Bank of Ireland keeps lid on state stake with payout

Bank of Ireland will pay nearly 215 million euros in dividends to the Irish government this month, keeping a lid on the state's stake in the lender at 36 percent, at least for now. Bank of Ireland, one of only two domestic lenders not in state control, said on Friday it would pay the dividend due on the government's preference shares on February 21 after the EU lifted its ban on such payments.
Last year, the government took its first direct stake in Ireland's largest bank in lieu of a cash payment. Under an EU/IMF bailout deal, Bank of Ireland needs to raise 1.4 billion euros to meet tough new capital requirements and analysts are sceptical it can raise the funds from private sources, meaning that the state's stake could jump to around 70 percent.
A new central bank stress test of all the lenders, set to be completed by the end of March, could also mean the banks have to further bulk up their balance sheets. To reassure investors that it had the funds to pay the dividends, Bank of Ireland gave an impromptu trading update on Friday in which it said its customer deposits had remained broadly stable since the end of November and reiterated that impairment charges for loan losses peaked in 2009.
In a separate statement, bancassurer Irish Life & Permanent, which has avoided state control due to its cash-rich insurance arm, said it had raised its 2010 impairment charge by between 80 million and 100 million euros ahead of a March 2 results announcement. Bank of Ireland said its loan to deposit ratio has had a "significant increase" from the 143 percent at the end of June due in large part to the loss of around 10 billion euros in corporate deposits in the third quarter.
Irish deposits suffered a large outflow of corporate money after the debt ratings of Ireland and its banks were cut. Bank of Ireland swallowed a 4 billion euros plus loss when it transferred some 9 billion euros in assets to a state-run "bad bank" last year but even excluding this loss and impairment charges, underlying operating profit will be 25-30 percent lower than last year. High costs of funding, with Irish banks frozen out of term market and intense competition for deposits, hit the underlying earnings.