Merger may seem an unlikely alliance

NATIONWIDE-ANGLO IRISH LINK-UP:Both institutions have a heavy exposure to the commercial and residential property market, writes Simon Carswell, Finance Correspondent

A MARRIAGE of Anglo Irish Bank and Irish Nationwide Building Society may seem like an unlikely alliance, but it would join two financial institutions with a heavy exposure to the commercial and residential property market.

Anglo is thought to be weighing up the possibility of an approach for Irish Nationwide, though a number of other banks have been involved in discussions relating to the future of the building society.

Irish Nationwide has been on the block since last year. However, the society said at its annual meeting last April that it would have to wait until the market turmoil eased before it could complete a sale as the crisis had hurt the value of financial institutions.

"We are determined to effect a trade sale of Irish Nationwide at the earliest opportunity," said chief executive Michael Fingleton.

Joining forces with Anglo would give the combined bank assets of more than €112 billion, bringing together Anglo's balance sheet of €101 billion and Irish Nationwide's €12 billion in the merged entity.

Both institutions are well capitalised with a core equity tier one ratio - a key buffer measuring a bank's ability to weather unforeseen losses - of well over 8 per cent when investors are looking for a ratio of at least 6 per cent. Irish Nationwide's tier one ratio rose to to 11.45 per cent in March. Both lenders also have low cost bases.

The two institutions are heavy lenders to the commercial and residential property sectors.

Most of Anglo's €69 billion loan book is secured on property, while Irish Nationwide is owed about €10 billion by developers and property investors. The bank and building society would also share many developer customers.

The most significant effect of any potential takeover of Irish Nationwide would be the signal that it would send to the market, easing concerns about the Irish banking sector's exposure to the declining property market.

Anglo has been eager to point out since the credit crisis began that it can weather the storm - it said its earnings will rise 15 per cent this year, giving it profits of about €1.5 billion for the year.