Sharp reduction in losses drives 4% share price rise

BANK OF IRELAND RESULTS:SHARES IN Bank of Ireland rose 4 per cent yesterday as the bank posted a pre-tax loss of €190 million for the year ended December 31st, 2011, down from €950 million the previous year.

An increase in deposits and the ongoing shrinking of the bank’s balance sheet led to a sharp reduction in underlying losses, which more than halved to €1.5 billion, down from €3.5 billion the previous year.

The 2010 figure was boosted by €2.47 billion of losses on loans that transferred to Nama (National Asset Management Agency), while the bank benefitted from bond exchanges in 2011.

Despite the bank booking a net profit of €40 million – due mainly to gains from last year’s bond swaps and a tax credit – operating profit and income was under pressure, due to rising impairment charges and the high cost of wholesale funding.

Total impaired loans jumped by €2.5 billion to €13.5 billion at the end of 2011, a 23 per cent jump. This represents more than 12 per cent of the bank’s total loan book, compared to 11 per cent in June and 9.2 per cent in December 2010.

The Irish Bank Officials Association (IBOA) raised concerns about government interference in ongoing negotiations between unions and Bank of Ireland about redundancy terms for 750 staff.

There is speculation that AIB may offer employees redundancy terms of five weeks’ pay per year of service – less than the six weeks per year terms agreed for Bank of Ireland employees last year.

The IBOA said yesterday that any attempts by Bank of Ireland to restructure “on any other terms” would lead to the union balloting for industrial action.

Bank of Ireland, which is 15 per cent owned by the State, employs about 13,500 staff.

Chief executive Richie Boucher yesterday declined to confirm whether further redundancies would be sought. “I don’t think we are ever finished looking at efficiencies in our business . . . We don’t look at it as a single programme.”

Yesterday’s results show that Bank of Ireland’s loan book contracted by 10 per cent, or €12 billion, last year, due to a combination of loan divestments, repayments and a slowdown in new lending.

Customer deposits increased by 8 per cent during the year from €65 billion to €71 billion, with deposits at the bank’s UK post office joint venture growing significantly.

The loan to deposit ratio at the bank fell to 144 per cent at the end of December down from 175 per cent the previous year. Just over half of the bank’s loans relate to mortgages (about half of which are in the UK), non-property business loans represent 25 per cent of total loans, while 19 per cent of the bank’s loan book relates to property and construction.

Chief executive Richie Boucher said yesterday he believes home loan arrears will peak this year, though the pace of reduction in impairment charges is dependent on the future performance of the property market and the economy generally.

The bank’s reliance on wholesale funding fell by €19 billion last year to €51 billion.

The bank drew down €7.5 billion of the ECB’s three-year financing operation launched in December, extending the term of its existing ECB funding.

Noting that the bank paid €449 million in fees to the State relating to the eligible liabilities guarantee scheme, chief financial officer Andrew Keating said that reducing the bank’s reliance on the guarantee scheme funding was a core focus for the bank.

Bank of Ireland was unlikely to return to public debt markets before the State returns to sovereign debt markets, Mr Boucher said yesterday. On the issue of his own position ahead of the Central Bank’s fitness and probity tests, he said the bank would deal with the tests “across the group”.

Bank of Ireland will meet shareholders including US investor Wilbur Ross, who holds a 9 per cent stake, and other institutional investors over the coming weeks, Mr Boucher said.