Cantillon: Bank of Ireland news creates toil for analysts

Bank of Ireland to assign more capital to loans held that are not in default

Spare a thought for banking analysts in Dublin who were looking forward yesterday morning to a crossword puzzle, followed, possibly, by a liquid lunch, after getting their last morning note out to clients and final pre-Christmas meetings with pesky traders out of the way.

At 8am, an hour after most morning stock exchange announcements, Bank of Ireland issued a release that forced analysts to get back to their spreadsheets.

The bank revealed it had to reassess the risk attached to loans it holds that are not in default. With the European Central Bank taking a look under the bonnets of banks again next year, the State’s largest lender by assets has decided to assign more capital to these loans.

To offset the impact, it has entered an intriguing derivatives contract to get a group of unknown international investors to take on some of the risk of bad loan losses in its business banking and corporate portfolios.


Capital ratios

All told, the lender sees the combined effect knocking 0.2 percentage points off its keenly followed capital ratios.

The development is worrying for long-suffering investors, who have endured a rollercoaster ride when it comes to the prospect of receiving income from the company again.

Chief executive Richie Boucher flagged in February that the group was on track to restart dividends in early 2017. He was decidedly less optimistic by July, following Brexit and as falling bond yields globally fuelled a dramatic widening of the company's pension deficit. A bounce in bond yields in the last two months, helped by Donald Trump's election as the next US president and his inflationary policies, has prompted some to estimate that the pension shortfall may shrink back to $1 billion from $1.45 billion in September.

Friday’s announcement will give the board more to think about as it deliberates dividends.