Britannia Building Society is to pay 150 million pounds (218 million euros) for Bank of Ireland's Bristol & West branches in what it said marked the first time a former building society was returned to customer ownership. "This is a major strategic move for us," Britannia Chief Executive Neville Richardson said on Tuesday of a deal that brings 850,000 new clients and a 4.5 billion pound ($8.2 billion) savings book but will mean branch closures. "It increases our size by over a third in terms of customer numbers, savings balances and branches and it significantly increases our footprint in the south of the country," he told Reuters in an interview.
Bank of Ireland, which will retain the Bristol & West brand and all other parts of the business, had been widely expected to sell the branches after saying last year they were no longer part of the core business.
"The disposal delivers on a key commitment set out by us last November. To sell at a good price to a quality institution," Bank of Ireland Group Chief Executive Brian Goggin said of the cash deal.
The transaction means Bank of Ireland's remaining UK business now focuses on mortgage lending, business banking and a joint venture selling financial services at post offices. "We think this is quite a competitive space to be in," said Goodbody analyst Eamonn Hughes, who has an "Add" recommendation on the stock.
"The sale is good for Bank of Ireland and the market is likely to be content with the final delivery of this transaction as it extricates itself from an underperforming asset," he wrote, adding that the price looked better than he had expected. Shares in Bank of Ireland, which rose as much as 0.9 percent in Dublin following the announcement, were 0.32 percent weaker at 12.58 euros by 1103 GMT.
Credit rating agency Standard & Poor's revised its outlook on Britannia to negative from stable saying that the deal, while providing a useful addition to Britannia's profile, would weaken the building society's core capital and profitability. S&P maintained its ratings on Britannia. Rival rating agency Moodys affirmed its positive outlook on Britain's second-largest building society and its ratings.
The sale, which subject to regulatory approval should be completed in the autumn, will appear in Bank of Ireland results for the year to the end of March 2006 and is expected to generate a 90 million pound (131 million euro) profit.
The bank said that longer-term the deal would improve the group's cost-to-income ratio after the Bristol & West branch network lost 0.4 million pounds (0.6 million euros) before tax in the last business year.
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