Business

Bank of Ireland urged to refresh UK strategy after ‘value over volume’ pivot

Lender has stopped providing mortgages and personal loans through the UK Post Office

Bank of Ireland hired former Tesco Bank executive Gail Goldie to head its UK division in January.

Joe Brennan
Sat Mar 16 2024 - 06:05

Bank of Ireland should conduct a “strategic refresh” of its UK business to allow investors better understand the group’s approach to the market, say analysts at Barclays, after a period of restructuring that saw the lender back out of the mass-mortgage market and slash its UK Post Office offering.

“We think the UK business is due a strategic refresh, both as an area of investor concern and given a fundamentally changed UK banking market,” Barclays analysts said in a recent report on Bank of Ireland.

Without a refresh, the stock market will continue to apply a low valuation to the business relative to earnings, the analysts said, adding that Bank of Ireland shares were trading at a “depressed valuation” relative to European peers.

They highlighted that Bank of Ireland’s exposure to the UK as well as the scale of its wealth business, including its Davy stockbroking firm unit, should act as a “key differentiator” for the lender compared to domestic peers. However, they said that investors “need to hear more” about these units.

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Bank of Ireland hired a former senior executive at Edinburgh-based Tesco Bank, Gail Goldie, to head its UK division in January.

In December, the bank stopped providing mortgages and personal loans through the UK Post Office – dramatically narrowing the scope of a joint venture that was set up in 2003

A spokesman for Bank of Ireland’s said its “value over volume” strategy in the UK since 2020, which has targeted a smaller, higher-margin loan book, a more efficient funding model and a lower operating cost base, “has been delivering very well”.

This saw the bank retreat from UK mass-market mortgages a few years ago to more “bespoke” and higher-return home loans offered through brokers. These include loans to the likes of professionals seeking larger-than-average loans and customers looking to take equity out of their homes.

In December, the bank stopped providing mortgages and personal loans through the UK Post Office – dramatically narrowing the scope of a joint venture that was set up in 2003 – and ended its financial services joint venture with the AA there.

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Bank of Ireland has since put its €1.1 billion of UK personal loans book into wind-down.

The group’s UK retail mortgage book contracted from €23.4 billion at the end of 2019 to €15 billion at the end of last June. Its small-business loan book in that market has also fallen by 40 per cent to €1 billion.

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The retail UK unit includes mortgages, its Northern Ireland branch and business banking businesses, the group’s Northridge Finance asset finance unit, and UK Post Office joint venture, which has been reduced to offering savings products.

The Bank of Ireland spokesman said the UK division’s underlying pretax profit had increased by 57 per cent since 2019.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

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