Bank of Ireland in position to repay state preference shares in 2016
Tue, 17 March 2015
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Bank of Ireland (Governor & Company of the) Quotemore
Price: 0.35
Chg: -0.02
Chg %: -4.05%
Date: 14:19
The Bank of Ireland's capital build up efforts could see the lender repay state preference shares by 2016, according to a note by Nomura Securities.
The broker said Bank of Ireland experienced capital accretion of 250bp in 2014 taking its Common Equity Tier 1 ratio to 14.8% while its fully-loaded Basel III ratio rose to 9.3%, excluding the state preference shares of €1.3bn. "We believe the bank will be in a position to repay these in the first half of 2016. This will position it to resume paying a dividend. However, with its Basel III capital level still below European peers, we think the bank will have to show some restraint," said Nomura.
The broker went on to add that Bank of Ireland's net interest margin expanded to 2.11% in 2014 from 1.84% in 2013, which is already ahead of management's target of above 2%. "Latest system trends are supportive of further widening with cost of funds falling and new lending rates above the back-book. With net lending growth still muted, we expect the bank to defend its top-line profitability through its margin and not compete with pricing for volumes," added Nomura.
The broker retained a 'neutral' rating but raised its target price on the stock to €0.36 from €0.28, saying it regards the Bank of Ireland recovery story as attractive. "Profitability trends are working in the bank's favour. Margins are expanding and asset quality is improving. We regard lending growth as the key ingredient now, which, given the bank's market position, should see it well placed to benefit," said Nomura.
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