BoI bids to retain assurance firm

It is believed that Bank of Ireland is in talks with the European Commission about retaining New Ireland Assurance, but no decision has been made on its future.

According to restructuring plans devised by the Commission in 2010, Bank of Ireland was instructed to sell New Ireland Assurance, as well as a number of other divisions.

The sale was scheduled to be completed by this December. However, in Jun 2011, the commission revised the divestment plan and extended the sale deadline by 12 months.

Bank of Ireland declined to comment on the matter, but a person familiar with the situation said the bank favours holding onto the life assurer. New Ireland is a profitable company and is the second largest player in the Irish life assurance market, with more than 600,000 policyholders and €12bn in assets under management.

The commission said it does not comment on individual cases.

ICS Building Society was also slated to be sold as part of the commission’s business plan. However, the commission subsequently allowed Bank of Ireland to hold onto the building society. If ICS had been sold, it would have eroded Bank of Ireland’s deposit base, which would have made its deleveraging targets even more challenging.

But if the commission gives the green light to Bank of Ireland retaining ownership of New Ireland, it would have implications for the bank’s capital requirements under the proposed Basel III legislation.

Under Basel III, banks will have to set aside capital for all its subsidiaries, which would have the effect of lowering Bank of Ireland’s tier one capital ratio.

Moreover, if it were to sell New Ireland, it would release capital for Bank of Ireland.

The rationale for holding onto New Ireland is that is a lucrative sales channel for selling future pension and other products.

Furthermore, it is believed if the commission permitted Bank of Ireland to keep New Ireland, it would insist that it sell another division.

But Bank of Ireland has already divested its non-core businesses. Analysts say it would not make strategic sense to offload the UK Post Office franchise because it is an important source of deposits.

The Government owns a 15% stake in the bank.