Tears, fears ahead as banking marriage falters at the altar

It is now up to the management of both ACC and TSB Bank, and the Government, to come up with a realistic alternative to secure their future, but in a world where small banks are becoming increasingly marginalised, that task is a formidable one.

The collapse of the deal makes both banks vulnerable and creates huge uncertainty for their staff. The brightest hope for the 1,600 people working for ACC and TSB is that other financial institutions will step in with an acceptable bid and life will get back to some form of normality. But few things are that simple.

Today, all of the Irish financial institutions will reassess their strategic options and consider if there is any merit in adding either ACC or TSB to their operations. But the key question for them will be how much are they now worth.

Most analysts suggest that, at this juncture, TSB may be more marketable than ACC. TSB may be of some interest to a group such as Irish Life & Permanent as it offers access to the bank clearing system and would allow it to become a significant player in the retail banking sector. It has already submitted a bid to buy Ulster Bank from NatWest to realise that ambition. The outcome of this bid will remain unclear while NatWest is fighting hostile bids from Bank of Scotland and Royal Bank of Scotland.

It has always been suggested that the most natural home for TSB is with the EBS building society. Both organisations came together with a view to completing such a merger some years ago but these negotiations also come to nothing.

TSB does not have a good track record though when it comes to co-operation with its competitors. In the past, National Irish Bank made a bid which also foundered and this is something which any potential suitor will bear in mind.

As for ACC, the bank's brand has taken a severe hammering recently arising out of the Public Accounts Committee's investigation into DIRT arrears. The bank's senior management were sharply criticised by the committee for their failure to implement an effective tax compliance structure within the bank and its cavalier attitude to corporate governance. There is also a view that management lost control of the bank some time ago.

The collapse, coming so soon after the Government's failure to sell ICC Bank, also raises serious questions which will have to be addressed if the banks are to be ultimately sold.

It is clear the Government will have to relax its stance in relation to the terms which must attach to the sale of state banks and ACC and TSB will have to think long and hard before getting into any future merger talks.