IN a major expansion of its activities in Britain, Bank of Ireland is paying £600 million sterling for the ninth largest British building society, Bristol & West.

Bank of Ireland shares jumped 19p to 445p - on the formal announcement of its largest ever acquisition, before easing back to close at 440p, a gain of 14p on the day. An announcement was expected from the bank this week.

On completion in 1997, the deal would enhance Bank of Ireland's total assets by 40 per cent to about £29 billion, making it larger than MB, according to forecasts for 1997. But these total asset figures would change if AIB made a significant acquisition.

55 per cent of Bank of Ireland total assets would be in low risk mortgages.

Bank of Ireland governor Mr Howard Kilroy said he was confident that the move would benefit the stockholders of Bank of Ireland and the members of Bristol & West.

"Bristol & West has many attractive features, not least its strong position in the south of England and its excellent current management, which has engineered a sustained recovery in the society's fortunes in recent year", he said.

Bristol West chairman, Lord Armstrong, said that after a major strategic review of its options the board of the society had decided that it could "best maximise its potential and develop its business" through a combination with the Bank of Ireland.

"Joining Bank of Ireland Group will strengthen our ability to offer our customers a wide range of competitively priced mortgage, savings and investment products with the full backing of a strong parent while retaining the values which Bristol & West has traditionally upheld", he said.

Because Bristol & West is a mutual building society - owned by its saving and borrowing members - the deal is not expected to be completed until mid 1997. Members of the society as well as Bank of Ireland shareholders will have to approve the deal and a number of regulatory approvals are required.

At £600 million Bank of Ireland is paying 11.6 times historic 1995 earnings. Bristol & West reported profits after tax of £19.9 million for 1995 after a write off of £31.1 million for the loss on the sale of its Hampton's residential estate agency network.

At 1.67 times net assets, the price is in line with recent building society sales in Britain.

Bank of Ireland will not have to call on its shareholders to fund the acquisition, which will be the third biggest ever by an Irish company. (The two largest were Smurfit's acquisitions of Container Corporation of America and Cellulose du Pin).

Bank of Ireland will fund the acquisitions out of its strong resources. In addition to its existing cash resources the bank will take in cash of about $220 million (£145 million) when the merger of its First New Hampshire operation in the US with Citizens Financial Group, the US subsidiary of the Royal Bank of Scotland, is completed next week.

The £600 million price tag will involve cash payments of about £500 million to Bristol & West members and preference shares in the new Bristol & West plc to the value of less than £100 million.

Bank of Ireland expects the acquisition to be earnings enhancing. Analysts expect it to add about 10 per cent to annual earnings in 1998/99.

The move by Bank of Ireland is aimed at a diversifying its profits stream to reduce its dependence on the Irish market. The bank is also moving to achieve scale in the difficult British mortgage market and to get access to low cost retails funds in Britain though the Bristol & West deposit book.

Bank of Ireland intends to merge its existing mortgage lending operation in Britain Bank of Ireland Mortgages (BIM) with the Bristol and West operation. This will allow scope for cost reduction and will give BIM access to a cheaper source of funds. Currently BIM, which has mortgage assets of £2.8 billion, raises funds for lending in the wholesale money market because it has no access to cheaper retail deposits.

Bank of Ireland has been in the British market for more than 25 years. It has 27 branches and its mortgage operation, which is based in Reading.

B&W has 19 branches throughout the south west of England, mortgages assets of £7 billion and a deposit book of £6 billion.