Bank of Ireland says continuing volatility on financial markets will affects its performance for the year to the end of March. In a trading update, it also warned that this may remain a factor well into 2008. The bank had already lowered its earnings forecasts in November.
The bank said stock market weakness would hit its life business to the tune of about €40m, while the euro's strength against sterling would knock €15m off profits from its UK financial services division.
Bank of Ireland has also set aside an extra €15m to cover falls in the value of its investments in structured investment vehicles (SIVs). Theses are funds that raise cash by issuing short-term debt and invest the proceeds in higher-yielding assets, including US mortgages. They have been unable to fund themselves normally for months due to the global credit crisis.
The bank said that, when these factors are excluded, its underlying earnings were still expected to rise in line with its previous estimate of a high single-digit percentage. But when the combined €70m hit from the above factors is taken into account, the bank expected earnings growth to ease to 3% to 5%.
Bank of Ireland said growth slowed in the second half of its financial year in line with the economies of its main markets. It added that it expected only modest profit growth in its retail banking business in Ireland. BoI said growth in mortgage lending and business banking had slowed.
BoI expects loan growth off 10% for the year, while the higher cost of borrowing money on wholesale markets will affect its net interest margin.
It says its exposure to SIVs, collateralised debt obligations (CDOs) and monoline insurers is 'modest', at €85m, €45m and €136m respectively. These are the types of assets which have been hardest hit by the crisis in world markets, as some of them were linked to risky US mortgages.
Shares in the bank closed down 13 cent at €9.31 in Dublin this evening.
