First National poised for joint venture to boost life products

THE First National Group is understood to be involved in talks with a number of life assurance companies on the formation of a joint venture operation to sell life assurance products.

The group yesterday reported an 11 per cent rise in pre tax profits to £9.7 million for the six months to end June. The results were boosted by strong growth in mortgage lending and fee income. The group includes the First National Building Society mortgage operations in Britain and deposit taking operations in Guernsey and Northern Ireland.

First National is understood to have had exploratory talks with a number of companies, including Irish Life, about the formation of a joint venture operation through which First National could increase its income from life assurance products. It already receives commission income from the sale of life assurance products through its branch network.

Group managing director Mr John Smyth, confirmed that the group wanted to "get a greater return from life assurance business". But he declined to discuss his plans.

The latest results reflect a strong performances from the First National Building Society and the group deposit taking operations. But profits from the

Mortgage Trust operation in Britain were lower in difficult market conditions.

Mr Smyth described the results as "very satisfactory". "We are in line with our targets for the year," he said.

First National advanced £240 million in new mortgages over the period compared with £128 million for the first half of 1995. Some £183 million of the new loans were made in the Irish market which accounted for most of the £128 million advanced in the first six months of 1995.

First National Building Society's share of the total Irish mortgage market rose by 2 per cent to 14-15 per cent, Mr Smyth estimated.

Mortgage demand remains buoyant in the Irish market, according to Mr Smyth, and the latest interest rate increase had no impact. But margins on new business were very tight because of discounts offered on new loans.

House price inflation countrywide is very low with one off high price sales distorting the picture, said Mr Smyth. The Irish operation - the State's largest building society - currently accounts for about 80 per cent of group pre tax profits.

While Mortgage Trust advanced £57 million sterling over the period, it made no new loans in the first half of 1995. Its contribution to profits fell because of extensive discount pricing in the British mortgage market.

First National's latest acquisition in Britain of The Mortgage Corporation, acquired from Salomon Brothers for £53 million sterling, will boost the contribution from Britain in the current half. The operation is now being integrated with Mortgage Trust to reduce operating costs in Britain and boost profits.

Mr Smyth described the deposit market as "tough", reflecting historically low interest rates and relatively high, aggressive consumer spending.

Share and deposit balances rose by £55 million over the six month period. First National's strategy is to use its branch network to increase its retail resources deposits from customers - because this type of funding gives more flexibility and costs less.

Net interest income rose by 4.5 per cent to £31.6 million. In a lower interest rate environment, interest from mortgages was 16 per cent lower at £87.7 million while interest paid for funds fell by 24.6 per cent to £56.2 million. First National's net interest margin fell to 2.5 per cent from 2.68 per cent reflecting competition in the mortgage and deposit markets.

Other income, mainly commissions on insurance products and tracker bonds, jumped from £2.5 million to £3.3 million. After a surplus of £0.6 million on the sale of investments compared with a loss of £0.3 million, total income rose by 9 per cent to £35.6 million.

First National's cost income ratio was 69.7 per cent compared with 64 per cent at year end. The reorganisation of the business to improve services and generate more business from the same network, and the integration of the two British operations, will reduce this ratio to below 64 per cent at year end, Mr Smyth predicted.

Conversion from a mutual society to a publicly quoted company remains "a serious option", according to Mr Smyth. However, there will be no announcement "between now and the end of the year" because the integration of The Mortgage Corporation "will concentrate our minds" for that period, he added.