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Bank of Ireland Returns to Profit as Defaulted Loans Drop

Bank of Ireland Plc, the nation’s largest lender by assets, bounced back to profit this year for the first time since 2008 as impaired loans fell and lending margins rose.

Defaulted loans, which fell 1.2 billion euros ($1.7 billion) in the second half of last year to 17.1 billion euros, continued to drop in the first quarter, the bank said in a statement before its annual shareholders meeting in Dublin today. Irish mortgage arrears declined, the bank said, without giving details.

“The macro-economic environment and outlook in Ireland and the U.K, which are our key markets, are continuing to improve in 2014,” the bank said.

While Ireland’s economy is showing signs of recovery, the nation’s lenders are still grappling with the legacy of the worst real estate crash in western Europe. Bank of Ireland’s loan book dropped to 83.3 billion euros at the end of March from 84.5 billion euros in December, as debt-laden customers paid down loans.

“This implies a broadly similar rate of net contraction in the first quarter to that in the second half of 2013 and leaves the bank some way below its target ‘steady state’ of 90 billion euros of net loans,” said Emer Lang, an analyst with Dublin-based securities firm Davy, who has an outperform rating on the stock, in a note. “The re-leveraging challenge has become a key investor focus.”

Bank of Ireland shares rose 2.2 percent to 28.3 euro cents as of 9:03 a.m. in Dublin trading, giving the lender a market value of 9.2 billion euros.

Ross Sale

The company’s net interest margin, the difference between the rate at which it borrows and lends to customers, widened to 2.05 percent in the first quarter, it said. It reported a 2.03 percent margin in the second half of last year.

U.S. billionaire investor Wilbur Ross and Toronto-based Fairfax Financial Holdings Ltd., who were among five investors to buy 34.9 percent of the bank in 2011 for 1.1 billion euros, sold in part of their holdings last month after tripling their money. Irish Finance Minister Michael Noonan has also indicated he plans to sell the state’s 14 percent stake in the bank.

The lender’s core equity Tier 1 capital ratio, a measure of financial strength, at the end of March was above its 12.3 percent reported level on Jan. 1, it said.

Chief Executive Officer Richie Boucher has shrunk the lender’s balance sheet, returned 6 billion euros to taxpayers and cut about 2,000 jobs since it received a 4.8 billion-euro bailout from 2009 to 2011. He’s also accelerated efforts to deal with mortgage arrears.

“Encouragingly, Bank of Ireland continues to make solid progress on reducing its stock of defaulted loans,” said Ciaran Callaghan, an analyst at Dublin-based Merrion Capital, who has a hold rating on the stock. “This bodes well for the full year impairment charge.”

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