Profit forecasts for the three big Irish banks with life assurance operations are being revised following a warning from Bank of Ireland that its earnings for the six months to the end of September would be flat.
Bank of Ireland shares dropped sharply when a trading statement warned that falls on international equity markets would depress earnings from its life assurance, pension and asset management businesses. In heavy selling - more than 7.35 million shares changed hands - the shares dropped 71 cents to a new 2001 low of €7.85. Against the trend on European markets, financial shares fell in Dublin with Irish Life & Permanent down 45 cents to €10.80 and AIB down 14 cents to €9.31.
Bank of Ireland had been expected to report first-half earnings per share growth of 9 to 10 per cent when the figures were released on November 15th. Now analysts are expecting growth of around 5 per cent. Following the trading statement, some analysts started to cut earnings forecasts for AIB and Irish Life & Permanent.
One analyst, who did not wish to be named said he was cutting his forecasts for AIB, Irish Life & Permanent, Anglo Irish Bank and First Active, as well as Bank of Ireland. Annual earnings growth at the main banks would fall to about 4 to 5 per cent for the next two years, he forecast. Another analyst commented that AIB was maintaining its target of low double digit earnings per share growth this year but said he was cutting his Irish Life & Permanent current year earnings forecast for the same reasons as he was cutting his Bank of Ireland forecasts.
In its statement, Bank of Ireland warned that, despite "very satisfactory business and profit growth" in its core retail business, earnings per share would be flat for the half year to end-September because of the impact of the downturn in equity markets on its life and pensions and asset management operations.
Reflecting the fall in equity markets, the bank is taking a €25 million once-off hit on its life and pensions profits instead of smoothing out the fall over a period of years. Finance director Mr Paul D'Alton said it was more prudent not to smooth the fall because it was not a normal market movement. The trading statement was based on market values at September 21st and assumed no material improvement in international equity markets before September 30th. The bank said that, while group businesses were trading very satisfactorily and achieving strong volume growth, the resulting profitability gains had been hit by the falls in equity values which drive performance in some of its key businesses.
On the vulnerability of its loan book in a changed economic environment, the bank said its loan quality was "satisfactory" but said it was "not immune to the consequences of recent terrorist attacks in the United States and, in particular, their effect on the Irish economy".
It said "the indirect consequences for Irish economy exposures were manageable in the context of the present satisfactory asset quality profile of the loan book. Furthermore, the availability of a non-designated specific provision for unexpected loan losses, which stood at €147 million at March 31st 2001, gives additional comfort".
On a division by division basis, the bank reported "very satisfactory" growth in its retail division in the Republic "in the context of lower levels of economic growth in the Irish economy"
