Saturday 1 October 2016

Weak sterling to dent earnings at Bank of Ireland - Davy

Published 19/07/2016 | 02:30

Bank of Ireland Chairman Archie Kane pictured during the Bank Of Ireland AGM in the O Reilly Hall, UCD
Bank of Ireland Chairman Archie Kane pictured during the Bank Of Ireland AGM in the O Reilly Hall, UCD

Earnings at Bank of Ireland will fall by more than a third in the first half of this year, driven in part by the weakening in sterling, the country's biggest stockbrokers has said.

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This will push profits down in the first half of this year by 43pc compared with the same period in 2015.

Davy said that on a year-on-year basis, it is forecasting earnings to have fallen by 36pc in the first half of this year, with the negative impact of the weakening in sterling, and substantially lower bond gains in the first half of the year, behind the drop.

"Given the bank's pre-announcement regarding the increase in the pension deficit and that trading is continuing 'in line with expectations with asset quality continuing to improve', we expect the outlook to be the key focus of H1 2016 results," said Davy analysts Emer Lang and Diarmaid Sheridan, in a note to investors.

"This will particularly be the case with regard to BOI's dividend policy and its UK strategy in light of Brexit uncertainty."

The bank's results will be announced on July 29.

Davy also said that the combined impact of movements in the foreign exchange and interest rates following the Brexit referendum resulted in Bank of Ireland's pension deficit increasing to €1.2bn at the end of June.

"Post end-June 2016, interest rates have continued to decline, and it is therefore likely that further increases in the pension deficit will be recognised in Q3," Davy said.

Bank of Ireland said last week that Britain's decision to leave the EU had impacted the group's sponsored defined benefit pension schemes.

Davy said it is forecasting first-half profit of €357m, a 43pc decline versus the same time last year.

"Given the high degree of uncertainty post-Brexit, outlook comments - particularly regarding management's ambition to reinstate dividends and its strategy for the UK business - will be closely scrutinised and will arguably be the key area of focus on July 29," Ms Lang and Mr Sheridan wrote.

"Beyond these areas, we expect scrutiny from investors on the proactive measures that BOI may take to offset the challenging income-generating environment."

At the bank's annual shareholding meeting in April, chairman Archie Kane reiterated that the bank intended to pay a dividend to shareholders in 2017, although he suggested this would be determined by a number of external factors that could upset the plans, including a Brexit, and global growth fears.

Irish Independent

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