Dal FT
Bank of Ireland focuses on raising capital
By John Murray Brown
Published: April 14 2011 10:48 | Last updated: April 14 2011 10:48
Bank of Ireland’s chief executive said the troubled lender, 36 per cent owned by the state, was no longer fighting for survival but acknowledged it still needed to stabilise its position and was looking at a range of capital-raising options to avoid majority government control.
“I think we’ve moved from survival but we’re certainly in a stabilisation phase,” Richie Boucher told Irish radio, as the bank reported it had more than halved its losses in 2010.
Following
stress tests announced last month, the bank has been told it has to raise €5.2bn to meet the regulator’s new capital adequacy target of a core tier one capital ratio of 10.5 per cent.
The bank said it had been reassured by the government it would be “provided with time in order to generate as much of the capital as possible from private sources”.
Mr Boucher said one of the options was to negotiate further buy-backs of subordinated debt. The bank expects to make an announcement in the coming weeks.
A successful debt buy-back generating a gain of €1.4bn helped cut losses for the 12 months to December from €2.2bn to €950m.
The results include a loss of €2.24bn on the sale of development property loans to the
National Asset Management Agency, the government’s bad bank agency.
Charges on its non-Nama loans declined from €2.8bn to €1.8bn, reinforcing the bank’s claims that impairments had peaked in 2009. However, the exception was the mortgage book, where arrears are now running at more than 4 per cent.
Davy, the stockbrokers, said that the “resilience of the operating profit line and improving impairment trend [bar mortgages] are encouraging and will be key elements of a recreated investment case” if Bank of Ireland announced plans for a rights issue.
In the past two years, Mr Boucher said the bank had raised €6bn in new capital, including €2.6bn from buying back bonds from bondholders. Costs have been reduced by €360m through redundancies and other measures. The pension deficit has been reduced by €1.2bn.
The size of Bank of Ireland’s balance sheet has been cut by €30bn. Under deleveraging targets set by the regulator, the bank will have to offload a further €30bn of assets by the end of 2013.
But the bank said that, in spite of shrinking its loan book, “significant outflows of ratings sensitive deposits” in 2010 had resulted in a worsening funding position.
Deposits declined by €20bn from €85bn to €65bn, with the bank increasingly reliant on short-term liquidity funding from the European Central Bank and domestic monetary authorities.
The loan-to-deposit ratio worsened in the period, from 143 per cent to 175 per cent, compared with the target set by the regulator of 122 per cent.
However, the bank said that the deposit outflows had stabilised after the announcement in November that Ireland had agreed a financial bail-out with the International Monetary Fund and the European Union.
The bank has been identified alongside Allied Irish Banks as one of two new “pillar” banks under a radical reorganisation of the industry announced by the government last month.
Mr Boucher, who was head of the bank's Irish retail operations during Ireland’s property boom, was seen as largely responsible for the huge loan losses subsequently endured. But on Thursday he said that, having de-risked the balance sheet, his focus was now focused on retaining customers and winning new ones.
He said: “That’s what will make us Ireland’s leading bank, and a very significant bank outside of Ireland where appropriate.”