Scottish banking giants line up to crack the Irish market

0 Comments | Sunday Herald, The, Feb 15, 2004 | by Ian Fraser

THE Royal Bank of Scotland and HBOS are eyeing up the Irish operations of National Australia Bank (NAB) in moves that would threaten the dominance of Ireland's two big players.

Both Edinburgh-based banks are interested in acquiring Belfast's Northern Bank and the National Irish Bank from beleaguered NAB, said analysts. But neither HBOS or RBS would able to from buy NAB's Glasgow-based Clydesdale Bank, due to competition constraints.

NAB has been forced to consider selling off its European assets - which also include Clydesdale and Yorkshire Banks - following the A$360 million ((pounds) 150m) currency options trading scandal which prompted a big rethink at the bank and the departure of its chief executive Frank Cicutto.

John Stewart, the former Woolwich boss who replaced Cicutto as NAB's CEO last week, said the Aussie bank would consider selling its European assets "if that was the right thing to do and we could create shareholder value".

"If that's the right thing for the shareholders, of course I would," said Edinburgh-born Stewart on Channel Seven.

He said: "Right now, they're inefficient because they're vertically integrated banks and we make everything four times, which is pretty dumb."

Philip Middleton, Ernst & Young's head of retail banking, said: "These are marginal players which will wither on the vine without significant new investment. I suspect that, were someone to come along with an attractive offer, John would be minded to sell."

Last week analysts and fund managers said NAB should dispose of the European operations to make a capital return. Assuming an optimistic sale price of (pounds) 8 billion, the return would be around A$13.30 per share.

One bank analyst said: "HBOS would certainly be interested in Yorkshire Bank and the two Irish operations. Likewise, RBS may well be interested in the Irish operations."

Both the Scottish banks have an existing presence in Ireland, following RBS's (pounds) 617m purchase of First Active last year, which is being integrated with RBS's existing Ulster Bank unit.

HBOS bought Equity Bank in 1989 and ICC in 1999 and has built a 19% share of Ireland's business banking market. NAB acquired its four UK and Irish banks for (pounds) 1.37bn between 1987 and 1990, but analysts believe they could now fetch (pounds) 5bn to (pounds) 6bn.

Middleton added: "If someone came along with a good offer he will be minded to sell, because he is not tainted by any prior involvement with decisions relating to those banks. Nobody will be able to accuse him of U-turns or anything. But he is not forced to sell. The British Isles operations are not in a state of crisis or anything like that. But they do suffer from being marginal and from their lack of scale."

Northern Bank is the largest retail bank in Northern Ireland with 95 branches.

Stewart also told Channel Seven: "At this moment in time, I don't think that's the right thing for the shareholders. I think the right thing for [them] is that most shareholder value could be created by developing these banks."