Bank of Ireland returns to net profit, deposits up

Bank of Ireland, the only one of Ireland’s six banks to avoid
nationalization, on Monday reported it returned to net profit in
2011 thanks to heavy debt restructuring in the face of continued
losses from dud loans.

Bank of Ireland said it netted euro40 million ($52.8 million) in
profit thanks in part to a euro230 million tax refund. The
Dublin-based bank recorded a net loss of euro609 million in
2010.

It is the first Irish bank to record a net profit of any kind
since Ireland’s long-booming economy came crashing down in 2009
amid a burst property bubble.

Bank of Ireland underscored its funding strength versus its two
surviving domestic rivals, state-owned Allied Irish Banks and Irish
Life Permanent. Its deposits increased 9 percent to euro71
billion, chiefly at the bank’s British division, while its reliance
on short-term liquidity loans from the European and Irish central
banks fell 29 percent to euro22 billion.

Operating costs fell 8 percent to euro1.65 billion as the bank
reduced staff and pension benefits. More staff cuts loom this
year.

The bank continued to record massive losses from writing off
property-based loans, but took the worst of its medicine in
2010.

It reported more than euro1.9 billion in 2011 loan writeoffs to
customers, 4 percent more than in 2010, with an increasing focus on
residential mortgages.

But the bank in 2010 additionally suffered a euro2.5 billion
loss as it transferred its biggest toxic debts _ chiefly loans to
bankrupt construction barons _ to Ireland’s state-run “bad bank,”
the National Assets Management Agency. That exceptional loss was
not repeated in 2011.

Bank of Ireland appeared on the road to inevitable
nationalization last year, just like Ireland’s five other locally
incorporated banks, as its deposits dropped and foreign creditors
refused to lend fresh cash. All six banks saw their loan books
implode in line with a sudden end to a decade-long construction
boom that their reckless lending practices had encouraged.

But Bank of Ireland negotiated a Houdini-like escape,
negotiating a partial takeover by a Canadian-American consortium of
fund managers led by U.S. investor Wilbur Ross. The foreign
investors paid euro1.12 billion for a 35 percent stake, while the
government’s stake was sharply reduced to 15 percent.

Ross, a billionaire who specializes in leveraged buyouts and
investments in distressed companies, told investors last week he
expects to be able to sell his Bank of Ireland stake for triple its
current market worth in a few years as global confidence in Ireland
returns.

Bank of Ireland shares rose 1 cent, or 7 percent, to euro0.15 in
early trade on the Irish Stock Exchange.