B of I results spark share fall

RESULTS from Bank of Ireland, bang in line with market forecasts, were greeted with a fall in the group share price. The market, it seemed, had hoped to be pleasantly surprised, with analysts explaining that there was "nothing exciting?" about the results.

But the fall could also reflect an assessment that earnings growth for the full year may remain modest as the bank conserves capital for its £600 million Bristol and West acquisition in Britain in mid 1997. There may be some concern in the market that the bank may not aggressively expand its loan portfolio, as it prepares to fund the acquisition out of current resources.

For the current year which ends on March 31st 1997, Riada analyst Dr John Hogan is forecasting pre tax profits of £400 million and earnings per share of 51.8p up from 51.6p.

With profit margins on core business remaining under pressure, the challenge facing Bank of Ireland and other banks is to control costs and generate more fee and commission income. Bank of Ireland must also complete the acquisition of the Bristol and West building society, which is expected to be completed in mid 1997.

The bank has looked at its retail structure to form a blueprint for changes in the branches. Branches will be geared for product sales and services, while back office processing and manual administration will be centralised. The changes are aimed at improving efficiency and income and reducing costs. There will be work changes for branch staff but no "significant" change in the overall number of branches is anticipated.

In the difficult British home loan market, competition is expected to intensify as mutual societies make decisions on their status. Bank of Ireland plans to amalgamate the business with its home loans operation to get economies of scale and funding advantage for Bank of Ireland Mortgages. Achieving a good return from a home loan operation in the British market as competition intensifies will offer a significant challenge. Bank of Ireland finance director Mr Paul D'Alton expects the acquisition to be earnings enhancing.

In the US Bank of Ireland has amalgamated its First New Hampishire operation with Citizens Financial group to give the banks 23.5 per cent of the enlarged group. Citizens has an acquisitions strategy which should result in a steady stream of income growth for Bank of Ireland. Chief executive Mr Pat Molloy said he was very happy with how the acquisition strategy is being implemented and with the quality of the relationship with Citizens".

The first half outcome was flat. Pre-tax profits rose from £191.8 million to £193.1 million. A higher tax charge meant that profits after tax fell from £130.4 million to £129.2 million.

There were a few once off factors depressing profit growth in the first half the cost of restructuring its US interests and unquantified costs for revamping its retail structure. Other factors depressing the latest outcome were comparison of treasury performance with a very strong 1995 first half and the requirement to pay tax on US profits for the first time.

Within the latest results the retail and "other group activities" performed well reflecting a buoyant domestic economy and good growth in funds under management. The performance of the corporate and treasury division suffered by comparison with the strong first half of 1995.

The bank's return on equity fell from 26.4 per cent to 21.7 per cent but this appears to reflect an increase in equity in preparation for the Bristol and West acquisition.