EU won't force BoI to sell off its life assurance unit
BANK of Ireland boss Richie Boucher has scored an important victory after the EU backed down on a plan to force the lender to sell its life assurance business.
In a ruling published yesterday, the European Commission said Bank of Ireland could retain its New Ireland Life Assurance business. It comes 18 months after the commission first ordered BoI to divest the business.
Now, the commission said such a divestment would "negatively affect BoI's capital and capacity to return to profitability and would slow down progress towards long-term viability".
"To replace this divestment, Ireland has proposed equivalent commitments which will ensure that competition distortions are limited," the commission added.
The recent sale of Irish Life to the Canadian firm Great West Co had reduced the number of potential buyers for New Ireland, and now there was a good chance that it would be sold at a loss if it was brought to the market.
Instead, the bank will be forced to sell its UK commercial and corporate banking businesses, but these are much smaller than New Ireland.
The lender must also sell off its ICS Building Society unit and pull out of the intermediary mortgage market business.
"These replacement measures aim at limiting distortions of competition in the UK and Ireland, which are BoI's primary markets," concluded the commission.
In addition, the State has "committed to ensure that the bank will not be able to distribute dividends until at least the end of 2015 or when it has reimbursed the Government for their preference shares.
The New Ireland business has net assets of about €816m, while Bank of Ireland's UK commercial arm had net assets of around €4.6bn. Its UK retail division, including a tie-in with the Post Office, is unaffected by the changes.
The bank noted the commission's decision and reiterated that it "continues to make good progress in implementing the remaining commitments previously agreed under its Revised 2011 EU Restructuring Plan".
The firm's major shareholder and director, Wilbur Ross, who owns just over 9pc of the bank, was pleased with the agreement, pointing out that the bank had been a "very reluctant seller" of New Ireland.
"I think it was very much a win-win situation. I think the EU's policy objectives have been very well met. I think it's value-enhancing for the institution," he added.
While shares in the bank were unchanged at 17c, analysts were broadly positive on the outcome for Bank of Ireland.