Bank of Ireland has raised its expected bad debt charge for the three years to March 2011 to €6 billion as recession in Ireland intensifies and warned there was a downside risk to that forecast.
Chairman Richard Burrows will also step down at the annual general meeting in July as a result of the collapse in shareholder return.
“Accountability for these losses must be taken at the top,” he said in a statement accompanying the results. But despite the news, a plan by Bank of Ireland to buy back bonds saw its share price jump nearly 30 per cent. Shares in the bank finished at 1.33 this evening, up 23.7 per cent on yesterday's figures.
Three months ago, Bank of Ireland estimated a bad debt charge of €4.5 billion in the three year period to March 2011 but warned that there was a downside risk of a further €1.5 billion.
The bank, whose principal market is Ireland, warned that the financial year to March 2010 would be difficult.
Profits from the bank's retail banking business in the Republic were effectively wiped out, dropping to just €20 million compared to €716 million last year.
"We expect lower levels of new business activity, higher impairment charges and further pressure on liability spreads," the company said in its statement.
Bank of Ireland's underlying earnings per share (EPS) were 30.2 cents for the year to March 2009 compared with 150.3 cents a year ago after the company took a bad debt charge of €1.4 billion.
The bank reported a pre-tax loss of €7 million compared with a pre-tax profit of €1.9 billion a year ago.
The Government recently injected €3.5 billion into the bank via preference shares giving it a 25 per cent indirect stake.
Speaking to RTÉ's Morning Irelandchief executive Richie Boucher said nationalization of the lender was not inevitable and said the bank was "very enthusiastic" about working with the National Assets Management Agency (Nama) and was "very ready to engage" with it.
The agency would provide “liquidity” against loans, he said, adding that he expects it to apply a “range of discounts” on loans. Mr Boucher said the legal issues facing Nama were “surmountable”.
Mr Boucher also admitted that "absolutely, I have made mistakes in lending".
He said demand for lending had slowed significantly with very few firms seeking to invest in property or machinery. The majority of loan applications were for cash flow and he said the bank was approving 80 per cent and that the bank’s overdraft lending was 14 per cent higher than last year.
Mr Boucher confirmed he would be paid a salary of €500,000 this year. Speaking later on Newstalk Mr Boucher ruled out a requirement by the lender for more capital from the Government.
Chief financial John O’Donovan said it is “likely” that loans being sold to Nama will be transferred on a phased basis.
“It is very unlikely that you are going to find that all the assets will go over at one time. People just couldn’t manage it. There is likely to be, I think, a phased transfer across,” O’Donovan told reporters in Dublin this morning.
“More importantly, how much is the bank going to make in next three years in terms of operating profit pre-provision? It will have a two-fold effect of self generating capital and putting capital in place that allow losses in future to be absorbed.”
A plan to buy back bonds, also announced today, saw the bank's share price jump nearly 30 per cent. The bank's shares were trading at €1.37 earlier, the highest level for the stock since December 1st, 2008, giving the company a market capital of €1.34 billion.
Additional reporting Reuters/Bloomberg
