AIB and Irish Life in advanced talks on joint venture

AIB is in exclusive talks to set up a life and pensions joint venture with Irish Life, as it seeks to boost its income and product offering in an era when ultra-low interest rates are weighing on lending margins.

The negotiations are expected to result in each side owning 50 per cent of the venture, which would bring together Irish Life investment products and AIB’s customer base, according to sources. While the discussions are at an advanced stage, a final agreement is some months away, they said.

AIB chief executive Colin Hunt said in December that the lender was in talks with a number of parties on filling "product gaps, particularly in the life, pensions and investment segments", as he unveiled the results of a strategic review.

A cost-cutting element of the plan will see the bank exit some Dublin head office locations, merge urban branches, get out of small business lending in Britain and axe 1,500 net jobs in the coming years.

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Negative rates

A move into the life and pensions business marks an about-turn for AIB, which put its former Ark Life unit into wind-down at the height of the financial crisis in 2012 and subsequent act as a tied agent for Irish Life Assurance life and pensions products. The Sunday Times reported in early December that AIB had pitched Irish Life against rival insurance companies in a contest to set up a new alliance.

Spokesman for AIB and Irish Life, a former sister company of Permanent TSB that was acquired by Canada's Great-West Lifeco for €1.3 billion in 2013, declined to comment.

AIB’s return to the life and pensions business comes at a time when banks in the Republic and across Europe continue to widen the net of customers being charged what are known as negative rates on deposits.

This is because the European Central Bank (ECB) has imposed such charges for the past six years on surplus cash banks deposit with it, in an effort to encourage more lending.

Irish households squirrelled away €13.4 billion of savings in banks and credit unions in the 12 months to the end of November, as they adopted a cautious approach to their finances during the coronavirus pandemic, according to the latest figures from the Central Bank.

It pushed household deposits up more than 12 per cent to a record €124 billion, and compounded a problem for the industry, which is sitting on excess customers’ cash and grappling with muted loan demand.

Taxpayer bailout

The Irish Times reported in November that AIB was in exclusive talks to buy back Goodbody Stockbrokers for a multiple of the €24 million it was forced to sell the firm for a decade ago under a restructuring tied to its taxpayer bailout.

A deal will likely to see staff of the securities and investment firm maintain their existing contracts and avoid being caught up in the effective ban on bonuses across bailed-out banks.

Incentive awards across rescued banks have effectively been prohibited since 2010, when the government slapped an 89 per cent tax rate on such payments.

AIB will reportedly argue, when it seeks Government approval for the plan, that Goodbody is a separate regulated entity and the State ban was never intended to apply to stockbroking, where bonuses are an integral part of remuneration in the industry.