BoI does not rule out a first tap for extra funds
Bank would look to shareholders or Government for help if required
Bank of Ireland executives signalled that debt issuances will have maturity dates within the two-year guarantee
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Bank of Ireland yesterday refused to rule out tapping shareholders for fresh equity as it goes about shoring up its balance sheet in the face of an expected €3.8bn of bad debt losses within the next three years.
The group yesterday unveiled a 31pc drop in underlying earnings per share (EPS) to 55c in the six months to the end of September and forecast the second year outturn would be "marginally better than breakeven" -- largely as a result of a hike to its bad loan forecasts.
The group reported a €40m loss relating to debt investments in bankrupt US bank Washington Mutual, €7m from the downfall of Lehman Brothers and said it faces a maximum €27m loss from debt investments in Icelandic banks which were nationalised last month. It also faces an annual charge of about €115m to participate in the Government's guarantee scheme.
Charges
As property prices continue to tumble, the group now expects to take an impairment charge of between 0.6pc and 0.75pc of its loanbook for the year to the end of March, rising to 0.9pc-1.1pc next year. "It's likely that the level of loan loss charges will repeat itself (the following year)," said John O'Donovan, group chief financial officer.
However, analysts were impressed the group managed to increase its core tier one capital ratio -- a key measure of a lender's financial stability -- to 6.3pc from 5.7pc in March. It aims to increase capital further by scrapping dividends for as long as the economic and financial turmoil continues, controlling risk-weighted asset growth, balance sheet deleveraging and non-core asset disposals.
While rival Allied Irish Banks is seen has having two key assets -- a 24pc stake in US bank M&T and 70pc of Poland's Bank Zachodni WBK -- that could be sold, Bank of Ireland chief executive Brian Goggin sought to "put the myth to rest" that it did not have sale options.
"We have a €200bn balance sheet and range of businesses, investments and portfolios," Mr Goggin said, adding, however, that he was "not prepared to speculate" about what it could offload.
On the issue of making a potential cash call to shareholders or government investment, Mr Goggin said: "I never rule out the possibility of us raising equity capital, but it's not an option that we're considering at this time."
He also dismissed a market assumption that a core tier-one capital ratio of 7.5pc has become the new benchmark for lenders in light of a raft of recapitalisations across the European banking sector in recent months.
"I believe it is important to put on record the fact that risk profiles of all banks are not the same. Bank of Ireland has a low-risk profile with almost 50pc of our balance sheet in well-collateralised residential mortgages and no investment banking-style activities," Mr Goggin said. He conceded that the bank's previous core capital ratio target between 5.5pc and 6.5pc has become redundant now that market expectations have risen. The chief executive declined to reveal his new capital goal.
Reliance
Bank of Ireland continues to decrease its reliance on the wholesale funding market, which has been particularly volatile for over a year but froze outright following the collapse of Lehman Brothers in mid-September.
The group's loan-to-deposits (LTD) ratio stood at 159pc at the end of September, compared to 174pc a year earlier. It has since fallen to 140pc, according to Mr O'Donovan.
Irish lenders are currently preparing to tap the term debt market for fresh funds for the first time since the €450bn government guarantee was put in place. Bank of Ireland executives signalled that debt issuances will have maturity dates within the two-year guarantee.
Denis Donovan, head of the capital markets division, suggested that the banks here will follow the recent lead of their UK counterparts in approaching the market in an orderly fashion.
Allied Irish Banks, which said last week that it has €4.9bn of term debt rolling over next year, is widely expected to be the first group to test the water.
- Joe Brennan
