lets Bank of Ireland keep insurance Business
* BOI must sell other businesses, accept more dividend curbs
* EU demands are in exchange for approving 2009 state aid
* BOI had long campaigned to keep insurance business
* BOI shares up 0.6 pct, in line with bank sector
BRUSSELS/LONDON, July 9 (Reuters) - Bank of Ireland has won a battle to keep its life insurance arm after European regulators said it could instead sell other businesses and accept further curbs on its dividend policy to meet the terms of 2009 bailout deal.
The European Union in 2010 ordered the bank to sell New Ireland Assurance as part of a series of conditions for approving around 3.8 billion euros ($4.9 billion) of state aid in the wake of Ireland's property market crash.
However, Bank of Ireland (BOI) has long argued it should be allowed to keep the business, which has consistently outperformed its banking operations and could help its recovery.
"The bank's preference all along has been not to sell the life insurance business," U.S. investor Wilbur Ross, who through his investment business owns 9.9 percent of BOI, told Reuters. "This is a good day for Bank of Ireland."
In a rare reversal of a decision to order divestments in exchange for approving state aid, the European Commission said on Tuesday it would no longer require BOI to sell the insurance unit.
Instead, it must exit business banking and corporate banking in Britain and also the intermediary mortgage market.
It will also sell only part of its mortgage subsidiary ICS, compared with the entirety of that business in the original deal, but will face additional restrictions on its dividend policy when it is clear to resume the payout in 2016.
"It's good for Bank of Ireland because it's (the insurance unit) part of their core business," said Goodbody stockbrokers analyst Colm Foley, although he did not expect the new deal to have a big impact on his financial forecasts for the Group.
At 1350 GMT, BOI shares were up 0.6 percent at 0.167 euros, within a European bank index up 0.5 percent.
The only Irish bank to escape majority state ownership after the bursting of a property bubble and the global financial crisis, BOI is currently 15 percent owned by the Irish state.
DIVIDEND CURBS
"In the light of various changes in the market circumstances since the 2011 decision, BOI is in particular no longer required to divest New Ireland Assurance Company," the EU's state aid regulator said in a statement.
"Such a divestment would negatively affect BOI's capital and capacity to return to profitability and would slow down progress towards long term viability," it said.
The sale of rival insurer Irish Life for a better than expected 1.3 billion euros ($1.7 billion) to Canada's Great West in February signalled strong demand for assets in the Irish insurance sector.
In 2012, BOI's life business delivered an underlying profit of 97 million euros, up from 26 million euros a year earlier.
The overall BOI group suffered an operating loss of 2.1 billion euros. Its financial reports do not break out separate figures for the British business and corporate banking operations it will now exit.
Ross said the British businesses being sold were a good portfolio but did not fit particularly well with the bank's overall business.
"From an EU point of view, this also creates a good opportunity for a challenger bank to come into the UK," he said, pointing to the 4.6 billion euros of assets that will be sold.
BOI was already banned from paying dividends to ordinary shareholders until the end of 2015. The new dividend restrictions cap dividends to ordinary shareholders at half the value of the preference shares the bank redeems from the government that year. The restrictions are lifted when the 1.5 billion euros of preference shares are fully repaid.
The dividend curbs could effect a series of investors including Canada's Fairfax Financial Holdings and Ross, part of a consortium of investors that bought a 1.1 billion euro stake in February last year.
While BOI will have to sell or retire ICS's distribution platform and up to 1 billion of mortgages and matched deposits, it will retain ICS's UK consumer banking business including a valuable joint venture with Britain's Post Office.
www.reuters.com/article/2013/07/09/...nd-idUSL6N0FF1PS20130709
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