HBOS in 'pole position' to buy two Irish banks for (pounds) 1 billion

0 Comments | Sunday Herald, The, Oct 31, 2004 | by Ian Fraser

HBOS is leading the race to acquire two Irish banks just two weeks after they were put on the block by Melbourne-based parent, National Australia Bank (NAB).

A deal to acquire National Irish Bank, based in Dublin, and Northern Bank, based in Belfast, would give HBOS the chance to compete more aggressively with Irish lenders.

While the UK market for home loans has cooled and some economists believe a market crash looms, the Irish mortgage market surged by almost one third in the 12 months to July while the UK market rose by just 9.4%. The Irish economy is expected to grow 4.7% this year, up from 3.7% in 2003.

"HBOS has a nine out of 10 chance of getting its hands on those assets," said Eamonn Hughes of Dublin's Goodbody Stockbrokers. He believes it will secure the assets for (euros)1.4 billion ((pounds) 973m) to (euros)1.5bn ((pounds) 1.04bn).

"HBOS is in pole position. I doubt whether John Stewart [NAB's chief executive] will want to get up at the bank's final results on November 10 without being able to announce a deal."

Other potential bidders - including Irish Life & Permanent, the Royal Bank of Scotland Group and Bank of Ireland - have quit the race because of NAB's insistence that its two Irish subsidiaries be sold as a single package.

Those bidders had set their sights on taking over one or other of the Irish banks - because of internal strategic choices or because competition authorities would have blocked one side of the deal.

Bids are due in to NAB's adviser, Lazards in London, by the middle of this week.

While Irish papers have reported Barclays and Dutch-based Rabobank as other possible bidders, the only other serious bidder is now said by analysts to be Lloyds TSB.

Edinburgh-based HBOS has built up a significant presence in the business banking market in Ireland, through its acquisitions of Equity Bank in 1989 and ICC in 1999. But despite some initial success in the mortgage arena in 1999, its lack of a branch network in Eire has prevented it from making significant impact on the retail market.

With 59 branches, National Irish has only a 3% share of the Irish banking market. Its reputation took a hit in the summer when the High Court ruled it helped customers evade tax. The scandal, which followed a six-year probe, rocked the Irish banking establishment.

"National Irish has been a serial underpeformer for the last six years, partly because of a lack of commitment from Melbourne," said Hughes.

"For HBOS this deal is all about distribution. They are good on the small to medium enterprise side in Ireland but have failed to walk the talk on the retail side. They would be in a strong position to reinvigorate that franchise."

Belfast-based Northern Bank is a much more established player. With 95 branches, it has one-third of the banking market in Northern Ireland. It also handles back-office functions for its sister bank across the border.

Earlier this month, Stewart released part of NAB's review of its European operations, confirming NAB had received expressions of interest for the banks and would issue an information memorandum through Lazards.

In March, NAB was ordered by Australian regulators to boost its capital after currency-trading losses cost it A$360m. Fund managers believe a sale of its Irish banks would help the bank to free up capital to meet these requirements, as well as providing more funds to invest in its Clydesdale and Yorkshire banks in Britain, which NAB is committed to retaining.

A purchase also became more likely after HBOS scrapped plans to mount a counter bid for Abbey National, which is poised to be in Spanish hands by November 12.

Neither HBOS nor NAB would comment. But HBOS's chief executive James Crosby said in July: "We're really interested in building our business in Ireland."