Moody’s warns on Bank of Ireland’s pension deficit

Moody’s said Bank of Ireland’s widening pension deficit is negative for its debt dynamics as it probably will exceed the amount of capital generated by the lender during the first half of the year.

The bank said last week that the impact of the Brexit vote on foreign exchange rates and interest rates had pushed the deficit for its defined benefit pension scheme from €740 million in December last year to €1.2 billion at the end of June.

Moody’s said in a note on Monday that the widening pension gap will negatively affect the bank’s regulatory capital metrics.

Separately, Davy estimates that the pension deficit will result in Bank of Ireland’s common equity Tier 1 capital ratio, a key gauge of a bank’s financial stability, falling to 10.8 per cent at the end of June from 11.3 per cent in December.

Davy analysts Diarmaid Sheridan and Emer Lang expect that Bank of Ireland's net profits will fall 36 per cent to €399 million in the first half compared to the year-earlier period, impacted by a weaker sterling and lower levels of on-off gains from bond sales.

“Given the high degree of uncertainty post-Brexit, outlook comments – particularly regarding management’s ambition to reinstate dividends and its strategy for the UK business – will be closely scrutinised and will arguably be the key area of focus,” the analysts said, referring to the company’s first-half results, due for release on July 29th.