Bank of Ireland plans first share buyback since boom as profits top €1bn

Bank of Ireland said it is planning to spend €50 million buying back its own shares, in addition to a €50 million shareholder dividend, after the lender returned to profit last year as it released some of its Covid-19 loan loss provisions and costs declined.

The bank reported a net profit of €1.05 billion for 2021, compared to a loss of €707 million for 2020, it said in its latest annual accounts, published on Monday.

The share buyback programme would be the first by the bank since 2004, before the financial crash. The return of dividends comes after two years of non-payments to shareholders as banks conserved capital during the pandemic amid an effective ban from regulators on payouts.

Bank of Ireland released €194 million of loan loss reserves last year, having taken a €1.13 billion charge in 2020 at the height of the pandemic for an expected spike in defaults that has yet to materialise because of the extraordinary amounts of cash central banks and governments, including in the Republic, have pumped into the global economy in the past two years. Still, analysts expect problem loans to increase this year as these supports are pulled back.

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‘Strongest performance’

“We delivered our strongest performance since the global financial crisis,” chief executive Francesca McDonagh said. “Our disciplined focus on the execution of our strategy underpins these results, while also supporting our customers throughout the very challenging Covid-19 pandemic.”

Ms McDonagh noted that the group’s €1.02 billion operating profit last year, before impairment profits or releases, was 25 per cent ahead of the figure for 2019, before the pandemic.

“We grew income, reduced costs for the eighth consecutive reporting period, and significantly increased capital ahead of the anticipated completion of [the] two transformational acquisitions of Davy and KBC Ireland’s portfolios,” she said of two deals at that were agreed last year but which are still subject to regulatory approval.

She said that while “uncertainties remain” about the residual impacts of Covid-19 and “emerging geopolitical developments in eastern Europe”, in a clear reference to Russia’s attack last week on Ukraine, “the outlook across our core markets is positive”.

Bank of Ireland added €31 million to its provisions pot for ongoing costs relating to its role in the State’s tracker-mortgage scandal. That brought total provisions as of the end of December to cover an expected Central Bank of Ireland fine, the costs of remediation of any remaining affected customers, and addressing customer appeals to €94 million.

State share

The Government has been actively selling down its stake in Bank of Ireland since last summer, resulting in it declining from almost 14 per cent to below 6 per cent.

With the State expected to exit its investment entirely in the coming months, the bank’s chairman, Patrick Kennedy, used his address in the annual report to accelerate his campaign to have bonus restrictions and an executive pay cap – which have existed since taxpayers bailed out the banking system 13 years ago – lifted.

“The remuneration restrictions which apply to Bank of Ireland are not replicated in any market in which the group does business, creating an uneven playing field between the bank and all other corporates – both banking and non-banking – with whom we compete for talent,” he said. “This clear competitive disadvantage means that people risk at the group has never been higher.”

Mr Kennedy said that as Bank of Ireland returns to private hands, “our view is that the current crisis-era restrictions should be replaced” by remuneration in line with European norms that have emerged under regulatory guidelines since the crisis.

During 2022, the bank plans to provide an update on its strategy and outlook to 2024, including refreshed medium-term targets.