Bank of Ireland's path back to profitability has been potentially smoothed following the European Commission's decision not to force the sale of its life and pensions arm, New Ireland Assurance. This is a key part of a revised restructuring plan agreed with Brussels under State aid rules and amends an agreement reached in December 2011.
The commission said the divestment of New Ireland would have “negatively” affected Bank of Ireland’s capital and capacity to “return to profitability and would slow down progress towards long-term viability”.
It added that the recent sale by the State of Irish Life to Canadian group Great-West Lifeco had affected the number of potential buyers for New Ireland and increased the likelihood of “selling it with losses”.
New Ireland is the number two player in the life and pensions market here behind the recently merged Irish Life/Canada Life business.
The company is considered a key business unit for Bank of Ireland, which is 15 per cent owned by the State. It has a 24 per cent share of the Irish life and pensions market and serves about 600,000 customers.
Operating profit
New Ireland had a net book value of €816 million at the end of December 2012 and generated an operating profit before investment variances and economic assumption changes of €77 million last year.
In return for this concession by the commission, Bank of Ireland has agreed to exit business banking and corporate banking in Britain. This will not affect its consumer activities there, including its partnership with the UK post office, or its businesses in Northern Ireland.
Business Banking operates out of London, Bristol, Manchester and Birmingham.
It has also agreed to stop originating new mortgages here through brokers and to sell or close its ICS Building Society distribution platform. ICS no longer operates a branch network and is effectively a branded mortgage offering from Bank of Ireland with just a handful of staff working directly for the division. It lost before tax €13.1 million in 2012.
Intermediaries have accounted for about 15 per cent of B of I’s new mortgage lending over the past three years. A sale of ICS could result in the bank offloading up to €1 billion of intermediary-originated mortgage assets and matched deposits.
Bank of Ireland declined to comment yesterday on the timeline for the sale of these business divisions or the financial impact that these substitution measures might have on its performance.
The commission said the replacement of the commitment to divest of New Ireland was justified and the alternative measures proposed to limit competition distortions were “adequate and equivalent to the sale” of the life and pensions group, “without harming the long- term viability of the bank”.
Ireland sought this change last month, according to the commission statement. “Moreover, NIAC [New Ireland] made a key contribution to Bank of Ireland’s 2012 operating profit [of €242 million before impairment charges,” it added.
Restructuring plan
The new deal should please Bank of Ireland chief executive Richie Boucher who had made it clear previously that his preference was to retain ownership of New Ireland.
The restructuring plan also extended the limitation on the bank’s capacity to distribute dividends on ordinary shares beyond December 2015 in order to ensure the bank’s “best efforts” to redeem the preference shares held by the State.
The bank is due to publish its interim results on August 2nd.
