Citi predicts decline in earnings and cuts forecasts for three Irish banks

IN its latest report on Irish banks, the investment research arm of global financial services giant Citigroup has downgraded its recommendations on Bank of Ireland and Anglo Irish Bank, and said that those two, as well as AIB, will probably see earnings decline in their next financial year.

Citi has cut its full-year 2009 earnings-per-share forecasts by 31% for Bank of Ireland, 18% for Anglo Irish Bank and 7% for AIB. It has also downgraded its investment recommendations on Bank of Ireland and Anglo to sell, but has retained its hold recommendation on AIB, saying it is the best diversified of the three banks.

“Irish banks are heavily exposed to property in Britain and Ireland,” the Citi report said.

With its business model solely focused on secured commercial real estate lending, it’s not a great surprise that Anglo Irish Bank is the most exposed, with 80% of its loan book secured against British or Irish property.

“Bank of Ireland is also highly exposed — 71% of its loan book — although this includes significant residential mortgage exposure,” the report stated.

Citi now expects Bank of Ireland to achieve earnings-per- share of 108.6c in 2009, instead of its previous estimate of 156.3c.

It has downgraded its EPS outlook for Anglo for the same period from 148.3c to 121.2c, and AIB from 220.6c to 164.4c.

Each of the three banks took a considerable hit in trading yesterday, with Bank of Ireland’s share price falling by 6.67% to €7; AIB falling by 2.43% to €12.04 and Anglo Irish Bank closing at €7.50 — down 4.58% on Thursday’s close.