Thursday 29 September 2016

Bank of Ireland's pension deficits widen under QE

Published 30/04/2015 | 02:30

Chief executive Richie Boucher and chairman Archie Kane at Bank of Ireland’s annual shardholder meeting yesterday
Chief executive Richie Boucher and chairman Archie Kane at Bank of Ireland’s annual shardholder meeting yesterday

Bank of Ireland's defined benefit pension deficits have widened by €700m as a result of the knock-on effect of the European Central Bank's mass bond-buying programme.

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In its interim management statement, the bank said the impact of quantitative easing had pushed the discount rate used for the pension deficits down, pushing them to €1.7bn from about €1bn. Analysts expressed disappointment.

"Bank of Ireland's IMS demonstrates that quantitative easing/low interest rates has impacted the bank on a number of levels," said Fiona Hayes of Cantor Fitzgerald Ireland.

She pointed that the low interest rate environment had benefited the bank's "Available for Sale (AFS) reserves ... allowing some portfolio realisation gains, but lowering reinvestment yields and, critically, the discount rate used for the pension deficit - moving the pension deficit up from €1bn to €1.7bn".

"In turn this caused capital ratios to slip back by 0.2pc on the quarter - a disappointing development having made so much progress in 2014."

The aim of QE is to keep governments' borrowing costs down and keep market interest rates low, encouraging investors to move into riskier assets that will spur growth.

Goodbody stockbrokers said that while the management statement shows trading is in line with expectations, the pension deficit problem could have an impact on its capital estimates. "The widening pension deficit will likely see us cut capital estimates - possibly by c.100bps," said Goodbody analyst Eamonn Hughes.

The bank's loan volumes grew for the first time since the financial crisis but the bank had to reply in part on an increase in the value of sterling to do so.

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