Desperate measures have helped Bank of Ireland
The quarter in detail
The bank reduced its pre-tax loss significantly, to $1.03 billion from $1.88 billion a year ago. This was primarily due to a 22% drop in impairment charges to cover underperforming loans. But an increase in wholesale funding costs weighed on its results. High funding costs resulted in its operating profit before provisions reducing to $232 million, and the bank posted a net loss of $720 million, compared to a net profit of $203 million last year. The rise in funding costs was triggered by debt chaos in the eurozone.
Regulators are pressing Irish banks to cut their loan-to-deposit ratios to 122.5% by the end of 2013. IRE, whose ratio stands at 175%, plans to sell off more than $43 billion of assets to meet that goal. This is why, after selling off Northern Trust
The high cost of customer deposits and the difficult liquidity environment are going to be major bottlenecks to IRE's growth. And the bank still has to raise $7.5 billion to keep itself from being nationalized. All this makes me wary of this bank.
The Foolish bottom line
Ireland is creating a banking system with two big banks as its core pillars. Allied Irish Banks
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Fool contributor Zeeshan Siddique does not own any of the stocks mentioned in the article.
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