Banking shares suffer over Bank of Scotland plans for branch network

David Clerkin

Irish Life & Permanent, the owner of permanent tsb, lost 3.5% as investors feared it was one of the banks with most to lose from Bank of Scotland’s plans. Bank of Ireland fell almost 2%, while AIB shares ended 1% lower.

Bank of Scotland (Ireland) chief executive Mark Duffy said yesterday’s announcement showed why the bank had chosen not to bid for National Irish Bank (NIB) and its sister bank Northern, which were taken over by Danish bank Danske late last year for 1.4 billion.

NIB’s value is understood to have accounted for about 500 million of the total, but its new owner faces further hefty costs to integrate its computer systems and invest in marketing the bank, which has almost 60 branches.

Yesterday’s E120 million deal gives Bank of Scotland almost the same number of branches for a considerably lower investment, although it will be faced with the challenge of building a customer base from scratch.

Mr Duffy said the bank would also need to address a small number of gaps in the ShopElectric network.

The deal will not include the ShopElectric stores in Cork’s Academy Street and Dublin’s Fleet Street, which means the bank will need further investment to have a presence in the centre of either city. It is likely to ac quire premises from scratch or, in the case of Dublin, adapt existing offices in high-profile locations such as St Stephen’s Green and Earlsfort Terrace to incorporate a retail outlet.

The bank said the deal would also give it access to 185,000 customers that had bought and financed electrical goods through the ESB. The value of the ESB loan book is believed to be in the region of E80m.

For the ESB, the deal allows it to exit the retail business with grace after witnessing its market share and profitability decline in recent years. The company already closed 27 ShopElectric outlets over two years ago.