In its interim trading statement, Bank of Ireland said that operating profit before impairment is likely to be 35%-40% lower in 2010 than the EUR 1.5 billion reported in 2009, as the net interest margin shrinks, the government guarantee fee increases, and cost controls fail to keep up. The bank also said that the losses it takes on asset transfers to NAMA, Ireland's 'bad bank', are likely to grow from 36% to 42% of pre-impairment value.
Bank of Ireland also said the sharp increase in Irish funding costs has negatively impacted the bank. The group has not been able to exit the government guarantee scheme, as planned, and deposit outflows have increased the loan/deposit ratio to 160% from 145% in June despite a fall in customer lending.
Overall, Bank of Ireland, despite being the stronger of the two Irish banks (the other being Allied Irish Banks), faces serious threats, and we do not anticipate rerating the bank anytime soon. Much of its fate may be determined in the next few weeks, as Ireland and the European Union decide if and how to bail out Ireland and its banks and on what terms.
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