Thursday 27 October 2016

Increase in Bank of Ireland pension deficit could delay first dividend payout

Published 15/07/2016 | 02:30

Bank of Ireland headquarters in Dublin
Bank of Ireland headquarters in Dublin

The hit to Bank of Ireland's pension scheme from Brexit will dent the bank's capital, making a dividend pay-out to shareholders less likely, an analyst has warned.

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The State's 14pc stake makes it the bank's biggest shareholder. In a trading update released to shareholders, BoI said the Brexit decision has resulted in the bank revising its standard defined benefit pension deficit to around €1.2bn at the end of June, a significant deviation from December, when it stood at €740m.

Davy analyst Emer Lang said the increase in the deficit could negatively impact shareholders' dividend prospects.

Earlier in the year Bank of Ireland signalled its intention to pay a dividend in 2017.

But Ms Lang believes the increase in Bank of Ireland's pension deficit could put back the payment of the dividend again. "Under the fully-loaded capital rules a deficit is directly deducted from capital so that's I suppose where investors are looking at it.

"It might have an implication for capital then that has potentially an implication for when they might start repaying dividends," Ms Lang told the Irish Independent.

Bank of Ireland said yesterday that Britain's decision to leave the EU impacted on the group's pension scheme.

The bank said the Brexit vote has resulted in it revising its standard defined benefit pension deficit to around €1.2bn at the end of June, a significant deviation from December, when it stood at €740m.

The bank said the outcome of the referendum has also impacted foreign exchange rates and interest rates including AA corporate bond yields, which are used to discount the liabilities in its pension schemes.

The effect Brexit will have on Irish companies' pension schemes is unclear, but Ms Lang said any firm that uses AA corporate bond yields as a discount rate will be affected.

"It's market volatility. It's a point in time thing and pensions are very long-term. "In a year's time it could look very different. It's mark to market, which is what they're highlighting. So these things change on a daily basis," she said.

The Financial Services Union, formerly the Irish Banking Officials Association, recently concluded two deals with Bank of Ireland on pensions.

As a result union chief Larry Broderick remains relaxed around the pensions situation.

"The bank have now reassured us there will be time to time situations developing where the pension deficit will go up or go down and unless something is on a long-term basis that requires a further fundamental review we don't expect the bank to engage with us about changing that arrangement.

"We have made changes in the pension scheme and we would be very strongly opposed to any attempt to change it, particularly on the back of a short-term impact of Brexit," Mr Broderick told the Irish Independent.

It is understood that around 12,000 people are members of Bank of Ireland pension schemes, with around 8,000 active members.

Meanwhile the Pensions Authority refused to be drawn on particular companies but expressed concern about Irish schemes.

"On a general point, recent falls in interest rates and falls in share prices are a concern for pension scheme trustees, but the impact on scheme funding and solvency will not become clear until the end of the year, as schemes file their annual returns," a spokesman said.

Irish Independent

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