Future of ICC and ACC will remain unclear for some time

The first move in the State bank saga came this week when the Minister for Finance, Mr McCreevy, decided to put ICC Bank on the market.

But the future of the other State-owned bank, ACC, is still not clear because of the stand-off between management and unions on the best way forward.

And TSB, the other potential partner in the original plan for a State-owned third banking force, is still on the sidelines, interested in examining a merger with ACC, but waiting to be asked by the Minister to step in.

While management and staff at ICC must be relieved the decision on their future has been made, it will be some time before the "beauty parade" for advisers to the sale begins.

Mr McCreevy will appoint an adviser to ensure he gets the best deal for the bank's owner, the State. The ICC board will do likewise because as a publicly quoted company it will be expected to issue a recommendation on the deal to its shareholders which include some 48 minority shareholders who own just 1,239 of the bank's almost 22 million shares.

But because of EU tendering rules the appointment of advisers is unlikely to take place much before October. Under EU regulations advertisements inviting applications for the role of advisers must be placed in the Official Journal of the European Communities by the Minister and ICC.

While the advertisements could be placed within the next two weeks, potential applicants must be given 52 days in which to reply. Then the applications must be considered and an appointment made. It could be difficult for ICC and the Minister to find independent domestic advisers because of potential conflicts of interest many possible advisers are part of groups which may be interested in bidding for the bank.

Sources suggested that this appointment process will ensure the sale will not get under way until well into October.

In the meantime ICC management will work on producing a draft information memorandum or offer document for the bank. The unions, management and Mr McCreevy will get on with negotiations on issues around the sale such as arrangements for the allocation of shares to ICC's 310 employees and how the sale should proceed.

Criteria may be agreed which will be used later to assess proposals from potential buyers. These would include how a potential buyer would safeguard the employment of the ICC workforce whose jobs have been guaranteed by the Minister.

The information memorandum will contain general information to give an overall flavour of ICC. It will describe the bank, its business, the number of employees, range of customers, published performance figures and other information so that potential buyers can decide if they are seriously interested in the operation. It will be circulated to parties who make an initial general expression of interest in the bank.

Among the criteria for the appointment of advisers will be their ability to bring information on ICC to potential buyers both in Ireland and internationally. The advisers, likely to be corporate finance specialists, will be involved in the preparation of the final information memorandum and in assessing the response from prospective buyers at every stage of the deal. But the information in the memorandum will be limited. This is because of the business risks involved in circulating confidential and sensitive information. More detailed business information will only be released to potential buyers who have signed confidentiality agreements not to release or use any information on the operation and who have been shortlisted as suitable acquirers of the operation.

A second document, often known as the long form report, will contain greater detail on the business of the bank and is likely to be circulated to the shortlisted potential buyers. Then those selected are likely to be asked for formal bids and proposals the ICC board has said that proposals for the future development of ICC bank are as important as the cash terms offered. Offers are expected to value the bank at £200 million plus.

The next stage is an assessment by the Minister and the board of the proposals and their comparison with pre-established criteria on the most suitable partner for the long-term development of ICC and the protection of its employees. The MSF and SIPTU trade unions representing employees are likely to participate in discussions on the proposals.

At that stage Mr McCreevy may be ready to take a proposal for the sale of ICC bank to the Government which must approve the deal.

Among the issues which potential buyers will have to consider is taking over the State guarantee on ICC deposits. This guarantee covers some £1 billion of the banks deposits. Another issue will be ensuring that international lines of credit made available to the bank while it was in State ownership can be retained or replaced. Some international lenders are more willing to lend to Government-backed banks because they consider the funds more secure.

Another possible issue for buyers could be the 14.9 per cent stake promised to employees of ICC bank. The principal of staff holding some 14.9 per cent of the bank has been conceded but details of the terms, conditions or structure of the arrangements have not been worked out.

Issues about the State guarantee on deposits and employee shareholdings could also arise for a potential buyer of ACC Bank. But a decision on the future of ACC is further away. Mr McCreevy is not likely to make a decision before a decision is reached by the management/ union committee being established to look at "the criteria to be used in respect of any change in ownership".

The ACC board and management favour an alliance with a strong European partner which would take a majority stake in the bank. The unions favour a merger with TSB Bank and a subsequent flotation of the merged operation on the stock market with employees getting a 14.9 per cent stake. A merger of ACC and TSB could make sound business sense. The businesses of the two banks are largely complementary and a merged operation could produce a stronger banking business than the sum of the parts.

TSB is strong in the personal banking sector about 80 per cent of its lending business is mortgages and personal loans. ACC has a broader sectoral spread farming accounts for about 20 per cent of loans, personal business about 30 per cent while the balance is made up of commercial business.

But a merger would only make good sense if the synergies possible from the merger could be realised. Because both banks are currently relatively high cost operations, significant cost cutting would be required to develop a strong and viable operation.

Banking sources suggest there would be an overlap of about 30 branches. In addition the central services of the two operations would be merged into one with a significant reduction in the number of employees required.