BoI executives admit mistakes in lending

THREE OF Bank of Ireland’s top executives admitted that they had made mistakes in lending during the boom years, as the bank revealed that it may have to write off up to €6 billion in losses on loans over the next three years.

Bank of Ireland chief executive Brian Goggin, who will retire this year, said the bank had made mistakes and “lending decisions in the past . . . are now coming home to roost”, but refused to apologise.

“I am not so sure it comes to an apology as such. I do regret some of our decisions,” he said, speaking on RTÉ radio. “I suppose that if I have a regret, my regret is that I didn’t see this coming.”

Bank of Ireland’s finance director John O’Donovan and the head of the bank’s capital markets division, Denis Donovan, told The Irish Times that the bank had made mistakes and they regretted them.

“There are things looking back I wish I didn’t do in the heat of the boom,” said Mr Donovan.

“The sad thing is the impact on the wider economy and people’s jobs and pensions. There is a lot of pain being felt, which we regret. We are partly the cause of it.”

Asked if the mistakes should lead to their resignations, both bankers said that this was a matter for the bank’s court (its board).

“The important thing is getting through this and you need experienced people who understand the technical issues to get you through,” said Mr Donovan.

The bank raised its forecast for projected bad debts to €4.5 billion over the three years to March 31st, 2011, from its previous estimate of €3.8 billion last November, and added that there was “a downside risk” of writing off up to €6 billion if the economy continued to worsen.

Mr O’Donovan said the bank increased its expectation on bad debts because of rising unemployment and greater house price falls.

The bank said that it will be loss-making in the second-half of its financial year to the end of March, but that it will make an underlying profit for the year as a whole.

The bank’s shares fell almost 17 per cent, or 10 cent, to 51 cent.

Mr Goggin, who earned €3 million last year, said he expected his salary to be “less than €2 million” this year.

“I can quite understand why people feel quite outraged by and I think going forward there needs to be significant changes to the structure of compensation and less incentive for short-term gain.”

Total remuneration for bank executives will be reduced by at least 33 per cent under the terms of the bank recapitalisation, from which the bank is to receive €3.5 billion in taxpayers’ money.

Mr O’Donovan said the bank’s 150 executives would not receive bonuses for the next two years and there would also be pay-freezes.

He said the State’s cash injection would create enough of a buffer so that the bank can shoulder loan losses of up to €6 billion and still have the sufficient regulatory capital requirements.

The bank told analysts that the company’s pension deficit rose €700 million since September.

The long-term credit ratings of Bank of Ireland and Allied Irish Banks were downgraded by rating agency, Moody’s.

Another agency, Fitch, downgraded the banks’ individual credit ratings. Moody’s expects Bank of Ireland’s bad loans to increase substantially and that a slowdown in the bank’s markets and rising unemployment will affect profits.