Major cost cutting plan at First Active

First Active is planning a major cost-cutting programme to enable it to compete in an increasingly competitive market.

Announcing its move to meet all the other lenders at a variable rate of 3.99 per cent for mortgages, First Active also said it would be announcing cost and revenue "initiatives" over the next six weeks.

The rate cut will reduce the bank's pre-tax profit by £2.5 million (€3.2 million) in the current year and by as much as £15 million in a full year.

The group chief executive, Mr John Smyth, said the planned cost reduction and revenue initiatives would lessen this impact.

He refused to comment further on the possible initiatives and said he could not say whether a redundancy package would be part of the proposals.

"The measures will be in place to mitigate the impact on profits," he said. "We are going to announce the plan in six weeks' time which will deal with the specifics."

He added that First Active had been targeting a cost/income ratio of 60 per cent, reducing to 55 per cent. "However, the events of the past two to three weeks have made that more difficult," he added, referring to Bank of Scotland's entry to the mortgage market with a 3.99 per cent rate.

At the end of June, the ratio was some 62.2 per cent up from 61.3 per cent.

In a statement probably targeted at the markets, First Active said: "Cost competitiveness is essential in the current banking environment. The board and management of First Active have already committed to cutting costs within the bank to establish a reduced cost base."

First Active shares closed down three cents at €3.47.

Mr Smyth also said the bank was determined to build on its market share of 15 per cent of the mortgage market. The bank has been criticised in recent months over its lack of diversification and acquisitions. According to Mr Smyth, growth in non-interest income is important to First Active but, as regards acquisitions, it has looked at opportunities in the market and will look again at options which have earnings enhancing possibilities.