IRISH NATIONWIDE posted a 64 per cent increase in pretax profits to €391 million in 2007 and said it remained "fully committed" to a sale, despite the market turmoil knocking substantial value off Irish financial institutions, writes Simon Carswell,Finance Correspondent.
Total assets at the building society grew 10 per cent to just over €16 billion in 2007. The loan book rose 18 per cent to €12.3 billion and customer accounts increased 10 per cent to €7.2 billion. Gross lending fell in 2007 to €4.31 billion from €4.96 billion the previous year, reflecting the slowdown in the property sector. The results included a €41 million profit from the sale of a subsidiary.
Irish Nationwide chief executive Michael Fingleton told The Irish Times that the building society's €49 million provision for bad loans in 2007 included borrowings provided to solicitors Michael Lynn and Thomas Byrne, who owe an estimated €130 million to Irish financial institutions.
"We have made adequate provisions and it depends on what we can get back. We have provided for the worst," he said.
The building society's bad loans charge represented 0.39 per cent of its loan book, up from €18 million, or 0.17 per cent of the loan book, in 2006. Mr Fingleton said the building society would continue to evaluate bad debts. "As the year progresses we will monitor it as we go along. We have made a best stab at the year-end."
He said he was "disappointed" with a report last month from credit ratings agency Fitch, which downgraded the building society by one notch to A-, or six levels below its top AAA rating, and raised concerns about the large concentration of loans to the commercial property sector.
"We have sent them a copy of our 2007 figures," said Mr Fingleton, who added that commercial property in London was an exception and performed better than the rest of the UK.
In a statement, Mr Fingleton said the 2007 results were achieved "against a background of a weakening economy and a reduction in demand for housing with progressively falling prices throughout the year".
He said the economy and housing market would be "slow to make progress" until the subprime crisis was resolved and that, in light of financial uncertainty, the society would "manage its affairs in a prudent and conservative risk-averse manner" in 2008.
He said Irish Nationwide's net book was worth more than €1.5 billion. Despite the financial turmoil, the society's sale process was "ongoing with a number of interested parties in discussion with the society and its advisers, Goldman Sachs", he said.
"The society had expected to have a sale agreed prior to the end of 2007. However, the turmoil in the world financial markets has had a negative effect on the value of financial institutions and consequently on the funding of acquisitions. We however remain fully committed to a sale, subject to achieving a price which fairly reflects the value of the society's business."
Irish financial stocks have fallen 46 per cent over the past year.
The society has no exposure to "subprime or related financial instruments", according to Mr Fingleton. He said the society had "an exceptionally strong balance sheet" and was "well positioned to compete strongly in whatever areas of the market challenges emerge".
Irish Nationwide increased its retained earnings by 29 per cent to €1.3 billion. Its 2006 annual report shows it has three tranches of term funding totalling almost €1.5 billion maturing in 2008.
Mr Fingleton said developers had reduced prices substantially this year and buyers were "slowly coming back to the market" at current prices. "We believe that we are not far from the bottom of the market," he added.
