Bank of Ireland shares drop as dividend ruled out until 2018
Shares in Bank of Ireland dropped by almost 5pc at one stage yesterday, after the country's biggest lender said it would not resume dividend payments until 2018 - a year later than hoped.
The bank said it had delayed the payout to shareholders despite its return to profit because of the vulnerability of its pension scheme to volatility in the bond markets.
Swings in the bond market have seen the pension's deficit increase and decrease by hundreds of millions euro over the past year, mainly as a result of accounting rules.
The bank was in a position to pay a dividend for 2016, ceo Richie Boucher said, but if markets moved against the pension this year, might not be able to sustain payouts.
Investors would not appreciate a stop-start dividend policy, he said.
"You really have to be absolutely confident you can maintain the dividend," he said.
"It was a finely balanced decision, one we made ourselves," Mr Boucher said.
Asked about investor interest in his bank's shares, Mr Boucher said there is "ongoing underlying demand from investors".
The State is Bank of Ireland's biggest shareholder, a legacy of the banking crisis. Any demand for a substantial stock of shares in the bank is likely to target some or all of that stake.
Mr Boucher said he was not aware of any current plans to offload the State's 14pc stake.
"The minister (Michael Nooonan) has not shared his plans with me," he said.
The bank's operations in Northern Ireland and in Britain have yet to see a significant impact from last June's UK vote to leave the European Union.
"From a Brexit point of view, we haven't seen any material negative impacts, other that the translation impact on our profits from our UK business," Mr Boucher said.
Around 40pc of Bank of Ireland's lending is in the UK, through its branch network in Northern Ireland or through partners including the Post Office and AA in England and Wales.
As a result, like-for-like profits in 2016 were hit by a weaker pound.
Mr Boucher said he expects to see continued growth in the UK market, but he admitted that the true impact of Brexit has yet to be felt.
Shares in the bank closed down 3.43pc at 22.50 cents yesterday.
"The lack of a dividend may be a slight initial negative, particularly in terms of management now guiding on nothing until next year, but the underlying figures are very strong," said Investec analyst Owen Callan.
Mr Callan had earlier predicted that the bank would hold off on making a dividend in order to further shore up its capital.
Financial results yesterday show Bank of Ireland generated underlying profits of €1.071bn in 2016. That was down 11pc compared to 2015.
Total income was down 5pc to €3.105bn.
The bank's overall lending increased, led by growth in new lending in Ireland.
Former Bank of Ireland director and investor shareholder Wilbur Ross was last month named as US Commerce Secretary by Donald Trump.
Mr Boucher praised the US billionaire as a "really good board member" at Bank of Ireland.
"He understands the Irish economy and he put his money where his mouth is," he said.
"He has an ability to master a brief, the papers are always read," he said.