It looks increasingly likely that Bank of Ireland will have to cut back on planned share buybacks to provide for costs associated with a UK-wide investigation into motor finance commissions.
The bank has not yet said how much it will set aside to absorb the financial impact but charges taken by British competitors last week suggest a bill in the hundreds of millions.
Close Brothers, for example, announced a conservative provision of £165 million with its interim results last Wednesday, which implies a €470 million charge for Bank of Ireland on a like-for-like basis.
A figure that large has implications for Bank of Ireland’s next round of share buybacks, due to be announced with full-year results on February 24. Analysts’ consensus puts the size of the programme at about €600 million but some are trimming their forecasts.
“You pay distributions based on the worst-case scenario, so Bank of Ireland’s excess capital might get parked on the balance sheet until there is more clarity on motor finance costs,” said Benjamin Toms, banking analyst with RBC Capital Markets, who is expecting a downsized €500 million buyback — slightly below last year’s.
Goodbody is expecting the bank to “grasp the nettle” next week by taking a €120 million charge in an effort to reassure investors that it is is being prudent.
RBC has pencilled in a €150 million provision, rising to about €600 million through 2027.