Bank of Ireland Misses Ests

The Governor and Company of the Bank of Ireland (IRE - Analyst Report, or BOI) reported full-year 2009 (March 31, 2009) net earnings before nonrecurring items €397 million, below our estimate due to lower-than-expected net interest income and increased impairment provisions.

Net interest income increased 12% from the year-ago period to €3.67 billion on a 6% year-over-year gain in average loans outstanding, aided by an 8 basis-point rise in the net interest margin to 1.74%. Noninterest revenue fell 78% year over year to €197 million, primarily due to a 45% decline in life insurance premiums, a €61 decline in trading operations to a loss of €307 million, a €744 million decrease in life insurance investments to a loss of €1,570 million, and a 12% decrease in fees and commissions.

Operating expenses decreased 6% year over year to €2,022 million, and the underlying cost/income ratio worsened rising to 52% from 51% in the year-ago period. BOI’s provision for loan losses rose 552% to €1,513 million, reflecting deterioration in general economic conditions, weaker consumer sentiment, and a continued slowdown in the property and construction sectors in Ireland and the UK.

At March 31, 2008, impaired loans represented 3.93% of total loans, up 315 basis points from 0.78% at the end of March 2008, while reserves to nonperformers fell to 34% from 56%. The company’s Tier 1 capital ratio stood at 12.0% at March 31, 2009, up from 8.1% at March 31, 2008, reflecting the issuance of €3.5 billion of tier 1 preference shares to the Irish government, as well as a decline in risk-adjusted assets.

By business segment, all operations reported deterioration, largely due to higher impairment charges at all segments except BOI Life. Retail Republic of Ireland reported a decline in profit before tax (excluding all nonoperating items) of 97% to €20 million. At Bank of Ireland Life, pretax income fell 129% to a loss of €31 million, reflecting the impact of lower volumes of new business, lower funds under management due to weakness in investment markets, and higher policy lapses, was well as a negative investment valuation variance of €117 million compared to €50 million in the comparable prior-year period. At Capital Markets, profit before tax fell 27%, while at UK Financial Services, profit before tax slumped 97%.