ANGLO IRISH Bank shares rose 5.1 per cent to €9.67 after the bank said its pretax profits increased 17 per cent to €649 million in the six months to March 31st and earnings rose 15 per cent as expected.
The bank reached its target for the half-year, increasing its earnings per share by 15 per cent to 69.7 cent. It will pay an interim dividend of 7.78 cent, an increase of 20 per cent. The bank's pretax profit excludes an exceptional item - a €20 million profit from the sale of its private Swiss bank.
In a sign of belt-tightening as lending slows, Anglo reduced its cost/income ratio to 19 per cent from 22 per cent in the six months, largely by reducing bonus and performance-related pay to staff and cutting discretionary spend. Analysts described the cost cuts as "phenomenal" and "amazing".
The bank's chief risk officer, Willie McAteer, said 70 per cent of the bank's expenses were staff costs and 40 per cent of this was variable pay, which could be adjusted and falls with lower loan growth. The cuts came at a time when the bank increased its workforce by 40 people or 2 per cent.
Anglo's chief executive David Drumm said the bank's interest margin had risen by 0.25-0.5 per cent over the last eight months as the bank has passed on the higher cost of funding to its customers.
Anglo's lending has slowed since the credit crunch began last August as it curtails its new loans business and demand falls.
The bank increased loans by €6.1 billion in the six months, compared to €8.7 billion in its previous half-year and €9.3 billion in the half-year to March 31st, 2007. The bank is expecting new loans to fall further, to €4 billion in the second half of the year, by September 30th, 2008, as the bank says it will continue lending prudently.
New loans totalling €10 billion in the full-year would be down 44 per cent on the new loans of €18 billion during the 2007 fiscal year.
Anglo increased customer deposits by €5.6 billion, up 11 per cent, in its March 31st half-year. More than 90 per cent of new loans were funded by deposits.
The bank's term funding remained unchanged since September 30th last. It said it has packaged €10 billion worth of assets which can be used as collateral, creating "ammunition" to access the term funding markets.
The bank said there was no rise in bad debts despite the slump in the housebuilding and commercial property sectors. It had an annualised bad debt charge of 0.1 per cent of loans, below its March forecast of 0.13-0.14 per cent and well below analysts' consensus of 0.25 per cent. Mr McAteer said the bank had carried out a review of its loan book last month and reduced its bad debt charge.
Pat Whelan, head of Anglo's Irish operations, said about 1.5 per cent of loans were on a "watchlist" for any potential deterioration. He said there had been no change in the number of loans being monitored. "We are all over it and keep very close to our clients," he said.
Work-in-progress loans approved by the bank - a gauge of future activity - had fallen to €6.8 billion at March 31st, compared to €9.1 billion six months earlier. Mr Drumm said these were "managed down" and were sufficient to drive its loan growth of €4 billion in the second half of its 2008 fiscal year.
Anglo reached its 15 per cent growth target, despite absorbing a €191 million hit on assets affected by the financial crisis. This included a "mark-to-market" adjustment of €112 million on asset-backed securities, a €40 million charge on structured investment vehicle (SIV) assets (most of which have been sold) and a €39 million charge on other debt assets.
Analysts had expected considerably lower provisions. However, chief financial officer Matt Moran told analysts Anglo wanted to take subprime-affected assets "off the table for the future".
