ANALYSIS:A holding company will house insurance, bank and fund management in separate units, writes SIMON CARSWELL

IT’S LITTLE wonder that Irish Life & Permanent (ILP) plans to change its corporate structure so shareholders can extract better value from a group with two-thirds of its business in life insurance and one third in banking, with funding and rising bad loan problems.

Acting chief executive Kevin Murphy told analysts that ILP will ask shareholders later this year to approve the creation of a new holding company to house its insurance, bank and fund management businesses in separate units.

Murphy said most banks would be receiving State equity and that as a result he expected the Government to look at “the strategic shape of Irish financial services”.

“We need to have the group positioned, to be optimally positioned, for all the possible permutations and computations that will flow from that,” said Murphy.

The main advantage of ILP’s new corporate structure is “we can do separate deals for the life company or bank”, he said.

This could lead to Permanent TSB being off-loaded, possibly into the widely-mooted “super-mutual” with EBS building society and Irish Nationwide’s home loans, creating the so-called “third force” in Irish banking to face the main players – AIB and Bank of Ireland.

The damage done to ILP by its lending was outlined by the company before yesterday’s meeting. The country’s largest mortgage lender said in a trading update that its estimate for loan losses would edge towards €650 million, or 1.6 per cent of loans, between 2009 and 2011, the stress case scenario outlined by ILP last March.

“Arrears have increased across all loan portfolios since the start of the year as the Irish economy has slowed further and unemployment increased,” the company said.

ILP rose 6 per cent to €2.61 yesterday, valuing the group at €699 million, down from €6.3 billion at its peak in February 2007 but the stock is up 66 per cent this year.

Loan arrears rose to 2.6 per cent of loans at the end of March, up from 2 per cent three months earlier, while UK loans of more than 90 days in arrears climbed to 4.2 per cent from 3 per cent.

Despite this, the mood at ILP’s annual meeting was less fractious than the AIB affair on Wednesday.

However, many shareholders still vented their spleen at ILP’s heavy lending and sharp decline in value.

Gillian Bowler, chairwoman of ILP, admitted mistakes had been made – she said she had doubts about 100 per cent mortgages. She added that Permanent TSB was pushed into them by analysts and investors concerned that ILP was losing its share of the market to foreign banks offering these loans.

“You give the market what the market wants,” she said.

“In this case I would have thought that restraint was needed.”

However, it was not over-exuberant lending but the dubious deposits into Anglo Irish, that has led to the ILP’s greatest crisis.

Still, Bowler and the rest of the board of Irish Life & Permanent survive to fight on.