Business Irish

Wednesday 17 January 2018

IL&P chief highlights 'positive' news as losses increase tenfold

€333m loan impairments at Permanent TSB and higher guarantee costs hit plc hard in first six months of year

Laura Noonan

LOSSES at Irish Life & Permanent jumped more than tenfold in the first half of the year, as the plc was hit by rapidly accelerating mortgage impairments and higher guarantee costs at its banking unit.

But chief executive Kevin Murphy insisted there was some "positive news", citing an improvement in the bank's crucial net interest margin, the acquisition of €2.65bn of deposits and a €763m gain on bond buybacks.

IL&P has also just raised £1.4bn of unguaranteed funding secured against its soon-to-be sold UK portfolio and is hoping to complete another £1bn transaction later this year.

The detail of yesterday's half-year results shows banking unit Permanent TSB suffered loan impairments of €333m, more than double the €150m taken in the same period for 2010.


IL&P finance boss David McCarthy insisted his bank hadn't been "behind the curve" in provisioning for future losses, while Mr Murphy attributed the 2011 hit to rising levels of mortgage arrears and falling house prices.

Almost-nationalised IL&P, in common with the other banks, is now reviewing its provisioning model with the Central Bank.

"The view of the financial regulator is that there should be consistency between the banks," Mr Murphy said, adding that the regulator wanted "the best possible alignment" of the results of the stress tests and provisions taken by the banks.

Asked if the approach was likely to lead to higher provisions, Mr Murphy replied: "I suspect that's an inevitable outcome."

Permanent TSB's earnings are generally dragged down by its €16bn portfolio of unprofitable tracker mortgages; that tracker portfolio has just been reduced by €150m after customers took up an incentive to repay early.

This year's first-half results for Permanent TSB were also dragged down by a €94m charge for the government guarantee scheme, up from €45m from its 2010 level.

The higher charge reflected the higher cost imposed by the scheme, plus the acquisition of Irish Nationwide's €2bn deposit book -- those deposits also helped ease Permanent TSB's crucial loan-to-deposits ratio from 249pc at the full year to 227pc at the end of June.

The bank has to achieve a ratio of 122.5pc -- or €122.50 on loan for every €100 of deposits -- by the end of 2013, so the acquisition of deposits is seen as a clear positive.

The banking performance was the main factor in pushing the plc's like-for-like losses to €349m for the first half, against a €34m loss a year earlier.

Bottom-line results were better, as a €763m gain from buying back junior debt at a discount helped the plc to after-tax earnings of €460m (against a €26m loss in the 2010 first half).

The performance of the bank largely overshadowed the result of life insurance business Irish Life Assurance, the mainstay of the group which will soon be sold to raise capital to fund possible future losses at the bank.

Irish Life swung to a €12m loss in the first half, from an €83m profit a year earlier, amid charges from the pension levy, negative investment fluctuations and the deterioration in economic assumptions.

New business was up 6pc, but new business earnings fell from €28m to €19m as earnings deteriorated.

Mr Murphy said ILA's "embedded value" still stood at €1.6bn.

Five bidders, including Canada Life Ireland and JC Flowers, are expected to lodge second round offers for the plc in "early October".

Mr Murphy declined to comment in detail on that process, but said the group was also still exploring the prospect of a stock market flotation and had developed a prospectus.

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