Bank of Ireland has surprised the market with a strong 30 per cent rise in pre-tax profits to £250.7 million in the six months to the end of September last.
Good growth across all of its divisions boosted its half-year profits and sent brokers off to revise their full-year forecasts, predicting that the bank could make up to £520 million in 1997.
The much better than expected six-month performance was mainly driven by substantial growth in earnings in the Irish, US and British markets. One of its most recent acquisitions - the British building society, Bristol & West - brought in a considerably healthier than expected first-time contribution.
Bank of Ireland shares rallied strongly on foot of the results, climbing to a new high of 910p in early trading before settling back to close at 886p, up 16p on the day. Meanwhile, the good results translate into an interim dividend payment of 7.1p per share, up from 6.1p. Announcing the results, group chief executive Mr Pat Molloy said all of the bank's businesses were continuing to perform very well and that the economic outlook in all of its markets looked good for the future.
In the Republic, Bank of Ireland's retail banking operations recorded strong increases in business volumes. Bank lending grew impressively, both in the residential and commercial market, and treasury operations yielded bigger profits on the back of a return of volatility in the foreign exchange markets. The bank's Irish retail division recorded overall pre-tax profits of £110.1 million, up from £104.4 million in the same period last year. However, profits in this area were somewhat depressed by the bank's increased future bad debt provision, the impending costs of switching to the euro and investing in its computer systems for 2000.
Its non-designated specific provision for bad debt rose from £8 million last year to £13 million this year, bringing the total provision to £56.3 million. Mr Molloy said that while the bank's entire volume of business had risen substantially this year, it had faced much tighter margins. At the half-year stage, however, he said the rapid pace of the growth in business had largely offset this contraction, while a good performance in its fee-based business also yielded healthy profit growth. The group's net interest margin slipped from 3.81 per cent to 3.35 per cent on interest earning assets of £21.1 million. Its core lending business in the Irish market was particularly buoyant over the six months, with residential mortgage lending up 16.5 per cent to £337 million on the previous year. Other retail lending was also buoyant, up 12.6 per cent in the Irish market to £375 million.
The bank's corporate banking and treasury divisions achieved pre-tax profits of £42.4 million, up from £36.9 million. Other activities, such as the contribution from its asset management arm, Davy Stockbrokers and its life assurance subsidiary, Lifetime, also ran strongly ahead, with profits up from £36.5 million to £45.7 million.
The bank benefited from an unexpectedly higher first time contribution from Bristol & West, which helped to boost its overall earnings in Britain from £5.6 million last year to £32.8 million. In the US, the bank's merged Citizens Financial Group and First New Hampshire almost doubled pre-tax profits from £13.5 million to £25.3 million following a repositioning of those businesses in that market.
The bank's total assets increased substantially, growing from £19.4 billion to £31.3 billion over the half-year, mainly reflecting the absorption of Bristol & West. Meanwhile Bank of Ireland is still working to close its £273.6 million acquisition of New Ireland. Mr Molloy believes the deal may be able to proceed without being referred to the Competition Authority because of the bank's relatively small presence in the life and pensions business. It currently holds around 4 per cent of that market through its Lifetime subsidiary. He added that, even with New Ireland, it would still be a relatively small player in the overall market.
