B of I expects managed funds losses of €4bn

Bank of Ireland expects to deliver a strong first-half performance despite the loss of a further €4 billion in funds under management at its asset management business.

Bank of Ireland Asset Management (BIAM) is expected to have some €43 billion in funds under management at the end of September, down from nearly €47 billion at the end of March, as its investment performance in international equities continues to be an issue, the bank said in a trading statement yesterday

The continued loss of mandates by BIAM, which has seen its funds under management fall from €57.5 billion in March 2004, is expected to result in a €20 million shortfall in pretax profits at the asset management division compared to levels a year ago.

The rest of the bank's businesses are performing well, however, and should help deliver 9 per cent growth in earnings per share and a 6 per cent increase in total income in the first half, Bank of Ireland said. The bank expects its Irish retail financial services business to enjoy growth of around 16 per cent in first-half pretax profit as it continues to benefit from the strong performance of the economy.

Loans to customers are expected to have risen by 23 per cent compared to the first-half of 2004, while mortgages and business banking are seen rising by 26 per cent and 24 per cent, respectively, in the six months to the end of September.

The group's life business is also performing well, helped by strong demand and rising investment markets. It is expected to show an increase of 20 per cent in new business sales, while operating profits are expected to be up 30 per cent, driven by sales growth and tight cost control.

The bank's wholesale financial services business, which includes corporate banking, business banking and its global market division, is expected to deliver profit growth of around 10 per cent.

In Britain, Bank of Ireland's financial services business is expected to report results broadly in line with last year, following the conclusion of the sale of the Bristol & West branch network for £150 million (€220 million) last week.

The bank's joint venture with the UK Post Office is doing well and is on track to achieve its customer recruitment target of 400,000 by year-end.

But the asset management division, which has been hit by the loss of six senior investment managers and a haemorrhage of funds over the last year, remains a black spot. More than €14 billion in funds under management will have been lost in the 18 months since March 2004, including BIAM's mandate to manage a portion of the National Pension Reserve Fund. Over the summer it also lost control of a mandate to actively pick global equities for the An Post pension fund.

The loss of every €1 billion costs the bank up to €3.2 million in profits.

"BIAM's focus remains on improving its investment performance, strengthening its investment team and reducing its cost base," the bank said.

The bank also said its restructuring plan, which involves cutting 1,700 of its 12,000-strong workforce in a bid to trim €120 million a year from its cost base, is progressing well and is on target to achieve savings of €30 million in the current year.

Analysts said there were few surprises in the statement and most left their forecasts for the group unchanged. Bank of Ireland shares closed yesterday at €12.99, up four cent on the day.