The Danes are coming soon to a bank near you

Staff at National Irish Bank (NIB) and Northern Bank may have noted an increase in the number of Danish tourists visiting their branches recently,

One of them was Mr Peter Straarup, the head of Danske Bank, who travelled to Ireland doing some on-the-spot research before closing a deal this week to buy the two banks owned by National Australia Bank (NAB).

"I was driving around looking at branches" he says. "I exchanged some foreign currency in some of them without letting myself be known."

A number of his lieutenants were dispatched to various locations to look inside the branches and some even took photographs that were relayed to Denmark.

The Danes obviously liked what they saw. This week they announced they would buy the two banks for €1.4 billion and expect to take control of them next spring.

"It was not that difficult a decision for us. Ireland is a very attractive banking market," Mr Straarup explains.

He has visited Ireland many times before and has followed the fortunes of the Irish banks in recent years. Danske was busy bedding down acquisitions in Denmark, Sweden and Norway when First Active building society came up for sale last year and was purchased by Royal Bank of Scotland. By the middle of this year though it was keen to expand outside of Scandinavia and told its investors that it was on the look out for acquisitions in northern Europe.

So when it learned that NAB was keen to sell off its Irish banks, it pursued a deal. Mr Straarup has made no secret of the fact that it had to muscle in on the sale process as it says NAB's advisers, Lazard, was handling the disposal as part of a private process involving a small number of suitors. He says Danske had to "kick the door in" to get to the negotiating table.

Halifax Bank of Scotland was viewed as the front runner to buy the banks as a launching pad to expand into retail banking in Ireland. These talks broke down over price.

And while there had been much speculation about this potential deal, Danske's interest was kept very quiet. It didn't want news of its interest in moving into Ireland leaking out, and it was a surprise when it emerged as the new owners of NIB and Northern Bank.

Mr Straarup will assume the role of chairman of the two banks and they will continue to be run by its current management team. He says it has no plans to install senior management from Denmark to run its Irish businesses.

He says that Irish consumers will not immediately see a great difference in the banks' business. Within a year, however, it expects to be offering a wider range of products at competitive prices.

In Denmark, Danske offers mortgages at a rate of interest of about 0.55 of one percentage point above Central Bank rates. If it were to apply a similar margin here, the cost of mortgages would be reduced from about 3.25 per cent to about 2.55 per cent. The cheapest mortgage currently available is 2.79 per cent and is offered by NIB.

It intends to also introduce competitively priced products such as credit cards, trade finance, business on line, cash management and customer packages.

The bank told investors that it expects NIB and Northern Bank to grow market share in the coming years and, ultimately, has ambitions to gain a 10 per cent share of the Irish banking market.

The bank likes to champion its reputation for good customer service and the pro-consumer, friendly atmosphere within its 464 branches in Denmark, Norway and Sweden.

Danske Bank has been quite upfront in saying it will be seeking to cut NIB and Northern Bank's costs by around 15 per cent but says this will be achieved largely by its integration within the group and the adoption of its computer systems.

Jobs cuts will be avoided by the transferring of work from Denmark, where wages are higher than in Ireland, believe Danish analysts.

Once they got over their surprise at the announcement, Danish bank analysts were upbeat about the deal.

"The economic growth in Ireland seems set to continue, even though it will slow down a bit, but it will still be above that of the euro zone measured by GDP [ gross domestic product].

"If Danske Bank succeeds in making a turn around on incomes by integrating its IT system, products and branding, the chances for gaining further market shares in the area are good," according to Mr Jesper Brydensholt, an analyst with Scandinavian investment bank Enskilda Securities in Stockholm.

The Irish Bank Officials' Association has welcomed the deal and there are no immediate concerns about job losses. The trade union intends to hold discussion with Danske Bank's senior management shortly to discuss its plans. The bank has a good relationship with the IBOA's sister union in Denmark, with up to three of its members serving as directors of the bank. Any transfer of jobs from Denmark is likely to put a strain on this relationship.

A network of branches is also at the heart of Danske's business strategy. Mr Straarup says its branches typically provide more advisory services than the Irish branches - something which it is likely to move towards here.

In Denmark, news of its biggest bank's expansion into Ireland also came as a surprise and some investors remained sceptical of the move.

The bank has a solid track record in terms of delivering good returns to shareholders. It has already stated that it did not expect to buy back shares in 2005 as a result of the acquisition and its share price drifted almost 6 per cent lower than the record highs they were enjoying.

"The Republic of Ireland and and Northern Ireland are outside the geographical area which was considered the sphere of interest for Danske Bank by the Danish stock market - especially after they pulled out of the UK. Now they entered Ireland, what will be next?" asked Mr Brydensholt.

But Mr Straarup is unfazed by this reaction and believes that the share price losses will be recouped over the next three to six months. Enskilda Securities expects the acquisition to pay off in three to four years' time and believes that Danske stock is still a good investment.

"The other Danish banks have talked about buying up outside the Nordic countries, but didn't take actual action. Danske Bank has shown momentum and has reasonable possibilities for growth," says Mr Brydensholt.

He believes the move also provides a platform for further expansion and the expectation is that once NIB and Northern have been updated and integrated into Danske Bank's system, the bank will consider opening branches in the UK.

First, the new owners are hoping to revitalise the NIB bank and will be hoping to repair the damage done to the bank's business as a result of overcharging and other controversies. Mr Straarup is well aware of the vehement criticism of Irish banks and says that, as president of the Danish bankers' federation, he is used to taking the flak.

For now, however, he is looking forward to bringing Danish banking services to Irish customers.

The announcement of a new entrant in the Irish retail banking market came on the day the Competition Authority reported that the Irish market is not competitive and does not serve customers well in a number of key areas. Consumers can only hope that Danske Bank's arrival will offer greater variety and will help to reduce the cost of banking services here.