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ISEQ ahead-Bank of Ireland examined

Monday, March 04 09:22:22

The ISEQ is ahead this morning at 3779 up 18 points as European markets are steady on concerns for global growth as China takes further action against a it's property bubble.

Bank of Ireland is analysed this morning by Davy Stockbrokers:

Bank of Ireland has reported pre-provision operating profits of E242m for 2012 compared with E413m (-41pc) in 2011 and bang in line with our forecast.

The first/second half split is E58m/E184m, confirming expectations that H1 proved the trough with both margins and costs heading in the right direction.

In particular, rebuilding the net interest margin is one of the group's key priorities and the benefits of re-pricing action on both deposits and loans began to emerge in the second half.

Having hit a low of 120bps in H1, the average margin improved to 1.34pc in H2 - implying a higher run rate entering 2013. ELG (due to be removed on March 28th) fees reduced from 2011's peak of E449m but at E388m continued to be a significant drag on pre provision profit.

The reduction in costs in 2012 (to E1.64bn from E1.65bn) was modest as the impact of lower average staff numbers was partly offset by exchange rate movements and 'significant investments' in programmes to support customers in difficulty.

The bank also incurred a E30m charge in relation to the UK Financial Services Compensation Scheme.

However, the benefit of a restructuring charge of E150m taken below the line (E66m in H1) should begin to flow through in 2013 (payback on E134m of this is circa 11 months). Staff numbers fell by 1,218 during the year to 12,016 at year-end.

Impairments were contained within our estimates The loan impairment charge of E1.72bn was within our E1.76bn estimate. Impaired loans continued to increase during the second half but the pace of increase has slowed. Overall, including land & development loans, impaired loans stood at 16pc of loans at the end of 2012 compared with 12pc at the end of 2011.

Overall defaulted loans (includes past 90 days due not impaired) rose from 14.3pc at end 2011 to 16.1pc at the mid-year stage and to 17.7pc at end 2012. Irish mortgage arrears (past 90 days) had risen from 9.7pc at the end of 2011 to 12.1pc at the mid-year stage, but the pace of increase slowed to 13.1pc at the end of 2012 according to Davy Stockbrokers.