Goggin admits Bank of Ireland made mistakes

Bank of Ireland’s chief executive, Brian Goggin said this afternoon that while the bank had made mistakes, it had also played a huge role in the “growth and prosperity of the Irish economy over the past ten years”.

Mr Goggin was speaking after the bank increased its forecasts for possible losses on property loans to €6 billion for the three years to March 2011.

The Government confirmed last night it is to provide €3.5 billion to the bank in return for preference shares with a fixed dividend of 8 per cent payable in cash or ordinary shares.

Speaking on RTÉ radio this afternoon, Mr Goggin said the recapitalisation scheme would provide Bank of Ireland with the robustness to support its customers.

He accepted the bank had made “mistakes” and “lending decisions in the past that are now coming home to roost”.

But he declined to apologise, saying “I am not so sure it comes to an apology as such. I do regret some of our decisions. I have to balance that with lots and lots of very good decisions that we have made.

“And I suppose that if I have a regret, my regret is that I didn’t see this coming and perhaps the lessons of economics were forgotten. Economics ultimately are cyclical," Mr Goggin said.

“While we enjoyed fantastic growth and fantastic expansion, if I was looking back and doing it again that is a regret I do have, that I didn’t perhaps question in a more challenging way the ultimate growth that Ireland was enjoying and that it was unsustainable."

He said the bank made a huge contribution to the growth and prosperity of the Irish economy over the past ten years and suggested that Irish people in general, rather than just the banks, “all got carried away on the euphoria” of that prosperity.

Asked about his expected salary for this year, Mr Goggin said it would be “less than €2 million”. Mr Goggin, who is due to retire shortly, earned approximately €3 million in the year to March 31st, 2008.

“I can quite understand why people feel quite outraged by [wage rates for senior bankers] and I think going forward there needs to be significant changes to the structure of compensation and less incentive for short-term gain,” he said.

As part of the Government’s recapitalisation plan, senior AIB and Bank of Ireland executives are to have their total remuneration packages cut by at least 33 per cent.

Mr Goggin stressed that the capital injection by the Government of €3.5 billion into the bank was a “very good investment for the taxpayer”

Earlier today Bank of Ireland released a trading statement in which it revised down its estimate for loan-impairment charges to €4.5 billion from €3.8 billion over the three years. “As key economic indicators deteriorate to this estimate, this may result in an additional loan-impairment charge of up to €1.5 billion,” the bank added.

The bank said the reason for the higher loan loss forecast was the significant rise in unemployment, which had resulted in an increased risk in consumer, mortgage and smaller business loans.

The bank said the rising impairment charge, will result in an “underlying loss” in the fiscal second half. Bank of Ireland will also take €300 million goodwill charge as it writes down the value of its US asset-management units.

Bank of Ireland said its assessment “underpins the group’s three year estimate of €4.5 billion together with the downside risk of up to an additional €1.5 billion”.

The bank said it has commissioned risk management consulting firm Oliver Wyman to perform a detailed review of its loan book and to advise it of likely impairments over the next three years.

The bank said it expected to make an underlying loss in the second half of its financial year, which ends on March 31 2009, but for the full-year it said it expected to make an underlying profit due to cost savings.

“Total income is expected to be mid-single digit percentage points lower for the year to March 31st, 2009," the group said in a statement.