Property bad debts to cost banks billions in profits

BAD property bets, leading to bad banking debts, are expected to wipe billions off the profits of Ireland’s banks over the next year.

Banks that annually pumped out billion euro-plus profits are set to see profits fall dramatically, with pre-tax profits at Bank of Ireland expected to plunge from a forecast €1.99 billion this year to a paltry €37 million by early 2010.

The lost profits will make it almost impossible for banks to pass on expected ECB interest rate cuts, of up to 1.25%, to mortgage holders and businesses.

Share prices have already been punished with the value of Irish financial stocks losing more that €35bn in the last 12 months alone.

Yesterday, stockbrokers Merrion Capital updated their profit projections for the main Irish banks.

Analyst Sebastian Orsi forecasts that AIB’s pre-tax profits will hit just over €2bn this year but will fall to just €144m in 2009, as a result of writing-off bad debts of €2.7bn next year, as banks take account of the property slump.

Mr Orsi expects pre-tax profits of €1.99bn at Bank of Ireland this year to fall to €1.2bn in 2009 and just €37m in 2010. He forecasts a bad debt provision of €2bn in 2010 at the bank.

At Anglo Irish Bank, Mr Orsi expects a bad debt provision of €1.6bn in 2009 to push anticipated pre-tax profits of €1.4bn in 2008 to €225m in 2009.

Irish Life and Permanent’s pre-tax profits are expected to fall this year to €254m from the €461m in 2007.


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