BoI is now more convincing on Britain: ThePost.ie


TCH Archives > Sunday Business Post > 2004/02/01 > BoI is now more convincing on Britain

BoI is now more convincing on Britain
Sunday, February 01, 2004

By Michael Murray

It was the most upbeat, detailed, and convincing presentation from Bank of Ireland management since the chief executive-before-last, Pat Molloy, retired in 1997.

At the three-and-a-half hour presentation in London last week, the full British management team was put on show to respond to analysts' concerns about the bank's British strategy, in particular its niche buy-to-let mortgage business, its small market share, its plans for British business banking, and how it would deal with its loss-making consumer banking side.

Management unveiled, too, some very interesting detail on its joint venture with the British Post Office.

Analysts were left heartened by the pace of the recent transformation of the cost base and the detail of the strategic plan developed for Britain since last summer.

Their questions focused mainly on the risks on the buy-to-let side of the mortgage business. But the most interesting aspect of the presentation was given by the chief executive of the Post Office joint venture, Pat Waldron.

It's early days. But the pilot launch has gone well.

Waldron provided good insights on the socioeconomic profile of the Post Office's 44 million customers, on the results of research on the Post Office brand, and on the joint venture's sales strategy and roll-out plan.

The market research was encouraging. It showed that Post Office customers do not differ materially from the British population at large: 47 per cent belong to the ABC1 socioeconomic category (versus 49 per cent for the overall population), 60 per cent are female (53 per cent overall), and 45 per cent are under 44 (50 per cent overall).

But it was the detail on the brand research that provided most encouragement for the joint venture's prospects.

On the key issue of trust - an important measure in financial services - 84 per cent of respondents saw the Post Office as a trusted brand, compared to 40 per cent who trusted leading retail brands and 26 per cent who trusted banks.

On customer service, the Post Office - with a 55 per cent positive response - scored nearly twice as well as Lloyds TSB (28 per cent), and was almost neck-and-neck with Tesco, Boots, and Marks & Spencer.

Only on its range of products did the Post Office score badly. And it is precisely this issue that the joint venture is addressing.

BoI has started its JV with the Post Office with a pilot scheme in the Midlands, involving the roll-out of a personal loan product.

According to Waldron, customers are responding in line with expectations. Payment protection products for the loans are selling well above market norms. Postmasters are getting commissions on the personal loan products that are, on average, 40 times greater than what they get from attracting savings. This provides them with a powerful incentive to sell.

The personal loan roll-out will be followed by motor insurance in the summer, a range of savings products in the last quarter of 2004, and credit cards, home insurance, life insurance, and mortgages next year.

The bank is optimistic that the joint venture will breakeven within two-and-a-half years, and that it will get a full payback on its investment over five years.

Challenged on what looked like relatively optimistic projections compared with the RBS-Tesco financial services joint venture,Waldron pointed out that 2.5 times more customers go through the Post Office each week than go through Tesco.

The extent of customer footfall means that products can be marketed more cheaply mainly by branch merchandising, a much less expensive form of marketing. Waldron says it is easier to get people to focus on financial service needs when they are in the Post Office than when they are buying groceries.

As to the bank's other moves, its strategic cost management in Britain has involved improved procurement policies, branch and salesforce rationalisation, further development of shared support services across the group, and rationalisation of the property portfolio and property management functions.

The cost initiatives are set to reduce the cost/income ratio from 55 per cent to 47 per cent, with a one-year payback from the redundancy programme.

On business banking, as recommended by The Sunday Business Post last August, the bank has scaled back its recruitment programme from the original stated target of 250 business bankers to a more realistic additional 50 - at an estimated cost of »5 million (e7.3 million).Thirty have been re cruited in the past 18 months.

As interest rates in Britain edge up and the rental market has softened, analysts seemed dubious about the buy-to-let market.

But BoI management was able to demonstrate robust credit assessment procedures, lower arrears on buy-to-let than traditional mortgages, strong sensitivity analysis and an overall arrears profile at BoI's Bristol & West that has been consistently better than the industry average.

It is formulating plans for new market niches - including Islamic mortgages - as demand for buy-to-let mortgages softens.

The chief executive of the British division, Roy Keenan, made it clear that while the loss-making consumer banking side - including the Bristol & West branch network and the Chase deVere wealth management business - was being given a chance to show a decent return over the next 18 months, if the branches failed to up their game they would be culled further.

As to Chase de Vere, there were other units to which it could be attached, he said - like private banking or business banking. The Bristol & West branch network - having already been culled by onethird - was not a sacred cow, he warned.

Overall, it is clear that Keenan has demonstrated outstanding execution skills in the nine months since he went to Britain. The bank has assisted him by sending some of its best management talent from Ireland to help. Yet it remains a tough and challenging market.

But based on the progress to date, don't be surprised if earnings growth prospects from Bank of Ireland in Britain exceed the expectations of high single digits/low teens now targeted by management.

The only pity is that the problems weren't tackled sooner.