Shares in IL&P show biggest gain in a month

SHARES IN Irish Life & Permanent recorded their biggest increase in a month on the Iseq yesterday as the pensions and banking group said it was on the road to full recovery after reporting reduced losses for the first half of the year.

The group made a loss of €10 million at operating level, compared with a loss of €51 million for the same period last year.

Operating profits in Irish Life, the country’s largest life and pensions company, rose 40 per cent to €118 million, while losses at Permanent TSB were flat as a lower bad- loan charge was offset by higher costs under the bank guarantee.

The group posted a pretax loss of €32 million – compared with €220 million for the corresponding period last year. Shares rose 4.3 per cent, or 5.7 cent, to €1.45 as the group’s half-year results beat forecasts.

Oliver Gilvarry, analyst at Dolmen Securities, said the life business sales, which climbed 22 per cent to €276 million, and margins were better than expected, and the banking impairments and margins were “holding up well”.

IL&P confirmed it made an offer to take over EBS through a merger. “We feel by merging ourselves with EBS – and potentially with further add-ons – we will create a strong retail bank that will be a significant competitor to AIB and Bank of Ireland,” said its chief executive Kevin Murphy.

The bid offered “the most strategically wise decision” for IL&P and for banking in Ireland as there would be fewer banks, he said.

Three private equity firms are also bidding for EBS, which requires €785 million under new capital rules. IL&P is hoping for a response on its bid next month.

The group still plans to generate about €900 million in capital to split Permanent TSB from the life assurance business for any merger with EBS, he said.

This could be raised through issuing preference shares, generating capital from Irish Life, buying back debt or tapping shareholders in a rights issue, he said.

The group could raise €100m– €150 million from each of the first three options, said Mr Murphy, and up to €700 million through a rights issue. It hopes to announce the cash call of shareholders in the first half of October at the latest, he said, and to conclude the rights issue by the end of November.

Loan arrears at Permanent TSB, the biggest mortgage lender during the property boom, rose 28 per cent in the first six months.

Arrears of 90 days or more rose to 5.1 per cent in June – 9,167 loans out of 181,000 – from 4.1 per cent six months earlier. One-quarter of Permanent TSB loans were in negative equity at the end of June.

David McCarthy, IL&P finance director, said the group had maintained its bad debt forecast of €800–€900 million for the three years from 2009 to 2011, and that at the mid-point in that cycle had written off €526 million. He expects arrears to start levelling off near the end of the year.

Provisions for bad loans at Permanent TSB dropped to €150 million for the first half from €189 million on the same period last year.

However, the cost of Permanent TSB’s use of the State bank guarantee for funding rose to €45 million for the first half from €11 million for the same period last year.

Mr Murphy said IL&P’s viability plan for the European Commission – showing how it would fund itself without the State bank guarantee – was “virtually done” and would be submitted next month.

IL&P plans to raise up to €2.8 billion in extra funding this year. The group has to repay funding of €3.5 billion next month but has most of this covered with funding raised and European Central Bank funds, said Mr Murphy. IL&P aims to raise €2 billion in each of the next two years on unguaranteed but secured funding.