Bank of Ireland is now in pole position to take over the State-owned ICC Bank after the only other bidder, Irish Intercontinental Bank (IIB), withdrew from the tender process.

IIB, which is a subsidiary of the Belgian-owned KBC Bank, is understood to have decided not to contest the final tender process for ICC Bank for commercial reasons, based on a preliminary examination of the State-owned bank's business. IIB refused to comment on its position in relation to ICC Bank yesterday, citing confidentiality concerns attached to the continuing tender process. Industry sources suggest, however, that the bank's withdrawal reflects greater overlaps between the two bank's existing businesses than was previously thought making it a less attractive takeover target for IIB.

Bank of Ireland is now the only financial institution to submit a final bid to the Minister for Finance, Mr McCreevy for the bank. The Minister had hoped the sale of ICC would raise more than £330 million (€419 million) for the Government although this may prove optimistic with just one bidder in the ring. Under the takeover code, Bank of Ireland must produce an offer for ICC Bank and the Minister for Finance has up to 60 days to accept or reject it.

Bank of Ireland has made no secret of its desire to acquire the bank as part of its strategy to expand its small and medium-sized business banking operations in the Republic. ICC also has a strong venture capital arm, ICC Venture Capital, which is also attractive to the bank. Bank of Ireland has indicated, if it was successful, it would continue to retain the ICC brand and operate the business as a separate entity within the banking group. It has insisted it is only interested in buying ICC at the right price.

The reason for the lack of interest in the bank has been attributed to the onerous conditions attached to its sale by the Government. The new owner of ICC will have to honour the terms of the employee share option scheme, which entitles the bank's staff to shares worth more than £100,000 each. It can buy the 14.9 per cent staff shareholding or the new owner can offer ICC staff shares in its company. Guarantees in relation to maintaining staff levels for a period of up to two years are also being sought by the Government together with a continuation of the existing terms of employment.

Many financial institutions which have looked at ICC have explained that these conditions were a substantial deterrent as they severely restricted the potential long-term profit growth of the bank within a new banking group.

The sale has been handled by ABN-Amro Corporate Finance on behalf of the Government. It advertised the sale of the bank in the main national newspapers and in the Financial Times in July and a number of European banks are believed to have initially expressed an interest in ICC.