IL&P defies market predictions and hits 'road to recovery'
Published 01/09/2010 | 05:00
IRISH Life & Permanent (IL&P) yesterday claimed it was on the "road to recovery" after first-half losses narrowed dramatically from €220m to €32m, thrashing market expectations.
Announcing the results yesterday, IL&P chief executive Kevin Murphy said his institution was committed to getting off the state banking guarantee "as rapidly as possible".
Mr Murphy also confirmed that IL&P is eyeing up as many as five potential acquisitions on top of EBS, for which it has already lodged a bid.
"The first six months give us a very strong platform [for future growth]," Mr Murphy told analysts yesterday, describing the half-year performance as "very satisfactory".
The stark difference between the €32m pretax losses announced yesterday and the €220m announced a year ago stems from charges for investment fluctuations and changed economic assumptions.
Those charges came to €169m in the 2009 half-year, before falling to €18m in the first six months of 2010 as the economic climate stabilised.
Observers attached more importance to IL&P's core trading numbers, which showed that operating loss for the half-year came in at just €10m, as against €51m in the first half of 2009. Analysts had been expecting first-half operating losses in the €90m range.
The life insurance business was the stand-out performer, with operating profits rising 40pc to €118m. Mr Murphy attributed the better performance to improved "persistency" as fewer of Irish Life's customers let their policies lapse.
A strong performance from Irish Life's investment management wing pushed Irish Life's group-wide sales up 22pc, but industry figures show the company's share of new life insurance sales actually fell.
"Ultimately, profitability is the dominant agenda," Mr Murphy said, adding that Irish Life's share would pick up when the corporate market recovers.
On the banking side, Permanent TSB booked another €150m of impairment charges, lower than expectations and 49pc lower than the levels in the first half of 2009. Mr Murphy stressed that the worst had passed.
Operating losses for the half-year came in virtually unchanged at €131m, as the positive impact of lower impairment charges was wiped out by the €45m cost of government guarantee schemes.
Those schemes are due to expire at the end of December, but the chief executives of both Anglo Irish Bank and AIB have called for them to be extended, warning that banks could find it difficult to raise money without the supports.
"Our focus ultimately is to get off the guarantee as rapidly as possible; it is a very expensive process," said Mr Murphy, although he stopped short of declaring that IL&P "wouldn't need" the guarantees after December.
Mr Murphy's team has already raised €270m without the guarantee. It has another €1.3bn to raise before the end of the year, and may raise an extra €1.5bn if market conditions are benign.
Mr Murphy confirmed that IL&P will carry out "a combination of guaranteed and debt over the remainder of the year", to refinance its debt.
The bank may also turn to the markets for a fresh "€600m to €700m" to fund plans to separate its banking and life insurance businesses.
Another €100m to €150m will be raised by issuing new preference shares, buying back old debt at a profit and securitising loans against life insurance assets.
IL&P is also on course to book a €50m gain from a change in actuarial assumptions that will trigger a release in reserves in the second half of the year.
As well as funding the banking/insurance split, the capital raised could also be used to fund a host of acquisition activities.
The bank hopes to have "clarity" around its EBS bid by the end of September, Mr Murphy said yesterday, as he identified Irish Nationwide, ICS, New Ireland, Bank of Ireland Asset Management and AIB Asset Management as other potential acquisitions.