Bank of Ireland shares up 9% on potential KBC deal

Bank of Ireland Group CEO Francesca McDonagh

Shares of Bank of Ireland rose about 9% on Friday after it announced it is exploring the acquisition of “substantially all” of Belgian financial group KBC’s assets in Ireland.

KBC announced it could become the latest lender to leave the Irish market.

The move by KBC comes just weeks after NatWest said it was winding down its Ulster Bank business in the Irish Republic, a move that had already left the country with just four retail banks.

KBC gave no specific reasons for wanting to exit the Irish market but in a statement its CEO cited “the challenging operational context for European banks.”

According to Reuters data, KBC had €10 billion worth of Irish loans, €5 billion in deposits and a 12.6% share of the mortgage market at the end of last year.

Departures by KBC and NatWest will strengthen the grip of Bank of Ireland and main rival Allied Irish Banks (AIB) on their home market.

AIB entered an agreement with NatWest to buy a €4 billion portfolio of performing commercial loans.

KBC Bank Ireland and Bank of Ireland said in a joint London Stock Exchange statement: “KBC Bank Ireland has entered into a Memorandum of Understanding (MoU) with Bank of Ireland, expressing the parties’ intention to explore a route that could potentially lead to a transaction whereby Bank of Ireland commits to acquire substantially all of KBC Bank Ireland’s performing loan assets and liabilities.

“The transaction remains subject to customary due diligence, further negotiation and agreement of final terms and binding documentation, as well as obtaining all appropriate internal and external regulatory approvals.

“KBC Bank Ireland’s remaining non-performing mortgage loan portfolio, which is not part of the MoU, is currently being analysed whereby KBC Group is reviewing its options to divest this NPL portfolio.

Execution of these two transactions would ultimately result in KBC Group’s withdrawal from the Irish market.

“While these discussions are ongoing, KBC Bank Ireland remains committed to offering its retail banking and insurance services of the highest level through its digital channels and hubs, for its existing and new customers.

“There is no impact on KBC Bank Ireland customers’ products or services and they do not need to take any action as a result of this announcement.

Further announcements will be made in due course.”

Irish Finance Minister Paschal Donohoe said KBC’s decision was regrettable but hoped the negotiations with Bank of Ireland would conclude quickly.

“It is the case that the competitive dynamic has changed, I couldn’t pretend otherwise to your listeners this morning,” Donohoe told national broadcaster RTE.

KBC Group CEO Johan Thijs said: “Over the last decade, KBC Bank Ireland has managed to build a digital first retail bank and launched recently a digital pension insurance business for the Irish market. 

“Given the challenging operational context for European banks and after careful consideration, we have reached an agreement with Bank of Ireland Group regarding the potential sale to Bank of Ireland Group of substantially all of the performing loan assets and liabilities of KBC Bank Ireland.

“Next to this MoU, KBC Bank Ireland’s remaining non-performing mortgage loan portfolio is currently being reviewed for potential divestment.”

Bank of Ireland Group CEO Francesca McDonagh said: “When we look at opportunities we consider if they are a good fit for the customers involved and for the bank.

“This MoU complements our strategy to grow our business in Ireland, and supports the investments we are making in the transformation of our systems and digital banking services.

“We would be very pleased to provide KBC Ireland customers with a good home, and look forward to progressing our discussions with KBC over the coming period.”

KBC Bank Ireland CEO Peter Roebben said: “KBC Bank Ireland remains committed to offering its quality retail banking and insurance services.

“For the time being nothing changes, neither for existing nor for new customers.

“Our customers do not need to take any action as a result of today’s announcement.

“KBC Bank Ireland continues to benefit from a strong liquidity and capital position.

“The board and the executive committee of KBC Bank Ireland are fully conscious of our responsibilities to our customers and colleagues, and the role of KBC as part of the Irish banking system, and we are fully committed to assuming those responsibilities while the talks with Bank of Ireland are ongoing.”

The Central Bank of Ireland’s Ed Sibley, the deputy governor for prudential regulation, said: “We do understand that there will be concerns that this transaction, if it goes ahead, will result in a further reduction in the level of competition in the Irish retail banking sector, and a reduction in choice for consumers.

“Competition issues are primarily a matter for the Competition and Consumer Protection Commission.

“However, competitive pressures can clearly have an effect on the functioning of the financial system and the achievement of the Central Bank’s aim for it to sustainably serve the needs of the people and businesses of Ireland.

“This aim and consideration of the current and future financial services needs of businesses, households and individuals are at the forefront of our approach to regulating and supervising banks and other financial services providers (from payment institutions to credit unions) and our wider engagement with all relevant stakeholders.”