Northern Rock has estimated that its earnings per share could fall by as much 10-12% as a result of international financial reporting standards.
The news came as the mortgage lender issued its final results for 2004, posting record pre-tax profits of £431.2m and earnings per share up from 66.6p to 74.1p.
The bank’s FD Bob Bennett moved quickly to play down the estimates for EPS under IFRS, saying it was ‘not material’ in the long term for Northern Rock, because anything adjusted today ‘comes back tomorrow’.
He added there were downgrades in much of the banking sector following the release of Council of Mortgage Lender figures that revealed the extent of lending arrears. The CML figures showed the number of properties to be repossessed in the second half of 2004 was the lowest since 1982 with no increase in long-term arrears.
‘IFRS does not change cash accounting – it changes the phasing. Fee income gets deferred under IFRS. Income lost today in the P&L account comes back in the year after,’ Bennett said.
Analysts saw the IFRS effect on EPS as more significant. Bruce Packard, bank analyst at ING Financial Markets, said that ‘people do look at the reported earnings using a ratio – it caught a few people out because they were not expecting the 10-12% figure’.
Another analyst said that the 74p EPS this time around could be 65p under IFRS. ‘That is a material difference, and a shareholder should be worried if they have the perception that the company was not generating as much profit as they thought it was.’
Bank analyst Richard Staite at Societe Generale said that Northern Rock had only used figures for pre-tax profits in previous statements.
‘Now they have given a guide to both sets of numbers and there is clearer information.’
Northern Rock intends to provide IFRS comparable figures when it produces 2005 interim results in July.
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