First Active looks decidedly passive in approach one year on

Current Account was interested to see First Active managing director John Smyth and non-executive director Henry Murdoch digging into their pockets to buy shares in the converted building society at the going rate in the market.

Unfortunately, most in the market don't share the two directors' apparent optimism and confidence in the bank's future. Given the lack of any diversification in the year since it demutualised, it is hard to see why First Active demutualised in the first place, apart from the doubtful benefit of one-off windfall gains for its members in the form of free shares. The fact that First Active's mortgage-holders still pay among the highest variable rates for their home loans makes the benefit of those windfall shares questionable, to say the least.

A cynic might conclude the main beneficiaries of the First Active conversion and flotation are the bank's directors through their generous option packages, but Current Account, of course, is anything but a cynic about such matters.

Quite why First Active's first results as a plc produced such positive comment in sections of the British financial press is a source of mystery. Given the growth in the Irish economy and the strength of the group's core mortgage business, the results are no more than one might have expected, to say the least.

The fact that almost a year after conversion, First Active is still almost totally dependent on mortgage lending with little sign of diversification into more broad-based financial services is a source of some concern. Irish Permanent, the first building society to covert to a plc, showed what should be done when it quickly expanded into life assurance and private banking within a short time of demutualising. And Irish Permanent - prior to its merger with Irish Life - was not exactly seen as one of the most innovative financial institutions.

What is taking First Active so long to make some similar moves. Admittedly, takeover prospects in the Irish market are limited but there must be scope somewhere for the group to diversify from its very limited business base. Or is the bank's focus to remain fixed on mortgage lending - a business that will undoubtedly come under margin pressure.

This newspaper, at the very beginning, was strongly critical of First Active's decision to go ahead with its flotation last year when the main beneficiaries were institutional investors and the former building society's own management. First Active shareholders were, of course, bought off with "free" shares, but are still paying mightily for that "windfall" by having to pay among the highest variable mortgage rates on the Irish market.

No wonder Bank of Scotland thinks that it can carve out a niche for itself in the Irish mortgage rates, given the sort of rates that First Active - and to be fair some of the other mortgage lenders - levies on variable rate mortgages. The dismissive attitude of First Active management to the Bank of Scotland challenge is another source of concern.

At this stage, with no sign that the management has the inclination or ability to diversify from an increasingly competitive Irish mortgage market, it is difficult to see what attractions the shares have despite their discount to the Irish, British and European banking averages.

First Active's takeover-proof period continues for another five years - unless, of course, it does an Irish Permanent/Irish Life deal and instigates a takeover where it ends up as a minority partner. That, for this observer, is probably the only reason to buy the shares.

Is the First Active management capable of such a challenge? This column has its doubts. Maybe First Passive might be a more appropriate name!