THE consensus among banking analysts in Dublin and London is that the Bristol & West takeover is a good deal for Bank of Ireland. It may not be a takeover in the most exciting sector, but the analysts believe there is little risk involved in the deal and that in a full year, Bristol & West has the capacity to boost Bank of Ireland's earnings per share by around 10 per cent.
NCB analyst Mr Shane Nolan said: "It looks like a good defensive move by Bank of Ireland. It's low risk and Bank of Ireland is buying at the end of a very long recession." Mr Nolan estimated that after the completion of the takeover and final disengagement from First NH in the the US next year, Bank of Ireland could still have upwards of £200 million in surplus capital. "That would still leave them with the capacity to do a share buyback," added the NCB analyst, who has argued for such a move by Bank of Ireland.
Mr Oliver O'Shea, an analyst with Goodbody Stockbrokers, said earnings in a full year would receive a 9 per cent boost from the Bristol & West takeover. He noted Bristol & West did have a comparatively poor quality loan book, but added that the society has gone a long way towards cleaning up its loan book in the past three years.
He added that while Bank of Ireland is paying a "full price" there is scope for synergies between Bristol & West and the BIHM mortgage lending subsidiary.
"The UK market may be on a cyclical upswing but Bank of Ireland needed scale. They're throwing everything at this and it remains to be seen what they can squeeze out of it," he said.
London analysts also broadly welcomed the deal, although some said they would have preferred to see a share buy back.
Mr Ian McEwen, of Lehman Brothers, said Bank of Ireland paid "a pretty full price" for Bristol & West and it would have benefited shareholders more if Bank of Ireland had opted for a share buyback. "Other institutions could also have achieved greater cost savings," he added.
But Mr Martin Cross, analyst at UBS - the top ranked banking research team in London - said he "can't raise any arguments against it".
He pointed out other recent building society takeovers were done on higher multiples. Abbey National's takeover of National Provincial was done at 1.84 times book value and at 15.8 times earnings, while Lloyds Bank's takeover of Cheltenham & Gloucester was at 1.8 times the book value and 12.5 times earnings. Bank of Ireland is the "cheapest of the three" at 1.67 times book and 11.8 times earnings.
But he also noted that the societies books were not of equal value. "Cheltenham & Gloucester was certainly of higher quality." In principle he expects the acquisition to add 10 per cent to earnings when it flows through in the year to March 1998.
"The arithmetic looks quite compelling," he said. "If you build in per cent reduced funding on BIHM's mortgage book of £2.8 billion you get at least a £20 million saving. On top of that, Bristol & West should be able to save a quarter of a point on the cost of wholesale deposits of £1.8 billion which is a saving of £4 to £5 million."
He added that the deal also looks good as it diversifies Bank of Ireland's portfolio. "It had looked too exposed to Ireland."
Other analysts noted that Bank of Ireland either had to get out of the mortgage market in Britain or grow. "Around £600 million in and £60 million in earnings out is not bad," said one analyst. "And the mortgage book will now be a credible size to grow.
