BoI warns of 40pc fall in operating profit in 2010
Funding cost rise may prompt a cut in deposit interest rates
International customers pulled €10bn of deposits out of Bank of Ireland's €26bn book of capital markets deposits before the government guarantee was extended in September, figures in its Interim Management Statement have revealed.
The bank warned of a fall of up to 40pc in operating profit this year. It said it would try to reduce the interest paid to depositors as its own funding costs rise.
The massive €10bn flight of capital was revealed after Bank of Ireland's interim management statement showed the ratio of loans to deposits, a key measure of a lender's health, had risen from 145pc in June to 160pc in November. The size of the bank's loan book had fallen more gradually from €120bn to €115bn over the same period.
Eamonn Hughes of Goodbody Stockbrokers said the flight of deposits came as foreign corporate depositors pulled out funds in the weeks before the Government's bank guarantee scheme was extended on September 21.
The guarantee was due to expire at the end of September. Deposits have stabilised since then, managers said. The bank said retail deposits had been stable throughout the period.
Bank of Ireland said its underlying operating profit, which excludes the losses on bad loans, could be 40pc below the €1.5bn it made in the 12 months to December 31, 2009.
Customers had €84bn on deposit with Bank of Ireland in June and €26bn of that was in the capital markets division. The bank's management said yesterday that the lost deposits were mostly from the capital markets part of the bank. They said corporate customers were highly sensitive to fears that the blanket guarantee of even the biggest deposits would end as planned on September 30.
Shares in Bank of Ireland closed up 6.77pc yesterday. The shares opened at 37 cent each and closed at 41c. The news from leaders at the G20 that sovereign bondholders would not be hit by haircuts under a bailout was enough to lift the shares despite the predicted fall in profits.
On a conference call to discuss the interim management statement, executives announ- ced figures that confirmed that the European Central Bank took up the slack when its bonds were refinanced in September.
Chief executive Richie Boucher said the level of drawn funding from monetary authorities, which includes the ECB, had risen from €8bn in June to €20bn.
Figures released by the Central Bank yesterday showed banks in Ireland had drawn down €130bn of ECB funds by the end of October, up from €121.1bn at the end of September. The bank said it had €3.4bn of Lower Tier 2 subordinated bonds outstanding and €600m of Tier 1 funding.
Bank of Ireland's exposure to Irish sovereign debt has increased from €3.2bn in June to €4.7bn at the end of September. The June total included €1.5bn of National Asset Management Agency bonds it was paid for impaired loans. The September figure included €2.3bn of NAMA bonds.
The bank said that economic conditions "remain challenging", especially in Ireland. However, it said impairment charges on loans were at their highest in 2009. The bank said it expected impairments to progressively reduce in 2010, 2011 and 2012.
Arrears on mortgages have continued to rise, but the bank said the rate of increase had slowed since 2009.
The bank's ability to raise finance remains limited and expensive. As a result, it said it would make a determined effort to bring down deposit prices.