Friday 25 May 2018

All eyes on BoI after Ulster Bank pays €1.5bn dividend

Last year AIB issued its maiden payout since the crash but Permanent TSB, which has the highest burden of non-performing loans, is not expected to resume dividend payments until 2020, according to analysts. Photo: PA
Last year AIB issued its maiden payout since the crash but Permanent TSB, which has the highest burden of non-performing loans, is not expected to resume dividend payments until 2020, according to analysts. Photo: PA

Gretchen Friemann

Ulster Bank's decision to pay out a €1.5bn dividend to its parent Royal Bank of Scotland helped focus the market's attention on shareholder payouts in the sector yesterday as the market braces for next month's annual results season.

Last year AIB issued its maiden payout since the crash but Permanent TSB, which has the highest burden of non-performing loans, is not expected to resume dividend payments until 2020, according to analysts.

However, much of the focus remains on Bank of Ireland as the group, which is 14pc owned by the State, has yet to break a 10-year hiatus on shareholder payouts.

In July, the bank committed to paying a dividend in the first half of 2018 and has not swerved from that policy despite the cost blow-out on the tracker mortgage debacle, which resulted in the amount of compensation for affected customers ballooning out to €150m-€175m from an earlier calculation of just €25m.

The market anticipates Bank of Ireland, now under the stewardship of new CEO Francesca McDonagh, will announce a dividend equating to about 20pc of pre-tax profits next February when it unveils its full-year results.

However, Darren McKinley of Merrion Stockbrokers has assumed a more bearish view, predicting the lender will adopt a more cautious strategy and pay out close to 10pc of pre-tax profits as it hoards cash, potentially to deal with a renewed increase in its pension deficit or a possible expense overrun on technology platform.

These are two areas that contributed to the bank's decision last year to delay shareholder payouts. Others in the market privately worry the bank will scrap the dividend once again this year as anxieties fester over the potential for another flare-up on the tracker debacle.

In November the group added a further 6,000 customer accounts to its redress programme.

However, Ms McDonagh recently told the 'Sunday Independent' she remains confident the €175m figure is sufficient.

Ulster Bank's second €1.5bn payment to its parent also provides fresh evidence of the buoyant conditions as rising employment levels and house prices help drive lending volumes and earnings.

Following the payout, which was announced yesterday and approved by the Central Bank and the ECB, Ulster Bank's common equity tier one ratio (CET1) - a key measure of a bank's financial strength - will stand at over 22pc, which the group pointed out was "significantly above regulatory capital minimums".

CEO Gerry Mallon said the dividend "represented another important milestone for Ulster Bank" and was further evidence of "our strong balance sheet and capital position".

"We look forward to making further payments in future, with the permission of the regulator," he said.

The regional lender was one of the worst affected by the crash and needed a £15bn lifeline from its parent for both the Republic and the Northern Ireland operations, prompting fears the business was destined to wind up on the auction block.

But as Ireland's economy rebounded, Ulster Bank became the first of the Irish lenders to pay a dividend, funnelling €1.5bn back to its parent at the end of 2016.

Irish Independent

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