Bank of Ireland holds on to life insurer

Bank of Ireland has been successful in its negotiations with the European Commission to hold on to New Ireland Assurance, although it has to sell business units as part of the agreement, including exiting ICS.

According to restructuring plans signed off by the commission in 2010, Bank of Ireland agreed to sell New Ireland as part of its deleveraging programme.

However, the Irish Examiner reported last October that the bank had been in talks with the commission about keeping the profitable life insurer. It is believed that New Ireland made an operating profit of about €77m in 2012.

In return for the green light from the commission, Bank of Ireland will exit from its UK business and corporate banking.

The gross loanbook for these businesses was €4.6bn at the end of last December.

Bank of Ireland has agreed with the commission a discount rate it will not exceed on the disposal of its assets. The sale of its UK business and corporate loanbooks must be done in accordance with these agreed discounts.

Moreover, Bank of Ireland must also stop using the ICS brand and network of brokers to sell its mortgages.

Bank of Irelands currently has a €1bn mortgage portfolio with matching deposits as part of this arrangement which will now be put up for sale. If there are no buyers in the market, then Bank of Ireland will have to run down the book over an agreed timeframe.

The third condition attached to the agreement was that there would be a restriction on the amount of dividends Bank of Ireland can pay its shareholders as long as the Government holds preference shares in the bank.

As it stands, Bank of Ireland has to refinance €1.8bn in preference shares before the end of March next year or face a 25% step-up in value of these preference shares.

Originally Bank of Ireland could not pay a dividend that exceeds 50% of the redemption value of these preference shares before the Dec 31, 2015, if the Government still owned the preference shares.

Under the new agreement, the same restriction still applies from Jan 1, 2016, onwards if the Government still owns the preference shares.

Bank of Ireland declined to say what impact the retention of New Ireland will have on its core tier one equity position.

New Ireland has roughly 600,000 customers and controls about 24% of the Irish market.

The commission still has to decide on the restructuring plans submitted by Permanent TSB.


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