Bank of Ireland casts doubt on dividend’s timing

Bank of Ireland has raised a question mark over the timing of paying out its first dividend since the financial crisis, blaming the fallout of the Brexit vote on sterling and lower bond yields for the decision.

Earlier this year the bank had expressed a high degree of confidence it would restart paying dividends based on as much as 50% of 2016 earnings and to make the maiden payout in the first half of next year.

Since then, the Brexit vote has hit sterling and its bond yields.

That’s significant for the bank, because low-yielding bonds have significantly increased the deficit of the bank’s pension scheme.

The deficit widened to €1.2bn at the end of June from €740m at the end of last year.

Regulations require more capital to be set aside to cover the deficit. A decision will now be taken in December about the timing of the dividend payment.

Chief executive Richie Boucher told reporters, however, the dividend plan hadn’t been taken “off the table”.

There had also been no external pressure from monetary authorities or international think tanks to re-assess the dividend plan.

Shares in Bank of Ireland had already fallen steeply well ahead of the Brexit vote, but have fallen further since June 23. They were trading yesterday at 18 cent, a fall of over 45% this year.

The results were in line with its own and market expectations, the banks said.

Net interest income fell 7% to €1.13bn in the six months to the end of June from a year earlier after taking a hit on foreign exchange translations and lower interest rates. Net profit fell 29% to €439m.

The bank said it has still to detect any effect on its UK businesses, saying it was keeping a close eye on any spillover effects on corporate and mortgage lending in the Republic, its main market.

It said that the fall in the value of sterling was the main reason that its overall loan book had contracted by €4.5bn.

New lending had risen 14% to €6.9bn from a year earlier, adding that the Brexit vote “may affect new business generation” though it was too early to say.

In a briefing, the bank said Brexit hadn’t changed its plans for its UK operations, which include its venture with the UK Post Office.

It said its business plans were “forged” in the crisis and were focused on the flexibility provided by a diversified business model.

A detailed analysis of its businesses to SMEs and mortgage holders in the border counties in Donegal, Leitrim, Cavan, Louth and Monaghan had raised no red flags.

That analysis included talking to hoteliers about any potential effects on wedding bookings from the North and speaking to retailers and also to agri-food producers in Munster which have contracts with food processing plants in Britain.

He said plans to close branches in Northern Ireland which are being resisted by the Financial Services Union were partly based on decisions including the lower growth prospects in the North.

The bank insisted its policy of resisting cuts in its standard variable mortgage rates and offering fixed rates instead was the right decision for the lender and customers.

Mr Boucher said it would not be providing figures on the number of customers affected by the tracker redress programme until it was completed.

The Central Bank is probing overcharging by Irish banks on tracker mortgages.


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