Irish Life & Permanent plc Group Chief Executive Denis Casey today said that the Group would experience much lower losses on its loan book compared to other banks due to the fundamentally different profile of its lending. He said the Group’s low risk positioning would mean that it could maintain its very strong capital position [10.1% Tier 1 at end June last] through the current economic downturn. Total gross new lending for 2008 is expected to be down about 45% on 2007. Overall group pre-tax operating profit, including the impairment provision in respect of the Icelandic bank debt, is expected to be down about 30% on the 2007 result.
Speaking at the publication of the Group’s Interim Management Statement today Casey said; “we don’t lend to corporates or to the SME sector and we haven’t lent money for residential or commercial property development. Our low risk loan book will therefore give rise to much lower impairment charges compared to banks that have been active in these areas.” The IMS says that the Group expects an impairment charge over the next three years combined of between 60 and 80 basis points.
Casey also emphasised IL&P’s uniquely strong and flexible capital position. “The Group has a tier 1 capital ratio of 10% and we can also access a considerable store of internal capital over the next few years. Today’s interim management statement confirms that we have now finalised the terms of a financial reinsurance arrangement which will commence that process.”
Commenting on the performance of the different businesses in the Group, Casey said “our banking business is certainly being more challenged particularly because the cost of funds has risen but our life & pensions business is performing relatively well with good sales to company schemes in particular and our fund management business is doing very well.”
Nevertheless Casey said that the Group was not planning to recommend a full year dividend; “we’re paying the interim dividend as scheduled today. However in the current climate and given what other financial institutions both here and abroad are doing, we don’t propose to recommend the payment of a final dividend for 2008. At this time we consider that husbanding our cash is a prudent and an appropriate course of action. ”
Looking to the outcome for the year, Casey said that underlying bank earnings were likely to be slightly ahead of previous guidance but that life earnings were likely to be lower than previously guided. He also pointed to a number of exceptional items which would combine to reduce overall group pre-tax operating profit by 30%. The biggest factor here would be the making of a provision to cover exposure to three banks in Iceland. Without this provision, the Group was guiding a decline of 15% in expected group operating profit.
IMS Statement
