Bank of Ireland shares upgraded as bond yields rebound

Bank of Ireland shares have been upgraded by Deutsche Bank analysts to buy as the lender's pension deficit is seen as among the biggest beneficiaries in the sector from a rebound in long-term bond yields.

While the bank’s deficit almost doubled in the first nine months of the year to €1.45 billion, Deutsche Bank estimates it could shrink back to €1 billion in the current quarter as a result of a rebound in European corporate bond yields.

The benefit of this to Bank of Ireland’s capital reserves, as well as an expected dividend from the lender’s New Ireland subsidiary by the end of the year, is that its common equity Tier 1 capital ratio, a key measure of financial stability, could rise to 11.8 per cent by the year end from 10.5 per cent in September, according to Deutsche Bank.

Dividends

The capital improvement will help the group return to paying dividends for the first time since 2008, it said.

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Deutsche Bank said that while Irish banks’ loan books have shrunk dramatically during the financial crisis as they sold loans and borrowers repaid debt at a faster rate than taking on new loans, Bank of Ireland “is now close to an inflection” where its loan balances will begin to grow again.

Shares in Bank of Ireland rose as much as 1.36 per cent on Wednesday morning but were trading down 0.4 per cent at 23.2 cents by mid-morning.