09 July 2013

State aid: Commission approves amendment of Bank of Ireland's restructuring plan

The European Commission has authorised changes to Bank of Ireland's second restructuring plan, approved in December 2011, because it considers the changes compatible with EU state aid rules.

In the light of various changes in the market circumstances since the 2011 decision, BOI is in particular no longer required to divest New Ireland Assurance Company (NIAC). 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 recent sale of Ireland´s largest life insurance company has affected the number of potential buyers for NIAC, increasing the likelihood of selling it with losses. Moreover, NIAC made a key contribution to Bank of Ireland's 2012 operating profit. In June 2013, Ireland therefore officially requested to modify the plan.

According to the amendments, BOI will no longer be required to divest NIAC. The divestment was one of the measures aimed at compensating for the distortions of competition created by the state aid. Instead, it will:

(a) exit from the Great Britain Business Banking and Great Britain Corporate Banking businesses;

(b) exit from the intermediary mortgage market in Ireland, including through the sale of the ICS Building Society distribution platform or parts of it, along with, at the acquirer's option, up to €1,000 million of mortgage assets and deposits; and

(c) prolong a series of market opening measures by one year, until December 2016.

These replacement measures aim at limiting distortions of competition in the UK and Ireland, which are BOI´s primary markets.

Additionally, the Irish authorities committed to ensure that BOI will extend limitations on the distribution of dividends beyond December 2015 or until it has reimbursed the Irish State for the preference shares.

The Commission found that the replacement of the commitment to divest NIAC was justified and that the replacement measures proposed by the Irish authorities to limit the distortions of competition were adequate and equivalent to the sale of NIAC, without harming the long term viability of the bank. They are therefore in line with EU state aid rules on banking restructuring during the crisis.

Finally, the Commission found that the measure limiting the bank's capacity to distribute dividends beyond December 2015 would help to ensure the bank's best efforts to redeem the preference shares held by the Irish State.

Press release

© European Commission