February 16, 2011
By Staff Reporter
By Andrew Bushe
DUBLIN — In the country’s biggest banking deal ever, Bank of Ireland and the British Alliance & Leicester are in merger talks that could create a banking group worth over £13 billion and have major ramifications for the Irish finance sector.
Shares in both companies surged ahead when the talks were confirmed.
The link between Ireland’s second-largest bank and the UK bank and former building society, which is Britain’s sixth biggest mortgage provider, would also be the biggest banking deal in Britain since Lloyds bought the TSB in 1995.
The combined group would be the eighth-largest banking group in the UK and the fifth-largest mortgage provider.
The negotiations follow months of speculation that BofI, AIB and the merged Irish Permanent/Irish Life could be takeover targets.
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The merger talks involve a new structure in which both companies would retain their separate stock market listing.
The merged company could then be a springboard for further takeover deals as both companies have bulging war chests. This could catapult them into the international big league.
A statement from the companies said the new group would be well positioned to pursue "further opportunities resulting from consolidation in the financial services sector."
"As a result of their discussions, BofI and A&L believe that the merger would significantly enhance shareholder value. Following the merger, the banks anticipate total annual pre-tax cost and revenue benefits estimated at £236 million when fully realized," the statement said.
The link-up would be one of Europe’s largest cross-border banking deals and involve the first link between euro and sterling banking operations since the single currency was set up.
BofI chief executive Maurice Keane, 57, recently made no secret of the fact that the bank was looking at expansion in Britain to consolidate the bridgehead acquired in 1997 with the purchase of purchase of Bristol and West.
The main cost savings from the deal would be a rationalization of staff and branches in Britain.
AIB shares have been actively traded for some time amid rumors that Deutsche Bank and then Lloyds TSB were interested.
If the merger goes ahead, the new alliance would dwarf AIB and could hasten a strategic partnership or takeover. AIB has a presence in the U.S. and is expanding its operations in Poland.
A&L, which was floated in 1997, has been one of the most successful of the former British building societies in diversifying into mainstream banking activities and insurance.
It is protected under British law against a hostile takeover for five years until 2002 unless it opted to do a deal itself.
The demutualized Irish Permanent — Ireland’s biggest mortgage provider — was in a similar situation before it started talks with Irish Life — Ireland’s biggest insurance company — last year.
No one was allowed build a stake of more than 15 percent until this year and it could have then faced a predatory takeover.
Both BofI and A&L are a similar size and most interest would center on the proposed management structure and corporate headquarters. The statement says that there will be a "unified management under the direction of identical boards drawn equally from the two banks."
Industry analysts are predicting A&L boss Peter White, 57, will be chief executive and BofI’s Keane will step aside to become a non-executive director and will become chairman when BofI governor Howard Kilroy retires next year.
Dividend and capital distributions would be fixed at a ratio of 55 percent for BofI and 45 percent for A&L. BofI employs more than 13,500 to A&L’s 7,500.
If it was proposed that the corporate headquarters of the alliance was to be based in Britain it would ruffle political sensitivities.
Discussion are also ongoing about who will regulate the new combine, the Irish Central Bank or the UK Financial Services Authority.
The 216-year-old BofI is very much the "establishment" bank and was banker to the government until the setting up of the Central Bank in 1942. It holds it’s court (board) meetings in the pre-Act of Union parliament chamber on Dame Street.
May 26-June 1, 1999