BKIR.L Regulatory News (BKIR)

15 Feb 2008 07:00

Bank of Ireland(Governor&Co)15 February 2008 Bank of IrelandInterim Management Statement 15 February 2008 Background The EU Transparency Directive requires that Bank of Ireland release an InterimManagement Statement by 18 February 2008 updating the market on our financialperformance. This requirement took effect for the Bank of Ireland for the firsttime in our financial year commencing 1 April 2007. John O'Donovan, Group Chief Financial Officer, will host a conference call at8.30am GMT today, 15 February 2008. Conference call details are outlined below. Overview The trading performance of the Group is broadly in line with our expectations.The continuing volatility in markets is however impacting our financialperformance and the outcome for the year is subject to change. This volatility is having an impact on the mark to market of certain financialassets and liabilities. In particular, the downward movement in stock markets todate is generating a significant negative investment variance in our Lifebusiness - circa €40 million. In addition, the recent weakness in the eurosterling exchange rate is having a negative impact on the translation of profitsfrom our UK Financial Services Division - circa €15 million. As a result of recent market developments, we have increased by €15 million theprovision against our investments in structured investment vehicles (exposurecirca €85 million) to circa 50% of this portfolio. Excluding the impact of these factors, our expectation for underlying(1) EPSgrowth for the year to 31 March 2008 is in line with previous guidance of highsingle digit (from a base of 144.6 cent for the year to 31 March 2007). If theaggregate €70 million negative impact of the above factors remains until theyear end, we would expect underlying EPS growth to moderate to circa 3% to 5%. (1) Underlying excludes the impact of non-core items: gain on disposal ofbusiness assets; gross-up of policyholder tax in the Life business; investmentreturn on treasury shares held for policyholders; hedge ineffectiveness ontransition to IFRS; and cost of restructuring programme. Group Business momentum across the Group slowed in the second half of our financialyear as the level of economic activity in our main markets moderated.Notwithstanding this more challenging environment our businesses remain wellpositioned in each of our markets and we expect loan and resource volume growthof circa 10% and 15% respectively for the year to 31 March 2008. The latterreflects our focus on growing customer deposits in a tighter wholesale fundingenvironment. Excluding the impact of IAS 39 accounting treatment, we expect lowto mid single digit basis points margin attrition (off a net interest margin,excluding IAS 39 impact, of 1.69% for the year ending 31 March 2007). The mostsignificant contributor to this attrition is the higher funding costs we areexperiencing in wholesale markets due to the continued market dislocation. Midsingle digit percentage growth in revenue is expected for the year. Management has maintained a clear focus on cost management and containmentduring the year and we anticipate a positive cost / income jaws of circa 4%. The profile of our loan portfolio is robust with minimal exposure to those assetclasses that are generating most concern throughout global credit markets. Inthe context of a balance sheet of circa €200 billion, our exposure to structuredinvestment vehicles (SIVs), collateralised debt obligations (CDOs) and monolineinsurers (primarily through wrapped products) is modest at circa €85 million,€45 million and €136 million respectively. The effectiveness of our credit policies and underwriting standards is reflectedin our strong asset quality in each portfolio across the Group. While we expectan increase in our annualised loan loss charge to mid to high-teens basis pointsin March 2008 this is from our historically low levels in March 2007 andSeptember 2007 (9 and 12 basis points respectively). We have maintained our strong capital position in the second half of ourfinancial year. Funding Bank of Ireland has maintained a strong funding position throughout the extendedperiod of dislocation in capital markets. Our customer deposits are expected toincrease by 15% year-on-year as a result of the Group's continuing focus ondeposit gathering. At the end of September 2007 our wholesale funding as apercentage of our overall balance sheet was 46% (a similar level to 31 March2007). Given the strong growth in our customer deposits, we expect this level ofwholesale funding to reduce somewhat during the latter half of the year.Overall, we continue to finance our loan book in a prudent manner with circa 80%of loans funded through customer deposits and wholesale term funding with amaturity profile greater than one year. The geographic diversity of our fundingprogrammes has proved a particular strength in the current market. Retail Ireland The pace of economic growth in Ireland has continued to moderate, contributingto our expectations of delivering a modest profit growth for our Retail businessfor the year. Whilst economic indicators across the broader economy remainpositive, the slow-down, particularly in the residential property market, isimpacting consumer and business confidence levels. However GDP growth forecastsfor 2008 remain above expected levels for the eurozone average. The Group'sdistribution, brand and franchise remain our core strengths in Ireland. Thesestrengths, together with our competitive approach to pricing and continuingprogramme of product innovation, ensure that we maximise the businessopportunities in this more challenging environment. The growth in our mortgage book has moderated as expected in line with thegeneral trends in the