Bank profits good for sale

A strong performance from ICC Bank in what promises to be its last year as a State-owned company bodes well for the sale of the bank which is expected to be completed later this year. Given the historic post-tax profits of just under £15 million (€19 million) for the year to end October 1998 and current price earnings ratios in the financial sector the bank could fetch between £250 million and £300 million (€317 million-€381 million) for the Government.

At the lower end of the range Anglo Irish Bank is on a historic p/e of 16.8 times earnings. Applying that p/e to ICC's latest profits would indicate a price of £248 million. At the upper end of the multiple scale Allied Irish Banks is on a historic p/ e of 20.8 times earnings which if applied to ICC would indicate a price of more than £300 million.

Given the significant differences between the depth and breath of AIB and the niche operations of ICC in the small and medium-sized business sector, the lower p/e is more likely to apply.

Applying another value measure - times net assets or net book value - ICC could be worth £246 million to £300 million of multiples of two times to 2.5 times book value.

The final price agreed for the bank, which is well respected in its niche market, will boil down to the extent of the competition to buy it. Already known to be interested are Bank of Ireland, Irish Life and Permanent and Irish Intercontinental Bank. But the final extent of the competition will only become clear with the response to the advertisements which will be placed seeking expressions of interest.

However, an important caveat is that price will not be the only factor in the selection of a suitable purchaser. Other factors such as the purchaser's business plan and the future of the bank's 300 employees will be at least as important as the price. Whatever the final price, after at least five years of on/off privatisation/sale/merger speculation management and staff at ICC must be relieved that some clarity on its future direction is now imminent.