TSB Bank has begun a search for a strategic partner which may be a financial services group, an Internet company or a retail group, according to chief executive, Mr Harry Lorton. Announcing a 21 per cent rise in pre-tax profits to £38.5 million (48.8 million) yesterday, Mr Lorton, said the bank has retained PricewaterhouseCoopers Corporate Finance to carry out a search.

TSB chairman, Mr Finbarr Golden, stressed the exercise was part of a "twin track" approach as the bank is also considering whether it should exist on its own into the future and focus on developing its personal banking and small business banking operations.

The chairman said the collapse of the planned merger and flotation of TSB and ACC Bank had been a great disappointment. "Events overtook us and it was decided not to proceed." Mr Golden said the bank's results showed, however, that it had not taken its eye off the ball throughout the merger process and said the bank was very positive about its future.

He said the trustees' decision to search for a potential strategic partner is not being made from a position of weakness or fear but does reflect a feeling that the bank may lack something in size. Mr Golden said the bank would consider whatever proposals made to PricewaterhouseCoopers and could move quickly to do a deal in the right circumstances.

Mr Lorton said the bank would consider approaches from outside of the financial services industry, such as an Internet or retail type group. "Securing a strategic partner could involve a change in the ownership structure. We believe we are a very attractive organisation to approach."

TSB's £35.8 million in pre-tax profits was achieved over the 14 month period to December 31st, 1999. Over that time frame, this represents a 40 per cent increase, but annualised this is a 20.3 per cent rise. The bank's loan book grew by 25 per cent to £1.4 billion, while funds from deposit and other customer accounts increased by 17 per cent to £1.78 billion. Its non-interest income grew by 38 per cent to £28.6 million.

TSB estimates it has around 5 per cent of the Irish mortgage market. It recently introduced TUSA, which is a joint venture financial services company set up with the supermarket chain, Superquinn. No details of how much business has been generated by TUSA were disclosed but the bank says it is very pleased with its progress to date.

TSB is a relatively small bank with all of its business based in the Republic. Industry analysts suggest it could currently have a market value of between £140 million and £170 million. Most of the Irish financial institutions are likely to consider the bank as a potential acquisition and it is likely to be particularly attractive to groups, such as Irish Life & Permanent, which want to gain a presence as a clearing bank which can offer current accounts to customers.

TSB has held formal take-over negotiations with National Irish Bank's parent, National Australia Bank, in the past and a proposal recommending the deal was presented to the Government, although it was not completed. The bank is also said to have talked to the EBS Building Society in the past.

Any deal would require Government approval. Mr Lorton said yesterday that the Minister for Finance, Mr McCreevy, was fully supportive of the bank's strategy.