Bank of Ireland to buy back debt after profit slumps
Bank of Ireland plans to buy back debt to boost capital after full-year profit slumped 97 percent.
Bank of Ireland rose as much as 28 percent in Dublin trading after saying it will offer to buy €1.4 billion out of €3 billion of debt, which is trading at “significant discounts.” The purchase will boost Tier 1 capital, a key measure of financial strength.
Bank of Ireland will set aside €6 billion in the three years to 2011 to cover losses on real estate loans as the Irish economy suffers its worst ever contraction after the collapse of a decade-long property boom. There is “downside risk” to the provision forecast, the bank said. Ireland’s government has pumped €3.5 billion into the bank to shore up capital.
“We looked at even further stress testing beyond” the €6 billion and the bank would still be “adequately capitalized,” Chief Executive Officer Richie Boucher told reporters today.
Bank of Ireland rose 28 cents to 1.36 euros at 9:03 a.m. in Dublin. The stock has gained 63 percent this year after slumping 94 percent in 2008.
Net income fell to €59 million, or 5.9 cents a share, in the year to March 31, from €1.69 billion, or 174.6 cents, a year earlier, the Dublin-based lender said in a statement today. The bank set aside €1.44 billion to cover souring loans, up from €227 million euros a year earlier.
The bank faces “another difficult year” with “lower levels of business activity, higher impairment charges and further pressure on liability spreads,” it said in the statement.
The bank wrote down the value of its US asset management unit by €304 million as customers withdrew funds and the value of investments fell. It also took an €83 million charge as it ceased mortgage lending in the UK through brokers.
Chairman Richard Burrows will resign at the bank’s shareholder meeting in July after apologizing to investors “for the loss in the value of their stock and for the cancellation of dividends.”
The bank will sell souring loans to the National Asset Management Agency, which is being set up by Finance Minister Brian Lenihan to cleanse the country’s lenders of toxic property loans. Bank of Ireland has about €12.2 billion of land bank and development loans.
Loans may be sold to the agency on a “phased basis,” Chief Financial Officer John O’Donovan told reporters.
“It is very unlikely that you are going to find that all the assets will go over at one time,” O’Donovan said. “People just couldn’t manage it.” (Bloomberg)