Analysis:"A lot done, more to do" might be the best way to sum up Bank of Ireland's full-year results for 2012, published yesterday.
That was an election slogan employed successfully by Fianna Fáil in the 2002 general election, although it subsequently came back to bite it when the economy collapsed five years ago. Bank of Ireland chief executive Richie Boucher will be hoping to avoid the same fate.
The sentiment might seem counter-intuitive given that the bank’s pre-tax loss ballooned out to €2.16 billion from €190 million in 2011. But the inflated figure was due to losses on asset sales, redundancy charges and buying back subordinated bonds. None of these took analysts by surprise.
There were positives to be taken from the results. The increase in mortgage arrears appears to have slowed significantly. Boucher was keen to stress yesterday that the bank is on top of the issue and that it has no plans for blanket debt forgiveness in spite of the clamour from certain quarters.
It might yet end up on a collision course with the Central Bank and/or the Department of Finance on that issue, but for now Boucher is holding tough on what is a key issue for the bank.
The net interest margin target of 2 per cent by 2014 has been abandoned – it’s not feasible without an ECB interest rate increase. However, the bank has managed to lower the rate paid for deposits while increasing the inflow.
Significant improvement
Last year’s results at least showed a significant improvement, with an average 1.34 per cent margin in the second half of 2012.
In addition, the “welcome expiry” of the Government’s bank guarantee will have a “materially positive impact” on the bank’s income.
Bank of Ireland paid €388 million to the State last year in guarantee fees. Getting rid of this payment helps it along the road to profitability.
Capital ratios look robust and the signal yesterday was that the bank wouldn’t need to raise additional capital when another set of stress tests are run this year.
The impairment charge on customer loans fell by 11 per cent last year to €1.7 billion. This is still “elevated”, to use a phrase from the bank, but it’s heading in the right direction.
Clearly there are still a number of challenges out there for the bank. There will be more redundancies in 2013, with €57 million set aside from last year still to be used up.
The pension deficit is a hefty €1.2 billion and needs to be addressed – effectively the second time in three years that the bank has had to go to the well on this issue.
Boucher is also being forced to sell New Ireland Assurance, its profitable pensions arm. Bank of Ireland is a reluctant seller but it forms part of its restructuring plan agreed with the EU a couple of years back in return for its State aid.
More importantly, Bank of Ireland is relying on a recovery in the Irish and, to a lesser degree, UK economies.
Turned the corner
European Commission president José Manuel Barroso said last week that the Irish economy had turned the corner. But the recovery here remains fragile and could be set back by an external shock.
Boucher said yesterday he was confident Bank of Ireland was on the “right road”. This remains to be seen but his counterparts at AIB and Permanent TSB would probably be happy to swap places.
