Savings may yield £236m

A key factor in winning market support for the merger will be to prove it will yield costs savings and increased revenues of the order of £236 million (€300 million). This will be achieved through the integration of many of both group's head office and treasury functions and UK mortgage operations over a three- to five-year period.

Bank of Ireland's Bristol & West operations will be the immediate focus for cost cutting. Its outlets will be brought under the A&L banner. Mr Oliver O'Shea, of Goodbody Stockbrokers, estimates the potential cost savings from this integration are between £39 million and £78 million.

The enlarged bank's senior management team will also have to look at how they can achieve economies of scale through combining activities such as their respective credit card services and telephone banking operations. It is also expected to establish a single centralised treasury operations, with some analysts predicting this could be based in Dublin. NCB analyst, Mr Shane Nolan, says how the banks can best use the different tax rates in the UK and Ireland to its advantage will be a crucial factor in deciding where the various operations will be based.

"Bank of Ireland, for example, has the capacity to process part of its UK mortgage book out of its recently opened IFSC mortgage factory," although certain British tax rules could constrain its ability to do this on a large scale, he says.

ABN AMRO analyst, Mr Eamonn Hughes, says the potential cost savings that can be achieved by rationalising the two head office operations is difficult to estimate but could realise £50 million. Eliminating the duplication in credit card processing could add another £25 million to the total savings, he says.

The merger should provide a substantial boost for sales of both institution's products which will now be channelled through a wider distribution network. Bank of Ireland will be able to distribute its life insurance and asset management products to A&L's customer base. While acknowledging A&L's good track record for cutting costs, Mr Hughes remains less than convinced about how much revenues will be enhanced by the merger. "Certainly using the Bank of Ireland brand name to sell life and unit trust products to A&L customers is unlikely to prove any more successful than A&L's own brand. There may be some limited opportunity to sell A&L personal finance products to Bristol & West customers."