Best of a bad bunch looks well placed to capitalise when growth returns

ANALYSIS:Bank of Ireland is not out of the woods yet – but how Anglo and AIB must envy their rival, writes CIARÁN HANCOCK

IT’S HARDLY a badge of honour but yesterday’s interim results confirmed that Bank of Ireland is the best of a bad bunch of Irish-owned financial institutions.

The bank’s management team has steadied the ship – stemming the bleed on bad loan losses; raising €2.9 billion to meet its capital requirements; and getting the green light from Brussels for its restructuring plan.

The €1.2 billion in losses published yesterday were even slightly better than the markets had expected and there was no hysterical reaction.

Chief executive Richie Boucher signalled yesterday that he wants to pull the bank off the State’s life-support system as quickly as practicable and, while he wouldn’t be explicit, he appears to be indifferent to whether or not the Government guarantee scheme is extended. Anglo Irish Bank and AIB must envy their rival.

Boucher said the bank was over the worst while cautioning that the various tasty, three-year financial targets that have been set for the bank are dependent on the economies in Ireland and the UK returning to growth.

This is far from certain so it is fair to say that Bank of Ireland is by no means out of the woods yet.

Both the Irish and UK divisions recorded substantial losses in the first six months of this year. Only Bank of Ireland Life and its joint venture with the UK Post Office performed to par.

The Irish mortgage market is barely showing signs of life and consumers continue to sit on their savings. Our recovery is being led by exports but it will require something more substantial to stir an economic revival here.

That said, when growth returns, Bank of Ireland should be well placed to capitalise on the opportunities presented.

The foreign banks have virtually packed up and gone home and its biggest domestic rival, AIB, remains in flux and is lurching towards State ownership.

There are other challenges, too. Brussels has decreed that the bank must sell its New Ireland life and pensions business, which will be much coveted. ICS Building Society and its asset management arm also have to be offloaded. All things being equal, Boucher would probably prefer to hold on to New Ireland and ICS.

At yesterday’s press conference, there was a hint of frustration in Boucher’s voice at the shackles on the bank from the costs associated with the bank guarantee schemes – more than €300 million this year.

The return on the preference shares held by the State were “quite expensive”, he said, although he didn’t “begrudge” taxpayers the money.

That’s nice given that the State bailed out his institution when it was on the verge of total collapse. Let’s hope that Bank of Ireland, newly emboldened by having successfully negotiated some extremely choppy waters, doesn’t lapse into old ways. Taxpayers are not in a forgiving mood.