UPDATE: Bank Of Ireland Cuts 2nd Half Forecast, Sees Underlying Loss
February 12 2009 - 4:20AM
Dow Jones News
Bank of Ireland PLC (IRE) on Thursday lowered its earnings
forecast for the second half, saying it now expects to post an
underlying loss after previously guiding for "marginally better
than break-even," as the deepening economic crisis has increased
loan losses.
BoI posted an underlying profit of EUR70 million in the second
half last year.
Underlying earnings exclude several items, including the impact
of non-core items and goodwill impairment. BoI said it expects to
post an underlying profit for the full year.
Ireland's second-largest bank issued the surprise trading update
in the wake of its EUR3.5 billion recapitalization by the
government late Wednesday. BoI's Core Tier capital will grow to
EUR10.7 billion, the government said.
"There has been a further sharp and widespread deterioration in
global economic and financial conditions," BoI said. "Our core
markets are in recession with rising unemployment, reduced levels
of economic activity and falling asset prices."
Goodbody Stockbrokers said it will cut 2009 earnings-per-share
to break-even of around 5 cents from around 33 cents previously,
given the deteriorating backdrop. Goodbody rates the shares a
buy.
The bank said that equity markets remain weak and volatile,
while global inter-bank and wholesale funding markets are
stressed.
BoI expects a loan impairment charge of around EUR1.4 billion
for the 12 months to March 31, 2009.
Around 45% of the increase in the loan impairment charge in the
second half arises from the bank's property and construction
portfolios.
The bank also revised upwards loan impairment charges for the
three years to March 2011 to EUR4.5 billion from EUR3.8
billion.
"Uncertainty regarding the future results in risk to this
estimate," the bank said. "As key economic indicators deteriorate
there is a downside risk to this estimate which may result in an
additional loan impairment charge of up to EUR1.5 billion for the
three years to March 2011."
Total income is expected to be "mid-single digit percentage
points lower" for the year to March 31, 2009 versus the prior
year.
It said operating expenses should be "low single-digit"
percentage points lower compared with the prior year.
Chief Financial Officer John O'Donovan told reporters there were
no current plans to raise capital in the markets, but added, "One
can never say never."
Weakness in investment markets will result in a negative
investment variance, which at Dec. 31 2008 was EUR86 million.
Profit in the U.K. Financial Services Division are expected to
be "significantly lower" primarily due to a marked increase in the
loan impairment charge.
The deterioration in global equity markets resulted in increased
fund outflows and "significant falls" in the value of assets under
management in BoI's asset management businesses.
BoI expects a goodwill impairment of about EUR300 million which
will be reflected in the year-end income statement and will have a
negative impact on basic earnings per share. This has no cash or
regulatory capital impact.
Funding conditions in wholesale markets remain "stressed" and
funding costs "elevated." In the nine months to Dec. 31, 2008 BoI
raised around EUR8 billion in term funding, through public and
private placements. At Dec. 31, 2008 about 30% of BoI's wholesale
funding had a maturity of greater than one year.
At 0900 GMT, BoI shares were down 0.2% at EUR0.61 on the Irish
Stock Exchange in a weak overall market after rising 3.3% in
opening trade on the recapitalization. The stock has plummeted from
EUR9.49 in the last year.
Results for 12 months to March 31, 2009 will be announced on May
19, 2009.
Company Web site: www.bankofireland.com
-By Quentin Fottrell, Dow Jones Newswires; 353-1-676-2189;
quentin.fottrell@dowjones.com