SHARES IN Irish Life Permanent (ILP), the country's largest mortgage lender, gained 9 per cent after the company reassured investors that it could draw more than €1 billion in additional capital from its life assurance business to cover any future loan losses.
Unveiling its results for the first six months, ILP said it could release capital from its reserves under new rules, due in 2011-2012, governing how much money it must hold for solvency purposes.
The company said it could draw up to €550 million over the next two years as a "potential bridge" to this capital by securitising (selling on to investors) life policies and financing from reinsurance, or selling on its risk.
Peter Fitzpatrick, finance director of ILP, said this was "a safety net" to cover the company against any potential loan losses.
ILP gave reassurances that it would not need to raise cash from shareholders in a rights issue.
Sebastian Orsi, analyst at Merrion Capital, said: "They have options other than recourse to shareholders." The shares closed up at €5.91, though the stock is down 50 per cent this year.
ILP froze its half-year dividend at 22.5 cent a share after reporting that operating profits slumped 7 per cent to €300 million during the first half of the year as life sales declined and lending slowed.
Chief executive Denis Casey said ILP did not believe the market was "in the mood to applaud or reward dividend increases from financial institutions".
"We have been cautious. We think that is appropriate because the outlook is probably more uncertain than it has been."
ILP's profits declined due to a sharp fall in the company's share of profits from insurer Allianz Ireland, which dropped to €2 million from €18 million a year earlier.
Profits at Permanent TSB increased 12 per cent, supported by a €29 million gain from the sale of a bond portfolio. The bank was hurt by weaker demand for mortgages, tighter borrowing rules and higher funding costs due to the freeze in the credit markets.
ILP said net interest margin fell to 1.08 per cent from 1.17 per cent, and could fall to 0.98 per cent for the full year.
The company lowered its earnings target for the year, saying profits would now decline by 10 per cent due to a lower profit from Allianz.
Mr Casey said: "The economic environment will remain difficult for the foreseeable future."
ILP said there was no deterioration on its Irish mortgages. It said it could withstand a worst-case scenario where losses totalled 0.6-0.8 per cent of loans over a three-year period.
Profits in the pensions and investments division, which accounts for two-thirds of ILP's business, dropped 27 per cent to €97 million as life sales fell 16 per cent due to weaker investment amid the slump in stock markets.
Mr Casey said the company had shaved costs by cutting discretionary spend and not replacing departing staff, reducing its workforce by about 150 employees.
He said he was not convinced the Government needed to provide measures to reinvigorate the property market. "I am not entirely persuaded that there is a rescue mission or an emergency stimulus needed."
New lending declined 19 per cent in the first half as declining property values and higher interest rates deterred borrowers.
ILP, which sources about two-thirds of its money from the wholesale markets, had secured almost €1 billion in funding in addition to the €3 billion raised last month to cover debt maturing this autumn.
Mr Fitzpatrick said the additional funds would cover more than half of ILP's debt maturing next year. ILP raised €1.5 billion in new deposits in the first half.
The company had drawn down €3.9 billion in European Central Bank funding at the end of June, down from €4.6 billion in February.
IRISH LIFE & PERMANENT: half-year results
Pretax operating profit:€300m (-7%)
New lending:€5.1bn (-19%)
New life sales:€294m (-16%)
Operating eps(earnings per share): 95.7c (-7%)
Interim dividend per share:22.5c (unchanged)
Summary
The life assurance company and largest mortgage lender in the country said first-half profits fell as funding costs rose due to the credit crunch and new lending slowed, while sales of life and pensions declined due to the turmoil in the investment markets.
ILP gave reassurances that it would not need to raise cash from shareholders in a rights issue.
Chief executive Denis Casey said Irish Life Permanent did not believe the market was "in the mood to applaud or reward dividend increases from financial institutions".
He added: "We have been cautious. We think that is appropriate because the outlook is probably more uncertain than it has been."
