Behind the strong figures lie some areas of concern, writes Siobhán Creaton, Finance Correspondent

Bank of Ireland's group chief executive Brian Goggin was pleased to be able to deliver good news to shareholders this week. In a trading update, the Republic's second biggest bank signalled that it is firing on all cylinders and that earnings are growing ahead of expectations.

The trading statement told investors that its earnings growth will be better-than-expected in the first half of its financial year, sending most analysts scrambling to revise their forecasts for the stock by 3-5 per cent.

The bank is now saying that its earning per share (eps) growth will be in the "high teen" percentage, or more than 15 per cent, compared to previous expectations that growth would be closer to just above 10 per cent on an underlying 118.5 cent eps for the full-year to March 31st, 2006.

Market analysts now expect Bank of Ireland to achieve underlying eps of about 142 cent in the year to the end of March next, up from around 136 cent.

The bank is set to generate income of €1.85 billion in the first six months of its financial year rising to €3.8 billion when it reports its full-year figures in March 2007.

The bank's shares have been buoyed by this news and yesterday was trading at €15.30, having tested all-time-high levels of €15.50 during the day.

However, behind the glitzy figures, a couple of areas have been causing disquiet at the bank.

The group's asset management division remains one of the few problem areas for Goggin and has been the focus of much attention. At the end of March 2006 it contributed an €85 million profit to the group, down from €125 million in the same period in 2005, and is continuing to struggle.

The bank has now merged this arm within its wholesale financial services arm, a move that many viewed as a downgrading of the business that was once the jewel in Bank of Ireland's crown and the platform for Goggins's move into the top executive post at the bank.

Over the last two years, assets managed at Bank of Ireland Asset Management (BIAM) have fallen from €57 billion to €42 billion as a number of significant international pension funds have withdrawn active management mandates from the firm.

And while there were some signs of recovery this year when new business increased the funds under management by €300 million, it has some way to go.

The division has suffered from poor investment returns and has seen the defection of key staff in recent years. Mr Goggin will be hoping that incorporating it within this new structure, headed by Bank of Ireland veteran Denis Donovan, will mark the beginning of a brighter future for that business.

While its demise is much commented upon in the media, it is of less concern to investors, as it is not one of the main contributors to group profits.

It has also emerged that another stalwart within the Bank of Ireland group, Davy Stockbrokers, may soon be cut adrift.

The bank has held a 90 per cent stake in Davy, the biggest Irish stockbroker, since 1988. A week ago the bank confirmed that it had received a conditional proposal from Davy's management to acquire that 90.44 per stake in a deal that values the business at €344 million.

The Davy team which owns the other 10 per cent, including Brian Davy, Tony Garry and Kyran McLaughlin, has been trying to engineer a buyout for some time.

Young guns at the brokerage are also looking for some way of securing an equity interest in the firm. In its absence, Davy runs the risk of losing such key staff to headhunters.

The firm, which has about 40 per cent of the Irish stockbroking market, generates profits of about €40 million a year. It has assets of €6 billion under management and more than €2 billion worth of property held on behalf of its clients.

As news of the buyout proposal filtered into the market a number of large institutions and corporate investors seemed less than pleased about the sale, mainly on concerns about who would replace Bank of Ireland as the firm's backer.

For Bank of Ireland investors though, analysts do not see the loss of Davy as a concern. Its contribution, while healthy, is not big enough to cause any re-think on the earnings front.

And while it is not yet a done deal, if an MBO was rejected by the bank at this stage, it could trigger the departure of key Davy staff, something which has contributed to the bank's troubles at is asset management arm.

Bank of Ireland remains bullish about its prospects. The key drivers of its success in the current year are a turnaround in its UK business banking operations and the continued strong performance of its retail bank in the booming Irish economy.

On Tuesday the bank said it expected its branches to deliver 25 per cent growth in pretax profits.

In the first half of 2005 this division delivered profits of €268 million and a full-year out-turn of €550 million.

The UK business, which had been very weak, has picked up strongly in the current year. At the end of March last year it brought in a €349 million profit. In its statement this week Bank of Ireland said profits at this business are set to increase by 30 per cent.

The UK division comprises mortgages, business banking and consumer financial services, which is part of a business venture it has with the British Post Office.

Life operations are on target to grow by about 20 per cent as sales continue to grow strongly.

Its wholesale financial services division, which includes its new capital markets division and its troubled asset management division, is expected to bring in a 45 per cent rise in profit growth, largely due to its lucrative corporate banking earnings.

As well as delivering profit growth the bank said it was also well ahead in delivering cost savings.

Its restructuring programme, which includes voluntary redundancies, is expected to deliver more than the €75 million in savings it had previously signalled to the market.

Shrugging off concerns about BIAM and Davy, Goggin insists that the investment and growth strategies adopted by the State's second largest bank are now delivering results.