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News : Irish Last Updated: Mar 4, 2013 - 8:44 AM

Bank of Ireland reports loss before tax for 2012 of €2.1bn
By Finfacts Team
Mar 4, 2013 - 8:40 AM

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Bank of Ireland was founded in 1783 and the premises at College Green, Dublin, of the Irish Parliament, which became defunct on the Act of Union coming in to effect in 1801, were purchased for £40,000 in 1803.

Bank of Ireland today reported a loss before tax for 2012 of €2.1bn compared with a loss of €190m in the year before. Total operating income for the year ended 31 December 2012 of €1.88bn was 9% lower than the prior year. The reduction in operating income arose from both a €10bn (7%) reduction in the bank’s average interest earning assets and a reduction in the net interest margin (before ELG costs) from 1.33% to 1.25%, partially offset by a 14% reduction in ELG (State bank guarantee) fees - - at €388m for the year to December, down 61m compared with previous years.

BoI had over 12,000 employed at the end of the year and the head count is down 5,000 people in four years, 700 through parts of the group being sold. It said today that redundancy programmes will continue this year. In May 2012 the group recommenced its voluntary redundancy programmes. These programmes have led to a reduction in staff numbers of 1,218 or 9% since December 2011. Staff costs (excluding pension costs) of €771m for the year ended 31 December 2012 were €1m lower than the previous year.

Bad debt provisions on loans to customers were €1.72bn, off 11% on 2011 while provisions for residential mortgages  were at €462m for the year, down  €7m from €469m in 2011. Owner occupier default arrears were 9.88% at the end of 2012, compared with 7.4% at the end of 2011.

BoI said that while the volume of default arrears has continued to rise the pace of arrears formation has fallen since the first quarter of 2012. 

Buy to let default arrears (based on loan volumes 90 days or more past due) were 23.36% at 31 December 2012 compared to 20.77% at 30 June 2012 and 16.81% at 31 December 2011. The volume of default arrears in the buy to let segment has continued to increase primarily reflecting the continued impact on borrowers of rising repayments as interest only periods come to an end and customers move to fully amortising loans.

"As part of the Group’s Mortgage Arrears Resolution Strategies, the Group continues to work with Buy to let customers, particularly those with interest only periods that are coming to an end, to restructure customer mortgages prior to them moving to fully amortising. The pace of Buy to let arrears formation (based on loan volumes 90 days or more past due) has reduced since the first quarter of 2012, and the level of Buy to let default arrears for the Group remains below the industry average as published on a quarterly basis by the Central Bank of Ireland," the bank said.

The impairment charge on the Retail UK mortgage portfolio of €44m for the year ended 31 December 2012 has increased by €19m from €25m in the previous year.

The group's loan and advances to customers (after impairment provisions) of €92.6bn have decreased by 9% since 31 December 2011. Excluding the impact of foreign exchange, loans and advances to customers have fallen by €10.0bn or 10% during 2012. The key drivers of the dip include net loan repayments and loan book sales in particular the UK mortgage and international corporate portfolios, partly offset by the impact of foreign exchange rate movements.

"As at 31 December 2012, the Group’s Core tier 1 capital ratio (PCAR / EBA basis) was 14.4% and broadly unchanged from the ratio of 14.3% at 31 December 2011, primarily reflecting actions taken to reduce Risk Weighted Assets (RWAs) offsetting the loss incurred in the year. Our total capital ratio at 31 December 2012 of 15.3% represented an improvement from the ratio of 14.7% at 31 December 2011, partially due to our successful issuance of €250m 10 year Tier 2 capital in December 2012," the bank said.

Results detail [pdf]

Eamonn Hughes of Goodbody commented: "Bank of Ireland FY12 First Glance – Income, credit stabilising; "Bank of Ireland has reported an FY12 pretax loss of €2.166bn and €1.83bn at the net level. Prior to some non-core items, the underlying pre-tax loss is €1.82bn compared to our €1,738bn estimate (stripping out restructuring costs).

Net interest income in the period was €1,746m which compared with our estimate of €1,680m. ELG costs in the period were €388m vs our €365m estimate. The margin was -8bps at 1.25% in line with our estimate, implying a H2 figure of 1.34%. The reported margin figure is pre the ELG cost and closer to 0.96% including the ELG. Non-interest income was €522m compared to €535m expected. Operating costs were 2% lower at €1,638m. This drove an operating surplus of €242m compared to our €296m expectation (including restructuring costs, actual was €92m vs our €230m expectation). The underlying bad debt charge in the period was €1,724m versus €1.81bn forecast though there were also €326m of disposal haircuts (forecast €226m).

There were €17.7bn of impaired loans at the end of December, or 17.7% of advances, compared to €15.4bn or 14.7% in June 2012 and €13.5bn or 12.5% in December 2011. Drilling down, impaired Irish mortgages were €3.6bn (13.1% of loans), up from €2.26bn (8.2%) in June and €1.35bn (4.8%) in December 2011. Owner-occupier arrears rose 66bps in H2 to 9.22% after the 143bps rise in H112 to 9.22% in June. Buy to let arrears rose by 259bps to 23.36% after the 323bps rise in H112 to 13.99%. On the funding side, the Loan to Deposit ratio (LDR) was 123% (128% expected), down from 136% in June. Deposits were €75bn, just ahead of our expectation of €74bn and compared to €72bn in June. Total wholesale funding was €39bn at year end from €53bn in June. Monetary authority drawings were down markedly in H2, as expected, at €15bn from €26bn last June. The Core Tier 1 ratio was 14.4% in December, up from 14.0% in June (EBA/PCAR basis).

Stripping out restructuring costs, the operating surplus was a little behind our estimate. However, this came down to the cost line, with income 2% better and margin run rate looks to be a little better in H2. Underlying impairments were also lower than anticipated and the pace of arrears is starting to slow, as anticipated (we are expecting a summer peak). The capital ratio is about one percentage point better than anticipated as BOI de-levers faster on the asset side than anticipated. This looks like a reasonable set of results in challenging times. There were some expectations of comments about capital raising coming into these results but there is no update from the bank on this front."

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