Bank of Ireland's disposal of its US retail banking investment, Citizens, raises some interesting strategic questions. When the deal is completed Bank of Ireland will have significant excess capital to redeploy. The main strategic question is how it can make this capital work for shareholders.

The bank has made it clear that it is interested in expansion in the mortgage market in Britain and Northern Ireland and in the Republic. In the Irish market interest centres around the State-owned ICC Bank which is expected to fetch more than £200 million for the Government next year. With a range of interested parties - Irish Permanent, Ulster Bank, Irish Intercontinental Bank, Anglo Irish, Bank of Scotland and the Dutch bank DNIB, bidding for ICC will be competitive.

In Britain acquiring a building society or mortgage book is hard despite difficult market conditions. Valuations are high but have been coming down due to weak lending growth forecasts and concerns that margins will be hit if some lenders will use existing excess capital to make pricing more competitive.

Of possibly greater interest now to bidders is the profit potential of the savings/deposits side of British building societies. This is expected to keep the valuations relatively high. A mortgage operation with a high savings content would be very attractive to the bank. For Bank of Ireland the big question is how quickly it will be able to find a suitable earnings enhancing acquisition after it takes in the cash from the Citizens sale. But memories of the disastrous US acquisition some years ago should ensure there will be no hasty decisions.