Bank of Ireland Says Capital Level Robust as Returns to Profit

Bank of Ireland Plc is confident it has enough capital for European stress tests this year as the nation’s largest lender returns to profit amid signs of an economic recovery, Chief Executive Officer Richie Boucher said.

The bank, based in Dublin, is now trading profitably and generating capital, Boucher, 55, told reporters as the lender’s 2013 net loss narrowed 73 percent to 490 million euros ($675 million). That beat the 586 million-euro median of 10 analysts surveyed by Bloomberg.

“We’re looking forward to things with a lot more confidence,” Boucher said, adding the lender’s capital levels are “robust.” “We don’t think it’s probable” the bank will need more capital after stress tests this year.

Boucher, in the position five years, is the first Irish banking CEO to signal a return to profit since the nation’s real-estate market collapsed in 2008. The bank has shrunk its balance sheet, returned 6 billion euros to taxpayers and cut about 2,000 jobs since it received a 4.8 billion-euro bailout between 2009 and 2011. Boucher said he expects significant improvement in the bank’s loan loss charge this year.

Saying “‘the dog ate my homework’ is just not good enough,” Boucher said. “We just have to achieve our targets.”

Loan losses, including extra provisions set aside to appease the nation’s central bank, fell to 1.67 billion euros from 1.72 billion euros in the year ealier period.

Ireland’s central bank estimated the bank needed to set aside additional provisions for soured loans after assessing lenders’ balance sheets in the fourth quarter. Chief Financial Officer Andrew Keating said the bank’s 2013 earnings incorporated the regulator’s views.

Financial Stability

The bank’s core equity Tier 1 capital, a gauge of financial stability that fully reflects incoming Basel III banking rules, rose to 9.0 percent in December from 8.6 percent in June, Keating said.

“Bank of Ireland has emerged from the balance sheet assessment with its capital ratios intact,” said Stephen Lyons, an analyst with Dublin-based securities firm Davy, adding that the bank is still factoring in a “conservative” 55 percent peak-to-trough fall in house prices in its earnings, even as values rose last year. Home prices are 47 percent below their peak in 2007.

The bank’s loans in default fell by 1.2 billion euros in the second half of last year to 17.1 billion euros. Owner-occupier mortgage arrears fell for the first time in five years by value and number of cases, according to Keating.

By value, Bank of Ireland’s owner-occupier mortgages more than 90 days behind in payments fell to 10.1 percent in December from 10.5 percent in June. Buy-to-let arrears rose to 27.7 percent from 26 percent, the bank said.

Bank of Ireland dropped 4.4 percent to 37 euro cents as of 8.49 a.m. in Dublin trading. The stock has risen about 174 percent in the past year, giving the company a market value of 12.1 billion euros.

“The shares were very well bid last week heading into the results,” said Ciaran Callaghan, an analyst with Dublin-based Merrion Capital. “We see downside risk to this rich equity valuation, but remain overweight the bank’s debt.”

Before it's here, it's on the Bloomberg Terminal.