Bank of Ireland plans to halve its dividend to boost capital as a global downturn and a stalling Irish economy hit earnings, sending its shares down 13 percent on Wednesday. It was not planning, however, to ask shareholders for fresh capital, or sell assets, it said, though it could not rule out any options.
Bank of Ireland said the fallout from US investment bank Lehman Brothers' filing for bankruptcy protection was likely to hit margins, though it had no direct exposure adding it was hard to evaluate longer term effects. "The last two days are hardly representative of what hopefully is likely to happen over the next month or three months or six months," Chief Financial Officer John O'Donovan told an analyst call. "But my guess is that margin will be affected."
Bank of Ireland said on Wednesday its earnings for the six months to end September would be below the same period of 2007 due to rising loan losses and funding costs and as a strong euro reduced the value of earnings from international units.
It did not provide explicit guidance on full-year earnings, but said that costs would remain broadly in line with last year while income would be marginally lower. "Looking forward, we anticipate that the current difficult trading conditions will continue and will negatively impact our earnings for our financial year to 31 March 2009," it said in a statement.
Bank of Ireland's shares, which have lost more than three-quarters of their value since a peak early last year, traded 9.2 percent weaker by 1115 GMT at 4.193 euros, helping to drag the Irish market to a fresh five-year low. Its London shares were 8.8 percent lower.
Bank of Ireland expects its charges on bad loans to rise to about the mid-40s in basis points in the full year from an annualised mid-30s in its first half year, rising to a range of 60 basis points to 90 basis points in the year to end-March 2010.
That range would be "skewed" towards 90 basis points, said the bank, which has been hit by a double whammy of global financial turmoil and an abrupt end to Ireland's decade-long property boom. Brokerage Davy said: "Simply plugging 45bps and 90bps for March 2009 and March 2010 respectively into our model would knock our earnings estimates by 14 percent (to 109 cents) and 47 percent (to 60 cents)."
Analysts at NCB Stockbrokers said the tone of the trading statement was even more negative than they had anticipated, in terms of earnings guidance. "The dividend cut looks sensible, although it may raise questions about how bad Bank of Ireland believes the situation might get," the NCB analysts said.
Bank of Ireland said its funding remained strong with about 80 percent of loans funded by customer deposits and wholesale funding with a maturity greater than one year. It expects lending growth to continue to slow and be considerably lower in the second half of the year as it seeks to control risk weighted asset growth to improve its capital position.
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