Joint venture with PO could net BoI up to £1bn

BANK of Ireland's financial services joint venture with the British Post Office could be worth between stg£800m and stg£1 billion in four to five years, according to Davy Stockbrokers.

Davy analyst Scott Rankin said the Bank of Ireland/post office (PO) joint venture is expected to break even after 30 months He said the bank expects payback after five years.

The joint venture product range will include personal loans, savings accounts, credit cards, personal insurance and mortgages targeted at the PO's massive customer base through its 16,900 branches. The initial contract is for ten years.

"The terminal value should be very significant, with the joint venture company worth maybe £800m£1bn four or five years from now," he said.

Mr Rankin's comments come in the wake of an investor day held by Bank of Ireland focusing on its British division. Davy is 100% owned by Bank of Ireland.

"We came away with the view that the bank is certainly taking action to strengthen the business where it needs it, and were impressed with the presentation covering the new JV, which looks to have plenty of potential," he said.

Mr Rankin estimates that start-up costs of the JV will knock 3c off their March 2005 EPS estimates, which currently stand at 112.2c. NCB's David Kelly and David Odlum, in a note to clients, said the continuation of the group's share buyback programme at around €250m per annum over the next two years would generate EPS enhancement of 3.0%.

"This would go some way towards reducing the near term negative effect of the PO deal, aside from any other UK productivity improvements," they added.

The NCB duo said business banking is a big area of opportunity in Britain for the Bank of Ireland.

"The company is seeking to replicate AIB's success in the UK by firstly giving the business greater management attention, and secondly by recruiting relationship managers." they added.