market overall. Similarly, volume growth in BusinessBanking has slowed following the very strong start to the year. Our focus oncustomer recruitment in this segment continues to be successful. Asset qualityacross the Retail portfolio remains strong, though as previously guided, theloan loss charge has trended upwards from its unsustainably low level. Life Following the very strong start to the year, the weakness in world equitymarkets has impacted the sale of single premium investment products in thesecond half of our fiscal year. Sales of regular premium savings products haveproved more resilient. As highlighted above, the decline in equity markets hasresulted in a negative mark to market of the embedded value in the Life companygiving rise to a negative investment variance and decline in profit before tax. Capital Markets A strong performance is expected from Capital Markets with both CorporateBanking and Global Markets contributing to this growth. Corporate Banking isdelivering a robust performance in a challenging market with growth well spreadacross our portfolios and international markets. Pricing and structures continueto improve as risk is repriced in credit markets globally. Trends in assetquality remain strong. In Global Markets we expect to repeat the excellentperformance delivered in the first-half of our financial year with both themarkets team and customer business contributing to this result. UK Financial Services (UKFS) Our UKFS Division continues to perform strongly. Momentum in Business Banking inboth loans and resource growth remains strong, notwithstanding the moderation inthe level of economic activity in the UK. Asset quality across the portfolioremains strong. The dynamics in the UK mortgage market have changed with aresultant improvement in pricing. The impact of this improved market dynamic isexpected to be in greater evidence in the first-half of our next financial year.Asset quality across our portfolios remains strong. Our Consumer FinancialServices businesses continue to perform in line with expectations. Outlook In line with economic forecasts for our main markets, we expect the moremoderate level of activity experienced across the Group in recent months tocontinue in 2008. The current volatility in financial markets may remain afeature well into this calendar year impacting on overall investment, businessand consumer confidence. We are confident that our business fundamentals and competitive positioningenable us to capitalise on growth opportunities in both the current challengingmarket and as economic conditions improve. Trading Statement Bank of Ireland will issue a short Trading Statement in early April 2008 inrespect of our year ending 31 March 2008. Ends. Conference call dial-in details---------------------------------Ireland +353 1 247 5166United Kingdom/International +44 1452 560 210Conference call identity number 33037176 Replay facility available from 10am on 15 February 2008 until 29 February 2008--------------------------------------------------------------------------------International dial-in +44 1452 55 00 00 Access code: 33037176# In addition, a recording of the call will be available from 11.00am (GMT) on 15February 2008 on our website: www.bankofireland.ie/investor Contact details: John O'Donovan Group Chief Financial Officer +353 1 632 2054Geraldine Deighan Head of Group Investor Relations +353 1 604 3501Liam McLoughlin Director of Group Finance +353 1 604 4027Dan Loughrey Head of Group Corporate Communications +353 1 604 3833 Forward Looking Statement This document contains certain forward-looking statements within the meaning ofSection 21E of the US Securities Exchange Act of 1934 and Section 27A of the USSecurities Act of 1933 with respect to certain of the Group's plans and itscurrent goals and expectations relating to its future financial condition andperformance and the markets in which it operates. These forward-lookingstatements can be identified by the fact that they do not relate only tohistorical or current facts. Forward-looking statements sometimes use words suchas 'aim', 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan','goal', 'believe', or other words of similar meaning. Examples offorward-looking statements include among others, statements regarding theGroup's future financial position, income growth, business strategy, projectedcosts, estimates of capital expenditures, and plans and objectives for futureoperations. Because such statements are inherently subject to risks anduncertainties, actual results may differ materially from those expressed orimplied by such forward-looking statements. Such risks and uncertaintiesinclude, but are not limited to, risks and uncertainties relating toprofitability targets, prevailing interest rates, the performance of the Irishand the UK economies, the performance and volatility of international capitalmarkets, the expected level of credit defaults, the Group's ability to expandcertain of its activities, development and implementation of the Group'sstrategy, including the ability to achieve estimated cost reductions,competition, the Group's ability to address information technology issues andthe availability of funding sources. Any forward-looking statements speak onlyas of the date they were made. The Bank of Ireland Group does not undertake torelease publicly any revision to these forward-looking statements to reflectevents, circumstances or unanticipated events occurring after the date hereof.The reader should however, consult any additional disclosures that the Group hasmade or may make in documents it has filed or submitted or may file or submit tothe U.S. Securities and Exchange Commission. This information is provided by RNS The company news service from the London Stock Exchange