Thanks for the comprehensive answer Roxbury. as the pension is a long term liability for the bank this 700mil hole will be closed in time as bond rates change and so in itself is not a negative for bkir. what it does show is how important this Basil 111 fully loaded ratio is. getting it to 10% in 2016 and on to 12% after that is very important. The quality of the assets making up the ratio is also important. its one of the first figures investors now look for in valuing a bank. Hence the pull back in the last couple of days, which was a pity because it looked like we were going to tackle the 38c wall again. now we are into the summer doldrums with no official news expected until August. Back to depending on Greece for movement I suppose.
I think that is right. BKIR is required to fair value the pension assets and liabilities by the beanies. It discounts the future value of the pension liabilities using a risk free (i.e. govt bond rate) rate to arrive at the present value of the pension liabilities. But Govt bond yields sank to near zero (or negative for short dates) in Q1 on the back of QE, so the present value of the pension liabilities is greater (discount future payments at high yield you get a smaller present value, discount at a lower rate you get a higher present value). While BKIR said the value of the pension assets has increased in Q1, the increase has not offset the growth in the present value of the liabilities. Under Basel III, they need to impair this increase against CET1 capital.
Two points on this: (a) if the rally in Govt bond yields is largely done, the problem should not get worse on the liability side - bad news is priced in; (b) there has been a sell off/reversal in Govt Bon yields in the past week, if this holds, I would have thought the effect won the liabiliity side will reverse at the interim stage.
trudeemill, if senator1 looks in he would be able to give you the accountancy reason for this 700m hole. as far as i understand it come down to a lower interest rate on bonds bought and sold in the pension fund and because of the lower bond rates (resulting from QE) a knock on reduction in the discount rate used to value the pension liabilities. the latter is a technically devaluation of the fund and will in time re-balance itself i believe as bonds rates rise again from historic lows.
thats my best stab at answering you question but would be happy to hear if someone else can give more detail.
Richie's IMS was his usual tight lipped affair especially when you compare it to the AIB IMS. As a BOI shareholder I am looking at the AIB statement and trying to extrapolate the information as to how it affects BOI. That should not be the case. AIB give numbers for writebacks, impaired loans and NIM but we get words like lower, reduced and expected to normalise, modest growth. Can anybody explain to me the pension fiasco, after it was all sorted last year, only to show another €700 million hole. This IMS was an opportunity lost to tell the market where fkir is.
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