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Rating Action:

Moody's assigns A3/P-2 deposit ratings and D+ BFSR to Bank of Ireland (UK)

01 Nov 2010

First-time ratings

London, 01 November 2010 -- Moody's Investors Service has today assigned A3/P-2 bank deposit ratings and a D+ bank financial strength rating (BFSR) to Bank of Ireland (UK) plc (BoI UK). The outlook is stable. Moody's notes that its rating assessment incorporates projections received from Bank of Ireland. Moody's anticipates that it will receive audited financial statements for BoI UK from Q1 2011 onwards.

The following ratings were assigned:

Bank of Ireland (UK) plc:

Long-term bank deposits: A3

Short-term bank deposits: P-2

Bank financial strength: D+

RATINGS RATIONALE

The D+ BFSR, which translates into Baa3 baseline credit assessment (BCA) on the long-term rating scale, reflects the extremely high level of integration into (and reliance on) its parent, Bank of Ireland (rated A1, on review for possible downgrade/P-1, D+/Baa3). It also takes into account Moody's view that BoI UK has (i) a sustainable franchise, primarily through the joint-venture with the UK Post Office; and (ii) a low-risk profile, including its very high level of deposit funding, solid asset quality and the low level of credit concentration.

The A3 long-term bank deposit rating of BoI UK reflects the high level of support from Bank of Ireland and the high level of systemic support from the UK. The UK systemic support reflects the importance of the Post Office's deposit franchise and Moody's expectation that the deposit base will continue to grow. The Prime-2 short-term bank deposit rating maps directly from the A3 level.

In Moody's view, BoI UK represents an important strategic development of the group's efforts to enhance its UK operations, as it provides diversification away from Ireland. In July 2010, Bank of Ireland's restructuring plan was approved by the European Commission and as part of this plan, the EC approved Bank of Ireland's decision to run-down its UK intermediary-sourced mortgage book, although no other action was required for the group's other UK operations. Although BoI UK is a new legal entity, it will consolidate several of Bank of Ireland's existing UK-based businesses.

These businesses include (i) the existing and long-established Business Banking operation that has deposits of GBP1.6 billion; (ii) the Northern Ireland full-service retail and commercial bank, operating through 44 branches with deposits of GBP3.5 billion; and (iii) Post Office Financial and Travel Services (POFTS), the 50-50 joint-venture with the UK Post Office that provides retail banking products (the exclusive contract runs until 2020) and foreign exchange (Travel Money).

The POFTS business has been operating for several years and has: (i) a market share of approximately 25% of foreign-exchange transactions in the UK (by volume); (ii) deposits of GBP9.7 billion; (iii) over 700,000 insurance policies; (iv) over 600,000 credit cards; and (v) more than 2,000 ATMs that generate LINK income.

BoI UK's balance sheet has, in Moody's opinion, a low-risk profile. BoI UK's funding base will almost entirely consist of deposits, which will now benefit from the protection offered under the UK Financial Services Compensation Scheme. Moody's believes that this will provide further stability to the deposit base of BoI UK. The loan portfolios are relatively well-diversified. UK mortgages represent the largest part of the loan book and comprise both mortgages sourced through the POFTS as well as the transfer of an element of the intermediary sourced book. The other major part of the loan book is the GBP5.3 billion commercial loan portfolio, focused on certain sectors including healthcare, hotels, wholesale distribution and property. In line with the group's overall strategy the commercial property element of this portfolio will reduce. The relatively small UK credit-card loan book will also be transferred to BoI UK. The asset quality of the loan books is solid and the transferred mortgages are in line with the quality of the group's overall UK portfolio. In addition, the commercial portfolio has been de-risked as a result of the transfers to NAMA (the National Asset Management Agency) of the land and development loans and any associated loans.

The bank will have an equity Tier 1 ratio of 7.8% and a total Tier 1 ratio of 10.3% on Day 1, although Moody's considers that future profits would be likely to be paid-up to the parent as the group centralises its capital resources and management. Importantly, from an adjusted capital position, BoI UK will not assume any existing pension-scheme liabilities.

The stable outlook on the D+ BFSR reflects BoI UK's position as an integral part of Bank of Ireland and the stable outlook on the parent's BFSR. It also reflects the solid capital position of BoI UK, which sufficiently covers potential losses under Moody's base-case scenario. The stable outlook on the A3 long-term bank deposit rating reflects the systemic importance of BoI UK to the UK, as a result of BoI UK's strong links with the Post Office.

Positive pressure on BoI UK's ratings is unlikely until (i) it has a proven longer-term track record of consistent and sustainable profitability (with consistent, solid profitability); and (ii) the BFSR of its parent improves. The high level of integration of BoI UK into its parent means that at this stage, it seems unlikely that the subsidiary's BFSR could be higher than that of Bank of Ireland.

The BFSR could be downgraded if BoI UK's capitalisation was to reduce -- either through higher than expected losses or through dividend payments to its parent -- resulting in a core Tier 1 ratio below 7%. A reduction in the level of integration with its parent could also have negative implications, especially if it led, in Moody's opinion, to a weakening of BoI UK's risk management.

The principal methodologies used in rating Bank of Ireland (UK) were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Bank of Ireland (UK) plc is based in London and is forecast to have opening total assets of GBP16 billion as of 1 November 2010.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the Credit Rating Action. Please see the ratings disclosure page www.moodys.com/disclosures on our website for further information.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

London
Ross Abercromby
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Johannes Wassenberg
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
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Moody's assigns A3/P-2 deposit ratings and D+ BFSR to Bank of Ireland (UK)
No Related Data.
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