Bank of Ireland reports 6% rise in pretax profits

SHARES IN Bank of Ireland fell 5.7 per cent to €8.06 after the group reported a 6 per cent rise in pretax profits to €1.8 billion, excluding exceptional gains, for the year to March 31st, 2008, as corporate and UK lending offset slower profit growth at home.

The bank declined to give guidance on earnings for the year to March 2009. UK analysts had expected earnings per share (eps) to rise to 153 cent for that year, from the 150.3 cent reported yesterday. However, the bank said Irish analysts, who on average are guiding eps to drop 5 per cent to 143 cent in the year to March 2009, were more up to date.

“They’re much closer, I guess; their models have been updated more recently,” said chief financial officer John O’Donovan.

In its preliminary results, the bank said total operating income, adjusted for the sale of stockbroking firm Davy in October 2006, increased by 9 per cent to €4.12 billion for the year to March 31st.

The bank is paying a final dividend of 39.4 cent, bring full dividend to 63.6 cent, up 5 per cent.

Bank of Ireland said the downturn would continue to affect its earnings potential in the year ahead. Chief executive Brian Goggin said the results represented “a satisfactory performance in the context of the significant market volatility that has characterised eight months of our financial year”.

Mr Goggin said the financial volatility had knocked €125 million off the bank’s profit this year, or about 7 per cent in eps growth. This comprised €50 million on the life business, €45 million in higher funding costs, and €30 million converting sterling earnings to euro.

Breaking down profit by division, the bank said its retail banking business in the Republic increased profit by 3 per cent to €716 million, while profit at Bank of Ireland Life was down 27 per cent to €108 million due to falling stocks. Profit at its capital markets division rose 14 per cent to €651 million, while its UK financial services’ profits rose 12 per cent to €495 million. The joint venture with the UK Post Office made a profit of £46 million (€57.44 million), an increase of 92 per cent.

The bank increased its deposits by 19 per cent, or €14 billion, to €86 billion, strengthening its funding. Deposits accounted for 47 per cent of the bank’s €185 billion balance sheet at March 31st, 2008, compared to 41 per cent a year earlier. Bank of Ireland reduced its exposure to wholesale funding to 41 per cent of the balance sheet at March 31st, 2008, compared to 46 per cent six months earlier.

Mr O’Donovan said the bank had targeted new markets for deposits to generate profits and as a source of funding. “This has been a very significant change for the bank in terms of its management of funding over the last six to nine months.”

He said the changes in funding markets meant that if divisions wanted to increase lending, this had to be funded by an increase in deposits. The bank’s loan book rose 9 per cent to €136 billion.

Mr O’Donovan said the bank had grown its capital base and dismissed concerns in the market that it was planning to approach shareholders to raise further capital. “Absolutely, clearly, there isn’t a rights issue planned.”

The bank has increased its equity tier-one capital ratio – a key buffer against unexpected losses – to 5.7 per cent from 5.3 per cent under Basel II rules, which aim to ensure that banks have enough capital to cover risks they take on. The ratio rises to 6 per cent if the UK measurement is used, which includes the proposed dividend.

The bank said it was targeting a tier-one ratio of 5.5-6.5 per cent.