BoI bad debts could reach e6bn in next 3 years

BANK of Ireland could suffer combined losses of up to e1 billion in the years 2010 and 2011 due to mounting bad debts, analysts warned last night.

Bank of Ireland said bad debts in the three years to 2011 will hit e4.5bn and could climb as high as e6bn in a worst-case scenario.

In a statement, the bank said it would make a second half loss in the current year but would return a full year profit despite a bad debt provision of e1.4bn to be included in the results.

The bad news came as the Government put e3.5bn into the group to shore up its balance sheet and restart lending after the collapse of the Irish property market.

Bank of Ireland’s chief executive Brian Goggin, due to take early retirement this summer, stopped short of a giving a blanket apology for the bank’s role in causing the huge property bubble.

He regretted his failure, however, “to question in a more challenging way the growth Ireland was enjoying and that it wasn’t sustainable”.

He could understand the anger of people looking at a bank benefiting from the huge bailout by the taxpayer as the Government scaled back school services for special needs children.

Mr Goggin said he expected the support given to the two leading banks could be good in the long term.

“The taxpayer, I am confident, is going to get a very very good return for that,” but, “it was quite understandable people would feel angry” at the way events have unfolded, he said.

In a briefing to journalists yesterday, the bank’s chief financial officer John O’Donovan and head of capital markets Denis Donovan, said it had estimated that bad debt write-offs over the three years to 2011 would be e4.5bn, with e1.4bn of that to be taken in the results for the year to March 2009.

The credit rating agency Moody’s agreed with the bank’s worst-case scenario of e6bn bad debts in the period ahead. Mr O’Donovan said the convergence of the bank’s assessment with Moody’s sends a clear signal to the markets that the bank and one of the top credit rating agencies are singing off the same hymn sheet.

That removes uncertainty and gives outside investors a clearer picture of where the bank stands, he said.

Mr Donovan said in the run-up to the recapitalisation, “tough negotiations” took place between the bank and the Government.

“The Government had to be satisfied the bank was capable of surviving down the line and in a position to face the unprecedented challenges thrown up by the markets.”

The decisions have “nailed down” the bank’s exposure to bad debt and the e3.5bn capital injection will see it through this crisis, both men agreed.

Mr Donovan welcomed the fact that the Government has taken its time on how to deal with the toxic debts lurking in the bank’s vaults. It was “important” that it reached the right decision, whatever that is.

There are also signs first time buyers are coming back into the market with a significant increase in the level of enquires for loans.

“It remains to be seen if that level of interest translates into mortgages being written,” Mr Donovan said.