Bank of Ireland (BKIR) has today announced underlying PBT for 1H15 of €743m (€399m H1 '14), boosted by strong oneoff income and a sharp reduction in impairment charges. While we are impressed with the strong capital build (fully loaded CET1 excl prefs 11.1% vs our forecast of 10.9%), we are disappointed with the NIM performance (2.21%) and note that a material portion of the capital accretion is attributable to gains on sales of sovereign bonds and reduced pension liabilities. Net interest margin dropped to 2.21% from the Q4 position of 2.22% and the bank noted Q2 2015 NIM was just 2.17%. This is disappointing – while the bank has been successful in reducing funding costs further (average cost of interest bearing liabilities 0.89%, down 26bps y/y), it is having difficulty expanding its asset yields (average asset yield of 3.58% vs. 3.60% in 1H14), while, as expected, the yield on its liquid asset book has declined sharply on a y/y basis (1.23%, down from 1.72%). Other income (excluding one-offs) looks to be broadly in line with our forecasts. Impairment charges fell sharply to €168m (€272m charge and €104m of writebacks) from 1H14 outturn (€444m charge) and there was a significant uplift in opex (up €62m y/y), with the bank levy to hit in 2H15 (€38m). Separately, BKIR booked €171m of gains owing to transfers from the AFS reserve on the sale of sovereign bonds. Additionally, the pension deficit narrowed by €178m in the first six months of the year. BKIR’s net loans stood at €85.2bn at 30th June in line with the €85bn reported at end-Q1 2015, and up from €82.1bn at end-2014, as higher new lending volumes (gross loans up €6.5bn) and favourable FX moves (>40% of BKIR’s gross loans are to customers located in the UK) were offset by the drag from ongoing repayments and redemptions. Helped by rising profitability, BKIR’s TNAV increased to 24c at 30th June. The high underlying profits have culminated in strong capital build. Helped by the above trends, the fully loaded CET1 ratio (excluding Preference Shares) widened to 11.1% from 9.1% at end-Q1. The fully loaded CET1 Capital ratio was 15.9% when the €1.3bn of Preference Stock is included. Due to the strong capital build we continue to believe that BKIR is on track to redeem the Preference Shares in early FY16 (early January perhaps) and return to paying dividends (we expect a half year dividend in FY16 followed by a return to full year dividend payments in FY17). There are no strong expressions of acquisition intent or discussion regarding refinancing opportunities in the management commentary and we will be watching carefully for any colour in these respects at the analyst presentation this morning.
Hi Roxbury, think you might be a bit hard on Richie. See extract from Investec morning briefing below which i presume is derived from BKIR's Interim Statement today. "The high underlying profits have culminated in strong capital build. Helped by the above trends, the fully loaded CET1 ratio (excluding Preference Shares) widened to 11.1% from 9.1% at end-Q1. The fully loaded CET1 Capital ratio was 15.9% when the €1.3bn of Preference Stock is included. Due to the strong capital build we continue to believe that BKIR is on track to redeem the Preference Shares in early FY16 (early January perhaps) and return to paying dividends (we expect a half year dividend in FY16 followed by a return to full year dividend payments in FY17)."
I can't figure it: either Richie and management really dislike shareholders or they listen too much to a rubbish investor relations team. So, BKIR grows CET1 ex prefs to 11.1%. Outstanding. But it gives no meaningful guidance on actual pref de-recognition and dividend resumption. I think they have been in the bunker too long - 7 years. How challenged is it to give clear guidance on both? Shareholders deserve better, we expect clear guidance, a catalyst to relate the stock, a counter to drive through the inevitable sell down by Watsa, Noonan & co. Read across to the U.S. where it is all about banks containing costs to stay ahead of the falling RoE knife. The best banks man up and give clear guidance on cost reductions. Shares have re-rated. No excuse for Richie & co. Why not say that, absent a horrible H2, BKIR WILL de-recognize prefs Jan 1, and will resume dividends as early as H2 16. Owners of the business deserve this.
Anybody thinking of booking a buy order in 0QFD Eurobank for monday morning 3rd August (assuming GSE opens)? Is it worth a punt? Wanted to see what the level of interest is out there in this bank stock among BKIR punters!!!
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