Ireland’s oldest lender Bank of Ireland wants to use a €500m technology investment to give itself “optionality” for future acquisitions, said its chief executive Richie Boucher.

The bank, the only significant Irish lender not to be nationalised during the financial crisis, unveiled the IT investment plan in October last year, saying that it would position the institution for “long-term sustainability and competitiveness”.

“It gives us optionality into the future,” Mr Boucher told the Financial Times. “It’s hugely important . . . if you’re in retail banking and thinking about an acquisition you have to be really very comfortable that you can get synergies . . . a lot of that is about IT.”

Retail banking mergers have been repeatedly thwarted by technology issues.

One of the most high-profile failures was Royal Bank of Scotland’s attempt to sell Williams & Glyn as a separate bank carved out of its branch network to Santander in 2012 — largely due to IT problems. RBS must divest Williams & Glyn as a condition of EU rules for receiving a £45bn bailout during the financial crisis.

RBS dropped plans last year to float Williams & Glyn as a standalone bank, after spending about £1.5bn on its technology platform. RBS is still in the process of finding a buyer for Williams & Glyn, with Santander UK and Clydesdale & Yorkshire Banking Group the two interested parties.

Mr Boucher, who recently became a non-executive director of Greece’s Eurobank, stressed that Bank of Ireland is not in the market for an immediate acquisition. “It [the IT spending] will make the bank a better place and give great optionality to the people that come after me,” he added.

He would not comment on when he might step down; his eight years at the helm already make him Ireland’s longest serving bank chief executive.

Bank of Ireland had to sell swaths of its noncore business under the terms of an EU approved rescue plan, but has begun rebuilding. Earlier this month, the lender paid an undisclosed sum to Irish company Covestone Asset Management, which had €100m under management.

Policymakers are not yet supportive of big bank mergers, but some believe this will eventually change as regulators realise that the M&A-inspired economies of scale are the only way for banks to make the profits they need to pay for their rising regulatory costs.

Nordea and ABN Amro were almost a test case for regulators’ willingness last year when the Nordic bank made an approach to the Dutch government about a bid for ABN, but the talks ultimately went nowhere.

Permanent TSB, a smaller Irish lender, is facing a 20 per cent increase in its cost base “in the near term” because of regulatory costs alone, chief executive Jeremy Masding told the FT.

As well as cutting costs, acquisitions would also allow Irish banks to deflect criticism from Ireland’s central bank governor Philip Lane who last year said they have “relatively concentrated business models, focused primarily on Ireland and to some extent the UK”.

Still, there is little immediate appetite for an acquisition spree. Mr Masding said the bank was concentrating on “getting it right here in Ireland” rather than “spreading our wings” in other markets where he would have a “small presence and a lack of familiarity”.

Bernard Byrne, chief executive of AIB, in which the government hopes to sell a significant stake later this year, said acquisitions were not in the bank’s “short-term horizon” and that it can be “more effective” in its core market.

Bank of Ireland had the third worst capital ratio in the most recent stress tests run by the European Banking Authority; Mr Boucher said this was largely because of a “bizarre accounting convention” on how its pension is treated.

“The most important thing for us is that we’re generating capital organically,” he said, pointing to the 100 basis points of capital the bank generated in the first six months of 2016.

Published Date:2017-01-24