Bank of Ireland appears to have ditched its grand plan to become a major force in the UK market and has accepted, for now, that small can be beautiful.

Six months ago the Republic's second-biggest bank was desperately trying to play with the big boys by taking over the Abbey National group. Its new chief executive, Mr Michael Soden, had hoped to be running Britain's sixth-biggest financial institution by now; instead he is rationalising and restructuring its poorly performing UK financial services business.

On March 1st, he sent veteran banker Mr Roy Keenan to Bristol to knock the business into shape. This is the second time 55-year-old Mr Keenan has been dispatched to Britain to tackle a problem. In 1990 he tidied up the British Credit Trust operations in Slough, which were subsequently sold.

Of his mission in Bristol, Mr Keenan says his riding instructions are to build the business. He says he is not keeping an eye out for major acquisition targets.

"If there is a transformational opportunity for the group, I believe we will look at it but I don't see anything. It is certainly not a Bradford & Bingley or an Alliance & Leicester. You should never say never but we are not looking for anything."

It was the failure of the Abbey National bid last year that highlighted the poor performance of Bank of Ireland's business in the British market. Mr Soden reorganised the businesses shortly after his arrival, creating the UK financial services division to include Bristol & West, a personal lending operation, its financial advisory businesses and the Bank of Ireland branches in Northern Ireland. It employs 5,700 staff.

In the first half of 2002 this division contributed €166 million or 27 per cent of the €602 million in profits earned by the Bank of Ireland Group. Mr Keenan believes there is sufficient potential for his new charge to deliver up to 50 per cent of group profits if it pursues the right strategy.

"I have to determine whether this is an under-performing business. I would say we have a reasonably performing business and there are opportunities to grow."

He believes it should focus on specialist banking activities, such as property finance and the small-business sector, where margins tend to be higher and are of limited interest to the big institutions.

AIB and Anglo Irish Bank have successfully pursued this niche in the UK and Mr Keenan reckons they are probably doing twice as much of this type of business than Bank of Ireland.

"The only problem we have is there is bloody tough competition out there. If you didn't have competition and there were fat margins, then life would be easy. I have got to make sure we have the skills and the products to grow this business and this won't happen overnight."

To achieve his objectives, Mr Keenan says he would consider possibly buying some books of business, particularly on the specialised lending side, or buying a team of bankers to support its growth.

"It wouldn't frighten us to look at something. If you had a book of a couple of hundred million or we could buy a team, which is cheaper. The German banks have been divesting portfolios and we might look at buying a team of their people but we will be fussy."

His immediate priority is to oversee the rationalisation of its two independent financial advisers, Chase de Vere and MX Financial Services. Bank of Ireland purchased them in 2000 and 2001 at the height of the equity markets but they have been struggling since.

In February the bank reduced their book value by £80 million sterling (€118 million) and has set aside up to £15 million to cover voluntary redundancy and other restructuring costs.

"They were good acquisitions but the timing was bad and we have paid for that by a write-off. We haven't shirked something that has to be done. We have recognised that the market is tough and taken decisions," says Mr Keenan.

He is closely monitoring the costs across the entire division and will not rule out down-sizing if that is what is required.

"I want to look at how we compare to our competitors. Hopefully we are better while in one way I hope we are not because you then might have an opportunity of reducing costs. The worse thing would be to let a business wither for a while. Bad debts or fraud can put you out of business but poor revenues and rising cost will slowly choke a business."

Bristol & West, a former building society, also needs attention, where the greatest problem for the group has been its inability to cross-sell its products to customers. "Bristol & West is a good brand. It is strong in the greater Bristol area and there is potential for us to build on that. Our sales model has been a little lazy. We have to be able to talk to the customers in a better way."

He suggests that costs have been driven down in Bristol & West but that he will be trying to make sure there is a strong cost culture within the business.

The most profitable part of UK Financial Services is its personal lending and mortgages unit, which develops products sold by third parties and has also established a considerable presence in the buy-to-let market in the Bristol region, which is likely to be expanded.

Mr Keenan will also be turning his attention to his native Northern Ireland, where he will be seeking to build Bank of Ireland's share of the personal banking market.

Bank of Ireland first entered the UK market almost 30 years ago. He says it is fair to ask why it has not fared better there but is confident this can change. "The whole question for us is can we survive in the UK, can we get the right platform and can we deliver increased profits from it?"