Bank of Ireland’s shares slid on Wednesday as investors overlooked a solid trading update from the lender to fret about its interest income next year and potential costs stemming from an ongoing regulatory investigation into the UK car finance industry.
The State’s largest lender by assets reiterated that its net interest income is on track to dip 3.5 per cent this year to €3.55 billion. However, the consensus market estimate that the figure will only ease to €3.34 billion in 2025 is looking increasingly optimistic as interest rates fall at a faster pace than previously expected, according to analysts.
“There is downside risk to company-compiled consensus estimates,” said Goodbody Stockbrokers analyst Denis McGoldrick, “given the latest interest rate projections.”
Meanwhile, as the UK Financial Conduct Authority (FCA) continues an investigation into allegations that companies in the car finance industry paid unfair commissions to dealers, Bank of Ireland said it “notes” a related UK court of appeal ruling last week. The bank has a 2 per cent share of the UK car finance market.
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The court opened the door to billions of pounds worth of claims for mis-sold motor finance after finding some dealers in breach of their fiduciary duty to customers. As a result, three lenders involved in the cases have been ordered to repay the secret commission to borrowers.
Bank of Ireland said it will “continue to closely monitor developments” as two of the lenders, Close Brothers and FirstRand, plan a supreme court appeal, while the third, Lloyds Banking Group, weighs its options.
RBC Capital Markets analyst Benjamin Toms estimates that Bank of Ireland faces €750 million of total costs over the coming years stemming from the FCA’s industry-wide investigation. That includes fines, redress and administration expenses – and is a multiple of the consensus view that the affair will set the bank back about €100 million.
The Financial Times reported on Tuesday that last week’s ruling makes it more likely the FCA will implement a costly redress scheme for lenders, mirroring remediation imposed over the UK’s payment protection insurance (PPI) scandal that ended up costing the banking sector almost £50 billion (€59.9 billion).
Shares in the bank were down more than 4 per cent in midmorning trading in Dublin, bringing their decline over the past month to 20 per cent. The stock rallied from there and were 2.3 per cent off by midafternoon.
Bank of Ireland said its net interest income was 3 per cent lower in the first nine months of the year, adding that this was in line with market expectations.
The European Central Bank (ECB) has reduced its key deposit rate three times since June and is now widely expected to make a further quarter percentage point cut in December, to bring the rate to 3 per cent. Economists now predict the rate could fall as low as 2 per cent by the middle of 2025 as inflation falls faster than had been expected earlier this year.
The bank also confirmed that it will pay its first interim dividend since before the financial crisis, marking another step along the path to normality in shareholder payouts, after paying only annual dividends in recent times.
Bank of Ireland’s loan book increased by 4 per cent on the year to €82.5 billion at the end of September. The bank’s retail Ireland net lending increased by €1.4 billion, supported by continued growth in mortgage lending. Its market share of new home loans was 41 per cent for the first nine months of the year.
The lender said wealth management assets grew by 4 per cent during the third quarter to €52.8 million, supported by an inflow of €700 million of fresh investor money during the period, mainly to its Davy unit.
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