Business Irish

Thursday 30 March 2017

EU pushes BoI to offload UK assets

Bank reluctant to exit British Post Office venture

Brussels has upped the ante in focusing on Ireland's banks over the past six weeks. Photo: Bloomberg News
Brussels has upped the ante in focusing on Ireland's banks over the past six weeks. Photo: Bloomberg News

Joe Brennan

Brussels has signalled to Bank of Ireland (BoI) that it will need to agree to the sale of assets in Britain in order to get the all-important green light for its state-aid restructuring plan, the Irish Independent has established.

The development is likely to surprise many commentators, but comes at a time when the European Commission is looking to extract more pain from bailed-out banks.

Brussels has upped the ante in focusing on Ireland's banks over the past six weeks, after the Government was forced to finally concede that the National Asset Management Agency constituted state aid, in order to get the project over the line with the commission.

BoI highlighted in its viability plan, filed last September, that it had already undergone a large restructuring, having decided early last year to run down its €32bn British broker-sourced mortgage book and €5bn of international corporate loans.

It is still not clear whether the EU wants BoI to put its mortgage portfolio, its UK business banking operations or its prized joint venture with the British Post Office on the blocks.

When asked about the potential sale yesterday, BoI, the European Commission and the Department of Finance all declined to comment.

Mortgages

The British broker-sourced mortgages have effectively become a zombie loan book since the bank stopped writing new business in January last year, with the loss of about 600 jobs.

However, the pace at which the portfolio is being run down is slower than BoI chief executive Richie Boucher had hoped, as a declining British mortgage market has resulted in a much lower than normal rate of loan redemptions and switching to other institutions.

BoI would be reluctant to exit its Post Office partnership, which dates back to 2003 and is set to run until 2020.

The bank has continued to invest in the venture, even as it has retrenched from international lending to focus on the Republic over the past 18 months.

The 11,700-branch Post Office network in Britain has also become an important source of funding for BoI since the global credit crisis erupted. It accounted for €8bn -- or more than 9pc -- of group deposits at the end of last September.

The British government has been working over the past year on plans for the Post Office to become a full-scale 'people's bank' in partnership with BoI.

Unlike rival Allied Irish Banks (AIB), BoI went into negotiations with the European Commission without putting potential asset disposals on the table.

It is understood that AIB outlined a number of assets that could be sold in its restructuring plan, which was submitted to the EU in the same month. The market has been left in little doubt that AIB is planning to dispose of its 23pc stake in US associate M&T Bank, as well as its British business banking arm.

While AIB would like to hold on to its 70.2pc-owned Polish unit Bank Zachodni, it is possible that the EU will demand a sale of the business.

Analysts fear, however, that this would put off a potential strategic investor in the group -- or, indeed, existing shareholders who are likely to be called on to support a 'rights issue' share sale this year.

Irish Independent

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