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'Weakened' economy will spark extra €400m loan losses for BoI

THE "weakened" economic environment will trigger an extra €400m of loan losses at Bank of Ireland over the three years to the end of 2013, Davy stockbrokers said yesterday.

The warning came as Davy cut its prediction for Bank of Ireland's end-2013 value by 4pc, reflecting the higher loan losses and a €100m improvement in the expected cost of the bank's asset-sales programme.

Davy now believes BoI will have a net-asset value of 21.7c a share at the end of 2013 -- a value that's still significantly ahead of the 9c range the bank has been trading at in recent weeks.

Shares in the bank spent yesterday in positive territory, despite Davy's statements. The €400m increase in loan losses means Davy is now pencilling in €7.1bn of loan losses "through the cycle", implying losses equal to 6.6pc of the bank's total loan portfolio.

Stress tests

That figure is close to the worst-case 7.2pc modelled by the Central Bank's stress tests last March -- and is well above the 'base' case of 4.5pc pencilled in for those same tests.

Davy said it was increasing its predictions for the bank's mortgage-loan losses, in light of the deteriorating economic outlook and expected rise in unemployment. Loss estimates for other parts of BoI's portfolio remain unchanged.

On the asset-sales side, Davy had been pencilling in losses of €1.2bn on €10bn worth of sales. That loss estimate has now been trimmed to €1bn in light of the better-than-expected prices achieved for some €8.6bn of assets sold so far.

Irish Independent