Rising loan losses weigh on IL&P

Irish Life & Permanent shares rose on the Dublin market this afternoon after the company reported pre-tax profit rose to €414 million in the first half of the year as the group benefitted from a liability management exercise underway in recent months.

But impairment charges at its retail banking arm Permanent TSB weighed on results, and when an exceptional gain of €763 million from the liability management exercise was discounted, losses for the group before tax widened to €349 million.

That compares to a €34 million loss in the same period a year earlier.

Shares rose almost 13 per cent to 3.5 cent at 2pm.

In a statement today, group chief executive Kevin Murphy said Irish Life & Permanent had been hit by the difficulties in the wider economy, with rising unemployment, reduced disposable income and weak consumer confidence weighing on both the life company and the bank.

The bank reported impairment charges of €333 million for the half, a rise of €183 million compared to a year earlier.

“The figure reflects an increase in the number of arrears on the one hand - 8.8 per cent of the bank’s mortgages are in arrears of more than 90 days - and a further reduction in house prices on the other,” Mr Murphy said. “As house prices fall, the impairment cost for the bank increases and that has clearly influenced our figures in this period.”

Excluding exceptional items, Permanent TSB’s operating loss was €364 million for the six months. Pre-impairment, that figure shrank to €31 million, compared with a €19 million profit a year earlier. This fall was partly due to the cost of the Government guarantee extended to banks, which rose by €49 million over the period to €94 million, and also as a result of once-off restructuring costs of €43 million as it cut staff.

Mr Murphy said the bank has completed a deal to raise £1.4 billion (€1.6 billion) in unguaranteed funding, secured against the bank’s UK loan book.

In the life business, overall sales for Irish Life Assurance and ILIM grew by 6 per cent, with a 5 per cent gain the retail division, a 6 per cent loss in corporate business and a 14 per cent rise in ILIM.

“The financial performance of the life business was impacted by weaker persistency levels, the effects of the recently announced pension levy, and lower margins on life sales,” the group said in a statement.

Operating profits for life and fund management were €64 million compared to €118 million for the same period in 2010.