BoI results clear way for Donohoe to accelerate share sale

Analysis: Threshold not likely below €4.49 at which stock trading before Minister unveiled plan

The bank’s shares continue to trade at a 45% discount to their so-called book value.

The bank’s shares continue to trade at a 45% discount to their so-called book value.

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It emerged on Tuesday afternoon that Minister for Finance Paschal Donohoe had sold almost 1 per cent of Bank of Ireland on the stock market in the past six weeks, reducing taxpayers’ holding to 12.98 per cent.

Donohoe announced on June 23rd that he was planning, by year end, to have sold a large part of the stake, a legacy of the bank’s crisis-era bailout.

While he has refused to be drawn on the minimum price he is willing to accept for the shares, it’s reasonable to assume that the threshold is not below the €4.49 level at which the stock was trading immediately before he unveiled his plan.

While the shares peeped just above that level last Friday, the last day that the Government was known to be selling, the problem is that the stock has spent much of the last six weeks changing hands below that mark.

That was before the bank, led by chief executive Francesca McDonagh, reported much better than expected first-half results on Tuesday and guided analysts’ full-year forecasts higher – pushing he stock up 7.8 per cent to €4.83.

Bank of Ireland’s €465 million profit for the period – compared to a €669 million loss for the same period in 2020 – was 34 per cent above what the market had been expecting, according to UBS analyst Sanjena Dadawala.

Much of the surprise came from the bank setting aside just €1 million for potential bad loan losses for the period – and signalling that the full-year figure won’t be much different. Deutsche Bank analyst Robert Noble said that the consensus view in the market was that the bank would post a full-year charge of €200 million.

The Covid-19 economic shock, which prompted Bank of Ireland to set aside €1.1 billion of loan-loss provisions last year, has yet to deliver a spike in loan defaults. But, of course, much will depend on the path of the virus – even as the Republic and the UK, where Bank of Ireland is focused, have among the highest vaccination rates in the world – and the extent to which the economy has recovered by the time the Government eases off on Covid-19 supports.

Another positive earnings boost came from the Bank of Ireland tapping the European Central Bank’s ultra-cheap lending facility – known as TLTRO III – for €10.8 billion in March. This allows banks to borrow at rates of as low as minus 1 per cent.

Signs of life

While the bank had started off the year talking about total income being pretty much flat this year, it is now forecasting about 9 per cent growth. Meanwhile, the bank’s UK business is showing signs of life for the first time in a while, with its increased focus on higher-margin, but lower-volume bespoke mortgages to the likes of professionals seeking larger-than-average loans and people looking to take equity out of their homes.

McDonagh’s plans to buy most of KBC Bank Ireland and Davy will also help lift earnings over the coming years and the she has promised investors she will come to them in early 2022 with a new set of financial targets to get them excited.

While the bank’s shares continue to trade at a 45 per cent discount to their so-called book value, Tuesday’s well-received results and outlook give Donohoe a chance to pick up the pace of stake sell-down, paving the way for at least one of the bailed-out banks to return to full private ownership.

Of course, when that’s all done, he might expect the bank’s chairman, Patrick Kennedy, to beat a path to his door on Merrion Street to lobby for the bank to break from the ban on bonuses.

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