AnalysisBank upbeat despite fallinmg profitability of asses management division, writes Arthur Beesley
Bank of Ireland shares gave up 5 per cent yesterday to close at €13.48 despite a 16 per cent rise in pretax profits to €1.39 billion. That fall followed a Europe-wide sell-off of the sector on Tuesday which saw the stock drop from €14.33. If that's the response to warm news, chief executive Brian Goggin has every reason to be thankful that he did not bear bad tidings yesterday.
The steady decline of Bank of Ireland Asset Management (BIAM) aside, there wasn't a whiff of negativity from Goggin yesterday. Even as new Central Bank figures for April showed borrowing growth at its highest level since the heady days of 2000, he said his bank saw "no evidence of strain or stretch" among its loan clients.
With the economy at full tilt, an institution of Bank of Ireland's scale is always going to be a big beneficiary. But with 64 per cent of pretax profits coming from the home market, traders link investor caution to that exposure to the Irish story.
None of that appears to worry Goggin, who remains undeterred by the growing threat from smaller rival banks and their free banking offers. No less than 80,000 new personal customers joined the bank in Ireland last year.
In addition, the Post Office Financial Services joint venture added 375,000 new customers off a base of 100,000. With break-even in sight towards the end of the financial year, Goggin said the investment in this business was beginning to pay off.
Free to concentrate on other parts of its British business after selling the Bristol & West branch network, the bank reported a 22 per cent rise in mortgage lending in that market and a 46 per cent rise in volumes in its business banking unit. The full impact of this expansion will be seen later.
Profit growth was the theme at home. The life unit was a strong performer with pretax profits on the rise by 65 per cent. The retail division saw personal lending grow 13 per cent, the mortgage book grew 27 per cent and loans rose by 23 per cent in the small and medium enterprise sector. In wholesale banking, including IBI Corporate Finance, pretax profits rose 19 per cent.
The one dark cloud remains the asset management division, where pretax profit fell 32 per cent to €85 million. Goggin stressed the positive contribution from Iridian Asset Management, the 84 per cent-owned US fund manager, and the US hedge fund manager Guggenheim, in which the bank took a 71.5 per cent stake last January. But with $13.6 billion (€10.61 billion) under management between them, their scale is small when compared with the troubled BIAM.
This unit continues to lose mandates, albeit at a slower pace than before. Assets under management stood at €45.1 billion at the end of March, at €44.1 billion at the end of April and termination notices were pending on a further €1 billion. Not only that, but lucrative US business has given way to lower-margin mandates.
In former times, BIAM was a star for the bank. Now it represents just 1 per cent of profits. With further erosion of profitability on the cards, the bank hopes the low point will be reached this year. It's a tall order.
