Mortgage lending growth lifts IL&P profits

Record growth in mortgage lending has helped Irish Life & Permanent to beat market expectations with a 14 per cent rise in operating profits for the first half.

The group yesterday posted operating profits of €189.5 million for the six months ending June 30th. The growth reflected sharply divergent performances within the firm's businesses, with robust banking profits offsetting continued weakness within life assurance operations.

IL&P chief executive Mr David Went described the overall performance as "very robust" and said he was "cautiously optimistic" about the second half of 2003. Analysts moved to raise their earnings estimates after the results were posted, gaining particular reassurance from a 5 per cent rise in the interim dividend, which came in at 15 cents.

Finance director Mr Peter Fitzpatrick said it would take a "gale-force wind" to deter the group from awarding a similar increase in the full-year dividend.

IL&P shares strengthened considerably on the back of the numbers, gaining 38 cents cents to close at €11.03. Some analysts believe a climb to €14.00 could now be possible.

The market had been prepared for underperformance on the life side over the first half, with sales across the sector much lower this year than in 2002, when business was boosted by the Government-sponsored Special Savings Incentive Scheme. Life and pension sales have also suffered as investors continue to shy away from equity markets.

Operating profits in the life division dropped by 11 per cent to €96.9 million, with new business in the Republic falling back by 50 per cent to €18.2 million.

Crucially, however, the firm expanded its market share to more than 20 per cent while other firms have lost their positioning.

IL&P's investment in associate firm Allianz Irish Life was also a positive, with the firms's contribution more than tripling to €16.3 million after the adoption of a more conservative underwriting policy. Mr Went said the life market had become increasingly competitive as struggling rivals presented would-be investors with "irrational propositions" to win business.

On the other side of the group's operations, banking profits soared by 68 per cent to €74.8 million, helped by a once-off €26 million gain arising from a repositioning of a portfolio of gilts.

But even without this return banking profits were 17 per cent ahead of last year, with a 31 per cent rise in new mortgage lending the main driver behind the increase.

Mr Went said Permanent TSB did not anticipate "difficulties" arising from the Irish Financial Services Regulatory Authority's investigations into the Republic's mortgage market, where the bank is the largest player.

Mr Went also said that the Competition Authority's study on competitive practices within the banking sector was to be welcomed. On a pre-tax basis, first-half profits across the group were 33 per cent lower after exceptionals at €140.9 million.