EU says Bank of Ireland can keep life assurance unit

Bank of Ireland will no longer have to sell its New Ireland life and pension susbisidary under the terms of a revised restructuring plan agreed with the European Commission under State aid rules.

This is a key concession secured by Bank of Ireland, given that New Ireland is the number two player in its market, after the recent merger of Irish Life-Canada Life.

Bank of Ireland was ordered by the European Commission to sell the life and pensions business three years ago as a condition of its then €3.8 billion government bailout.

The business is considered to be a jewel in the crown for Bank of Ireland, which is 15 per cent owned by the State. It has a 24 per cent share of the Irish life and pensions market and serves about 600,000 customers.

“Such a divestment would negatively affect BoI’s capital and capacity to return to profitability and would slow down progress towards long term viability,” the commission said in a statement. It added that the recent sale by the State of Irish Life to Great-West Lifeco had affected the number of potential buyers for New Ireland and increased the likelihood of “selling it with losses”.

New Ireland had a net book value of €816 million at the end of December 2012 and generated an operating profit before investment variances and economic assumption changes of €77 million last year.

In return for this concession, Bank of Ireland has agreed to exit business banking and coporate banking in Britain. This will not impact its consumer activities there, including its partnership with the UK post office, or it businesses in Northern Ireland.

It has also agreed to stop originating new mortgages here through intermediaries and to sell or retire its ICS Building Society distribution platform.

“These replacement measures aim at limiting distortions of competition in the UK and Ireland, which are BoI’s primary markets,” the commission said.

Intermediaries accounted for about 15 per cent of Bank of Ireland’s new mortgage lending over the past three years. A sale of ICS could result in the bank been required to offload up to €1billion of intermediary-originated mortgage assets and matched deposits, the bank said today.

Bank of Ireland will publish its interim results on August 2nd.