Bank of Ireland to repay stock

Bank of Ireland said it remains on track to buy back €1.3bn of preferred stock issued during the financial crisis, even as its capital level fell in the third quarter on a widening pension deficit.

Bank of Ireland shares eased slightly to close at 33c in Dublin, giving the lender a market value of €10.68bn. Over the last 52 weeks, the shares have traded in a range between 26c and 39c.

The common equity tier 1 capital ratio, a measure of financial strength fully taking into account incoming banking rules, was at 10.6% in September, compared with 11.1% in June.

The widening pension shortfall was sparked by “market volatility over the period,” it said.

Richie Boucher, chief executive since 2009, has said he wants to redeem the bank’s preferred shares between January and July of next year as a milestone in his plan to resume dividends.

The bank, which hasn’t awarded shareholders since 2008, may be able to make a cash payment in 2017, Emer Lang, an analyst with Dublin-based securities firm Davy, said yesterday.

“Without a build of capital, the bank did not, as many had hoped, clarify the likely timing for de-recognition of the preference shares, merely reaffirming that it is on track to de-recognise them,” said Fiona Hayes, an analyst with Cantor Fitzgerald in Dublin. “The risk now is that our core belief that it would be early January is too optimistic.”

The State bought €3.5bn of preferred stock in 2009 as part of its bailout. The Government converted €1.7bn of this into equity in the following year.

Almost €540m of the notes were redeemed in 2013, and the remainder sold to private investors. The notes carry a 10.24% coupon.

The bank said its defaulted loans are seen falling further after dropping by €800m to €12.5bn in the third quarter.

Loan volumes slipped to €84bn at the end of September from €85bn previously reported for June, as a weaker sterling weighed on UK assets when translated into euro.

Bank of Ireland’s statement was “mixed,” Davy’s Ms Lang said. The bank’s net interest margin, the difference between the average rate at which it borrows and lends to customers, was little changed at 2.18%.

“Bank of Ireland’s reiteration that it remains on track to redeem its preference shares, which we anticipate in early January, and an encouraging acceleration in impaired loan resolution are the key positives.”