AIB to invest €90m in Canada Life joint venture

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AIB said on Wednesday it has agreed to form a life and pensions joint venture with Canada Life Irish Holdings Company as it seeks to boost its income and product offering in an era when ultra-low interest rates are weighing on lending margins.

The bank, led by chief executive Colin Hunt, will invest €90 million in the 50:50 joint venture, to cover its share of the set-up costs and regulatory capital required for the new business, it said in a statement.

Canada Life is owned by Great-West Lifeco, which is based in Winnipeg, Canada, and which also owns Irish Life.

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A move into the life and pensions business, initially flagged by Mr Hunt last December, marks an about-turn for AIB, which put its former Ark Life unit into wind-down at the height of the financial crisis in 2012 and subsequently became a tied agent for Irish Life Assurance life and pensions products.

The existing arrangement will remain in place until the planned new joint venture's launch, which is expected in the second half of last year. The plan is subject to approved by both the Central Bank and the Competition and Consumer Protection Commission.

AIB currently receives about €20 million in commissions a year from its current arrangement with Irish Life. The new venture is expected to generate “multiples” of that amount for AIB within years, according to a source, who declined to give specific targets.

Financial contribution

“Due to the ‘green-field’ nature of the initiative, associated set-up costs and the long-term nature of the products, AIB expects the joint venture to deliver a meaningful financial contribution in the medium to long term,” the bank said in the statement.

AIB's return to the life and pensions business comes at a time when banks in the Republic and across Europe continue to widen the net of customers being charged what are known as negative rates on deposits.

This is because the European Central Bank has imposed such charges for the past six years on surplus cash banks deposit with it, in an effort to encourage more lending.

Irish households squirrelled away an additional €15 billion in savings in the year to April in response to the coronavirus pandemic, bringing the total to a record €131 billion, according to Central Bank data.

AIB also recently agreed to buy Goodbody Stockbrokers and is in advanced talks to acquire €4 billion of corporate and other business loans from Ulster Bank, which is planning to quit the Irish market.