Bank of Ireland to pull back from US leveraged finance

Irish lender withdraws as fees and returns shrink for traditional banks

Loans tied to US leveraged acquisition financings were the 'biggest driver' for the bank’s €137m impairment charge.

Bank of Ireland Group Plc is withdrawing from the US market for leveraged acquisition financings, as private credit has started to chip away at fees historically collected by traditional banks.

The Irish lender’s decision to wind down its loan book for US acquisition financings comes after a review of the business found that heightened competition from direct lenders is hindering its ability to earn higher returns, a representative for the Bank of Ireland said in an emailed statement.

Loans tied to US leveraged acquisition financings were the “biggest driver” for the bank’s €137m impairment charge, the representative wrote in the statement. The loan book, worth €1.2bn in December, is expected to run down over the next three years, according to a separate statement.

Private credit firms armed with capital have garnered an increasing amount of market share from Wall Street banks that have historically financed acquisitions. For larger deals, it’s also become common for banks and direct lenders to participate in the same transaction. 

Medical-device maker Hologic Inc., for example, raised more than $12 billion of debt financing across the public and private capital markets.

“Private credit has reshaped the landscape of leveraged finance, with reports indicating that it has grown to be at least as large as the leveraged loan market, and even larger when uninvested commitments are included,” Bob Kricheff, global strategist and head of multi-asset credit at Shenkman Capital Management, said in an investor note in November. 

“Much of the private and public capital now competes for the same transactions.” In the US, most leveraged finance deals are also led by local banks, leaving fewer fees for their European peers.

The Bank of Ireland, the country’s second-largest bank, participated in just a handful of US leveraged finance deals last year, including loans for European firms Artemis Investment Management and Alter Domus, according to data compiled by Bloomberg.

The lender said its European business for leveraged acquisition finance was not affected by the decision to wind down lending in the US, according to the statement.

Bloomberg