Fewer players likely in banking sector

With Smurfit Paribas finally ending up in the hands of Anglo Irish and ICC set to be sold in the next few months, and with ACC and TSB apparently destined for the altar and a stock market flotation next year, it is pretty clear that the consolidation in the Irish banking sector is gathering pace. The only question is who will be involved in the next phase.

Conventional wisdom has it that, before we get trans-national mergers and acquisition (like the ABN/ Commerzbank/Dresdner/Deutsche/ Lloyds bid for AIB - take your pick), we are going to see a lot more rationalisation within State borders. And that means that there will be fewer and fewer players in a couple of years' time.

Despite the periodic reassurances from Sydney that National Irish Bank is a core part of National Australia Banks's business, the view in the Irish banking industry is that NAB, chastened by its experience in the Republic and the novel banking practices operated by its subsidiary, would be more than happy to offload NIB.

With a minuscule share of the domestic retail banking market and with minimal presence in corporate banking and capital markets, NIB's future as an independent entity is poor, to say the least. The grandiose plans to buy TSB from the Government are now dust and the prospect of NIB being given the resources by its Aussie parent to grow its business by acquisition are nil.

Is there room in the Irish market for the smaller banks which service the corporate market, and what are the chances of the big four of AIB, Bank of Ireland, Irish Life & Permanent and Ulster steadily gobbling up the competition. Anglo Irish Bank's acquisition of Smurfit Paribas probably makes it an even more attractive takeover prospect for a bank keen to expand its presence in the corporate market.

IIB, 75 per cent-owned by Kredietbank and 25 per cent by Irish Life & Permanent, pulled out of the bidding for Smurfit Paribas. What are the longer-term prospects for IIB and the smaller Bank of Scotland-owned Equity Bank?

Certainly if ICC ends up in the hands of one of the big four banks (and Bank of Ireland is seen as a front-runner for ICC), then it leaves the smaller banks with virtually no opportunity for expansion through acquisition. What chance the merged Irish Life & Permanent offering to buy Kredietbank out of IIB and establishing a wholly-owned corporate banking business. Serious corporate banking is probably the only notable absentee from Irish Life & Permanent's portfolio of businesses.

And as for the floated First Active, and the likely-to-be floated TSB/ACC, it is difficult to believe that these banks will exist as independent entities once their five-year takeover-proof periods expire.

Add in the likely takeover of Irish Nationwide - if Michael Fingleton gets his way and has the law changed to end the five-year takeover-proof period - and it would leave the EBS as the sole remaining building society. The EBS's determined approach to mutuality and its reputation as the cheapest lender are probably enough to safeguard the EBS's independence.