Bank Of Ireland Soars On Debt Buyback Plan

The buyback programme also overshadowed an announcement that Chairman Richard Burrows would step down at the annual meeting in July.

Bank of Ireland's plan to buy back bonds took the sting out of nosediving earnings and a hike in its bad debt forecast on Tuesday, as investors cheered the expected boost to its capital position.

The buyback programme also overshadowed an announcement that Chairman Richard Burrows would step down at the annual meeting in July. Shares in Ireland's largest lender by assets jumped 27 percent in early trade and rival lender Allied Irish Bank rose nearly 10 percent as the market speculated it would make a similar move.

"It's a no-brainer trade for any of the guys. Rather than having to buy back the bonds at par in a few years it makes huge sense for them to buy them back at 50 cents and below so we think Allied will be next," said one Dublin-based trader.

Bank of Ireland will purchase securities with a maximum face value of 1.4 billion euros and is the latest lender to take advantage of deeply discounted secondary market prices to improve its capital position. Royal Bank of Scotland made a similar move last month.

Scott Rankin, an analyst with Davy Stockbrokers, said they were assuming around 700 million euros would be added to Bank of Ireland's core Tier 1 capital from the purchase.

"It boosts it quite nicely," he said. "There are some good spots and some bad spots in the results but on balance I think the market will be reasonably happy with the numbers given how bad the environment is."

Bank of Ireland raised its expected bad debt charge for the three years to March 2011 to 6 billion euros ($8.08 billion) as recession in Ireland intensifies and it warned there was a downside risk to that forecast.

Chief Executive Richie Boucher said, however, that the lender was adequately capitalised under such an outcome.

"We looked at even further stress testing beyond that (the 6 billion euros estimate) and on that basis we still believe that we would be adequately capitalised," he told reporters.

Three months ago, Bank of Ireland was estimating a bad debt charge of 4.5 billon euros for 2008-2011 but had flagged a downside risk of a further 1.5 billion euros.

ACCOUNTABILITY

A question mark hangs over the future independence of Ireland's largest bank by assets due to its exposure to a protracted property market crash that has sliced its full-year underlying earnings per share by 80 percent.

Dublin has warned that it may end up with a majority stake in Bank of Ireland and Allied Irish following the creation of a 'bad bank' to cleanse the sector of risky property loans.

Boucher declined to comment on the likelihood of majority government ownership.

"Our engagement with the government over the past six months in particular has been positive, realistic, pragmatic and sensible," he said.

The group's underlying earnings and share price have been cut to pieces by impairment charges, leading Burrows to announce his resignation.

"Accountability for these losses must be taken at the top," he said in a statement accompanying the results.

The bank, whose principal market is recession-wracked Ireland, warned that the financial year to March 2010 would be another difficult one.

"We expect lower levels of new business activity, higher impairment charges and further pressure on liability spreads," the company said.

Boucher said liquidity conditions for the bank had improved following a return of some risk appetite but conditions were still tough.

He said the bank was mopping up some mortgage and medium-sized corporate lending business from foreign rivals who appeared to be scaling back their exposure to Ireland.

Bank of Ireland's underlying earnings per share (EPS) were 30.2 euro cents for the year to March 2009 compared with 150.3 cents a year ago after the company took a bad debt charge of 1.4 billion euros.

Analysts were expecting underlying EPS of 20 cents according to the median of 11 polled by Reuters Knowledge.

The government has injected 3.5 billion euros into the bank via preference shares giving it a 25 percent indirect stake in the company.