BoI profits won't normalise until 2017, Goodbody predicts
BANK of Ireland's profitability might not return to "normal" until 2017, Goodbody Stockbrokers said.
Shares in Bank of Ireland fell just over 1pc on the Irish Stock Exchange after Goodbody warned that it expects further property losses to hit the bank next year, and anticipates lower operating profits when figures for 2011 are published.
Goodbody has a "sell" rating on Bank of Ireland shares, meaning it expects prices to fall below the current 9.3 cent each.
In a note published yesterday, Goodbody cut its estimate for full year "pre provision" profits at the bank by €45m to €225m for 2011.
The pre-provision figure does not include the impact of property loan losses.
Bank of Ireland will be hit with €1.8bn of bad debt losses this year, compared to €1.94bn in 2011, according to the new estimates from Goodbody.
Analysts think the bank's "net interest margin" -- the difference between how much it pays to borrow and what it makes from lending money to customers -- will narrow to just 1.24pc this year.
There was some good news for shareholders. Analysts said the net interest margin will start to recover in 2014.
That will happen as the interest charged by Bank of Ireland on loans to customers in the UK rises and the cost of taking on deposits falls. However, the brokers said it may be 2017 before the bank's profits "normalise".
Bank of Ireland is due at the Commercial Court on November 15 for a hearing on plans to reduce its share capital in order to raise money to repay debt due to the Government.
It wants the Commercial Court to approve a reduction of its share capital by €3.92bn down to €1.97bn in order to pay the "dividend" to the State.
The plans were approved by shareholders in June.
The bank is the only major lender not to be nationalised following the banking crisis, but it did need a €3.5bn rescue from the Government, and part of the bill to repay that support falls due over the next two years.