BoI dividend in doubt as pension deficit hits €1.2bn

Bank of Ireland’s main union insists staff have played their part to resolve the lender’s pension scheme problems, even as the company announced the deficit has widened dramatically.

The news has dampened hopes that chief executive Richie Boucher can push ahead with restoring dividends by next year.

The bank issued an alert through the stock exchange yesterday that the impact of the Brexit vote on foreign exchange rates, interest rates and corporate bond yields had pushed the deficit for its defined benefit pension schemes from €740 million in December to €1.2 billion at the end of June.

AIB and Permanent TSB moved during the financial crisis to close their defined benefit schemes, which provide a guaranteed income in retirement as a percentage of final salary.

Restructured

Bank of Ireland

kept its defined benefit plans, which were closed to new entrants in 2007. However, the schemes have been restructured twice since 2010, weakening members’ benefits.

The Financial Services Union "does not expect any contact from the bank as this announcement is a result of the impact of Brexit and under no circumstances would the union expect an employer to attempt to address pensions, which are long-term benefits and deferred wages, on the back of short-term changes," said general secretary Larry Broderick.

“The union is confident that Bank of Ireland will continue to be profitable. We expect agreements between the bank and ourselves in relation to pensionable benefits to be honoured in full.”

Net income

“The increase in the pension deficit and Brexit will certainly increase the probability of no dividend” being paid next year on 2016 earnings, said Darren McKinley, an analyst with

Merrion Capital

.

However, he said his base case was the bank would pay a small dividend to shareholders next year, its first since 2008. He sees the bank paying between 10 per cent and 15 per cent of its net income, which would leave the shares yielding between 1 per cent and 1.5 per cent.

The increased pension deficit will lower its common equity tier 1 capital ratio, a key gauge of a bank’s ability to withstand shock losses, below 11 per cent in the first half of this year, Davy stockbrokers said.