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Bank of Ireland's Profit Plunges on Loan Losses

Bank of Ireland reported a 97 percent plunge in full-year profits Tuesday, citing a rising tide of defaulting loans that has spurred the bank's governor to resign.

Still, the figures were better than investors feared and the company's shares soared 27 percent to 1.37 euros.

Ireland's second-largest bank said net profit for the fiscal year ending March 31 fell to 59 million euros ($80 million) from 1.69 billion euros a year ago, reflecting its high exposure to Ireland's recession-ravaged economy and collapsed property market.

The bank recorded a profit thanks to net tax credits reflecting its recent losses.

The bank recorded a full-year pretax loss of 7 million euros — its first in corporate history.

Analysts said they had expected worse and compared Bank of Ireland's debt and cash position favorably with its bigger rival, Allied Irish Bank.

Both banks have just received matching 3.5 billion euros bailouts from the government and are expected to sell dud property loans to a proposed government-run "bad bank" called the National Assets Management Agency.

Investors also welcomed Bank of Ireland's announcement Tuesday that it wants to buy back up to 1.4 billion euros in its international debt obligations — but only if bond-holders agree on a reasonable price.

The bank's chief executive, Richie Boucher, said in a telephone interview he was "very keen" to negotiate the discounted sale of loan liabilities to the still-forming agency.

And Boucher, who took charge in February after the surprise resignation of Brian Coggin, rejected widespread speculation that the government bailout would not be sufficient to save both Bank of Ireland and Allied Irish from eventual nationalization.

"I don't see it as inevitable," Boucher said, noting that Finance Minister Brian Lenihan considers nationalization "a very last resort." He said nationalization would not give the bank easier access to capital, and it would increase Ireland's already runaway budget deficit.

Allied Irish rose 14 percent to 1.23 euros.

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Bank of Ireland governor Richard Burrows apologized to shareholders — for the heavy market losses over the past year and for the cancellation of the traditionally strong dividend — and said he was resigning at the end of July.

"Accountability for these losses must be taken at the top," Burrows said in a statement in the bank's earning statement.

Bank of Ireland said it wrote off more than 1.4 billion euros in bad debts in the 12 months ending in March, far higher than the 227 million euros in the previous fiscal year.

It also raised its forecast of total debt write-offs through March 2011 to 6 billion euros, compared with its previous estimate, issued just three months ago, of 4.5 billion euros.

It cautioned that the 6 billion euro figure could prove optimistic if Ireland's property market didn't recover by 2011.

The bank said 91.8 percent of its loans were being paid on time, compared to 97 percent in March 2008.

Its total of overdue or impaired loans surged to 15.7 billion euros — 11 percent of its loan book — versus 4.1 billion euros at the end of the previous fiscal year.

Loans to construction firms and property developers represented by far the biggest problem.

Bank of Ireland said more than 10 percent of its loans to that sector were impaired, compared to less than 1 percent 12 months ago.

Over the past 12 months, the bank said its customer deposits fell 4 percent to 83 billion euros, while outstanding loans rose 5 percent to 143 billion euros — including 34 billion euros to property developers and construction firms.

Income fell 5 percent to 3.91 billion euros, while expenses fell 6 percent to 2.02 billion euros.

Restructuring costs surged to 83 million euros from 17 million euros as the bank laid off 5 percent of its employees, chiefly in the United Kingdom, leaving a work force of 15,500.

The new estimate of the bank's misfiring loans to construction and property kingpins is nearly equal to the value of the government bailout.

Shareholders approved the 3.5 billion euro aid package at an emergency meeting March 27.

The government receives a 25 percent stake in the bank's diluted share capital and a fixed annual dividend of 280 million euros.