Performance of Irish bank shares to face heavy scrutiny in coming weeks

Performance of Irish bank shares to face heavy scrutiny in coming weeks

Irish banks are facing into a key two weeks to convince investors about their investment merits after a turgid year when their shares have again lagged most of their European counterparts.

On successive days next week, Permanent TSB and AIB, and then Bank of Ireland early the following week, report earnings for the first six months of the year.

Shares in the Irish banks, as well as the Irish property Reit firms, which enjoy favourable tax benefits, and the two stockmarket-listed Irish home builders, have been prominent among a list of companies shunned by investors as Brexit fears deepen.

And the uncompromising rhetoric of Boris Johnson and Jeremy Hunt to Conservative Party members in the final stage of their contest to be named the next British premier next week, has only spooked investors further that Britain will crash out of the EU at Halloween - piling on the pressure for investors in Irish firms.

Irish banks face other challenges, including a dampening in demand for loans from small firms and the widely-held view of market participants that Mario Draghi in his swan song as head of the ECB will cut interest rates as early as September.

Lower interest rates make it more difficult for banks in general to generate revenues and fees.

In the year to date, Permanent TSB shares have underperformed the shares of the European banking peers, by a significant amount.

Bank of Ireland shares have underperformed the European pack too but by far less, while AIB shares although treading water this year have also fared worse than most of its European counterparts.

Now, a new report from Davy says that the financial targets of all three Irish banks will be under scrutiny as the lenders report in the coming weeks.

“We expect financial targets will also be a common area of scrutiny in the interim results, particularly given the top-line challenges on low-interest rates and the Brexit impact on demand for SME lending,” wrote analysts Diarmaid Sheridan and Stephen Lyons.

On AIB, the analysts wrote the bank has all but achieved its targets set out when the Government sold down a minority stake in the sale of shares two years ago “but the nearer-term focus is still likely to resolve around capital and utilisation given its significant surplus capital”.

On Bank of Ireland, investors will focus on progress on the lender’s “transformation programme”, as well as IT costs and growth in lending.

Performance of Irish bank shares to face heavy scrutiny in coming weeks

And on Permanent TSB, they wrote “focus will now likely fall on the operating cost base of the bank post the investment plan and further reductions in NPLs (non-performing loans)”.

In the latest session, AIB shares fell around 1% to value the 70%-Government-owned lender at almost €9.4bn on the stock market.

Shares in Bank of Ireland, in which the Government has over a 13% stake, fell 2.7% to value it at around €4.7bn, and shares in Permanent TSB, 75%-owned by the Government, also fell, by 1.3%, to value it at just over €550m.

Meanwhile, the boss of Ulster Bank-owner RBS, Ross McEwan said he is leaving to join National Australia Bank.

Mr McEwan has led RBS, in which the UK government following the banking crash still owns a 62% stake, for almost six years.

RBS shares have risen since the start of the year but have fared worse than its major UK rival Lloyds and smaller rival CYBG -- the Clydesdale, Yorkshire, and Virgin Money owner, which is headed by David Duffy, the former chief executive at AIB.

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