Bank of Ireland Group PLC said Wednesday it wrote off euro1.8 billion ($2.7 billion) in bad loans in its first half and warned that the government's bailout plans could lead to greater state ownership of Ireland's second-largest bank.
For the April-September period, the bank eked out a net profit but said that masked a heavy pre-tax loss of euro979 million, compared to a euro647 million gain a year ago, when Ireland's banking crisis was just starting to unfold.
Bank of Ireland's euro162 million net profit was due to an exceptional euro1.04 billion gain from its repurchase of debts from bondholders in a complex debt-repackaging maneuver. That gain had already been announced, though, and the bank said the net figures "obscure the underlying performance trends in the business."
Analysts agreed that the bank's underlying losses were more significant and pointed to heavier writeoffs of toxic debts in the coming year.
Bank of Ireland shares nevertheless rose 9 percent to euro1.53 in morning trade on the Irish Stock Exchange, in line with wider market gains following a heavy selloff of bank stocks Tuesday.
The bank said it expected to transfer euro16 billion of its remaining risky loans — about 20 percent of its loan book — to the government's proposed "bad bank," the National Asset Management Agency (NAMA).
Bank of Ireland warned that this massive transfer of liabilities would require the bank to record unprecedented levels of loan writeoffs and seek new sources of funding. The bank has already ceded a 25 percent ownership stake to the government in exchange for its emergency euro3.5 billion investment earlier this year.
"While the group's strong preference would be to raise capital from private sources, in such a scenario, ultimately it may be required to seek capital from the Irish government, which would further extend the ownership and influence of the Irish government on the group," Bank of Ireland said.
In a prepared statement, Chief Executive Richie Boucher said Bank of Ireland expected to suffer an additional euro3.7 billion in loan writeoffs by March 2011 even before taking into account the potential losses from offloading liabilities to the proposed NAMA agency.
Boucher said the bank's handover of loans, at a discounted price still to be agreed with the government, involved "significant uncertainties."
Unusually, the bank did not allow media interviews Wednesday with senior executives, reflecting the sensitivity of the bank's position as it negotiates loan-bailout terms with the government.
The government forecasts that NAMA will pay Bank of Ireland and four other Irish banks a total of euro54 billion in exchange for taking ownership of loans, chiefly to property developers and land speculators, with a book value of euro77 billion. The government says its goal is to manage the property portfolio and sell it at a profit within 10 years.
On the Net:
Bank of Ireland earnings, http://tinyurl.com/yh6acdp