Weak stock markets and the euro's strength against sterling could knock €55 million off profits at Bank of Ireland this year, the bank said yesterday. Una McCaffreyreports.
In a trading statement, the bank signalled "a more moderate level of activity" across its main markets as a slowing economy starts to bite and noted an increase in bad debts.
It also said it was setting aside another €15 million to cover declines in its investments in Structured Investment Vehicles (SIVs).
This brings to roughly €42 million the amount the bank has needed to ringfence to cover its exposure to SIVs, some of which have exposure to US subprime mortgages.
The bank now says growth in earnings per share for the year to the end of March could slow to between 3 and 5 per cent, having previously expected a "high-single-digit" increase.
"Business momentum across the group slowed in the second half of our financial year as the level of economic activity in our main markets moderated," the bank said.
"In line with the economic forecasts for our main markets, we expect the more moderate level of activity experienced across the group in recent months to continue in 2008," the statement concluded.
Bank of Ireland shares fell substantially on the Iseq, losing 3 per cent after the statement was released.
By the close of business, however, they had clawed back some ground as analysts held back from overly negative comment. The stock ended the session 13.3 cent lower at €9.307.
Davy said the bad news was "already in the price", noting that the likelihood of a "recurrence of the early 1990s experience" with bad debts looked too extreme.
Bank of Ireland said problems in the stock markets had led to a "negative investment variance" of €40 million in its life assurancebusiness.
Sterling weakness has meanwhile hit the translation of the bank's profits in the UK, leading to an expected €15 million shortfall.
The bank made reassuring noises on its SIV exposure, despite increasing its provision in the area.
It said it had "minimal exposure to those asset classes that are generating most concern throughout global credit markets", detailing a €266 million combined position in SIVs, collateralised debt obligations (CDOs) and monoline insurers.
This was in the context, Bank of Ireland said, of a €200 billion balance sheet.
The bank said it was experiencing a slowdown in mortgage growth, as expected, noting that its overall annualised loan loss would increase this year.
"Asset quality across the retail portfolio remains strong though, as previously guided, the loan charge has trended upwards from its unsustainably low level," the bank said.
It also flagged declining growth in business banking, an area that Bank of Ireland has targeted over the past few years.
In its life business, sales of single premium investment products have fallen off, but regular savings products are holding up.
Corporate banking is delivering a "robust performance", according to the statement, while overall customer deposits should be ahead by 15 per cent year on year.
