result, Merrion has reduced its price target on Bank of Ireland to €7.50, from €8.10 previously, and switched its recommendation from “buy” to “under review”.

This is not the start that Bank of Ireland’s new chief executive Francesca McDonagh would have hoped for when she took over in early October. However, she does at least appear to be finally drawing a line under this unedifying episode in the bank’s 234-year history.