Royal Bank of Scotland looked at big two

Royal Bank of Scotland "looked at" AIB and Bank of Ireland before deciding to buy First Active, according to chief executive, Mr Fred Goodwin.

He said the bank had decided against making a bid for one of Ireland's two biggest banks because such a deal would have run into problems with the competition authorities.

AIB and Bank of Ireland do not comment on whether approaches have been made to buy the institutions but sources suggest no direct contact was made about such a deal.

RBS, which owns Ulster Bank in the Republic, is believed to have entered into negotiations with First Active in recent weeks after the proposal was made through a "social contact". The board of directors of the former building society has accepted its €887 million offer for the company. The deal must be approved by shareholders and regulatory authorities and is expected to be completed in January 2004.

First Active shares traded as high as €6.22 in Dublin yesterday, some two cents above the €6.20 Royal Bank offer. By close of business though the shares fell back to close at €6.12, down one cent. At these levels the shares are trading more than 30 per cent above last week's price.

The price is considered to be high with some analysts suggesting it may have been an expensive acquisition for Royal Bank. The Scottish bank has up to £3 billion (€4.2 billion) in surplus cash and has been using this war chest to make acquisitions.

In June it bought Churchill, a UK insurer, from Credit Suisse for £1.1 billion. This year it also purchased Commonwealth Bancorp in Pennsylvania, Santander Direkt in Frankfurt, and Community Bancorp and Port Financial, both in Massachusetts.

Mr Goodwin has signalled that there will be hundreds of job losses as Royal Bank integrates back office and other functions when First Active becomes part of Ulster Bank.

The Irish Bank Officials Association which represents staff at Ulster Bank warned there could be no compulsory redundancies and said it would be seeking a meeting with local management.

Together First Active and Ulster Bank will have 15 per cent of the Irish mortgage market. The two banks will employ 5,600 and have 1.3 million customers.

An Post has decided to take legal action against First Active over the bank's practice of mailing post to Ireland via the British postal system.

An Post is pursuing legal action under section 4 of the Evasion of Postage Act, 1937. First Active is required to furnish details of its mailing practices this week. According to sources An Post will be pressing for over €100,000 in compensation, but First Active insists its postal activities have not infringed the law.