Nationwide and EBS to agree on deal before Christmas
Permanent TSB likely to join as third force in banking sector
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Tuesday November 24 2009
THE country's two remaining building societies, EBS and Irish Nationwide, are likely to agree terms before Christmas on a merger that could result in the taxpayer stumping up a cash injection of €400m and leaving the State with as much as a 60pc stake in the new entity.
Industry sources also believe the merged entity will be joined by Permanent TSB (PTSB) within a matter of months, creating the "third force" in Ireland's banking sector.
EBS and Irish Nationwide will begin talks this week on what EBS chief executive Fergus Murphy yesterday described as a "transfer of engagement" that will most likely result in Irish Nationwide Building Society's (INBS) €10.4bn loan book and €6.8bn deposit base transfer to its stronger rival.
Over €8bn of that INBS loan book remains destined to be shifted to the Government's National Asset Management Agency between Christmas and June next year. The remaining €2bn INBS loan book comprises residential mortgages, about 30pc of which are buy-to-let mortgages. EBS is expected to transfer just under €1bn of its €17bn loan book to NAMA. EBS has €6bn of retail deposits on its books.
The merger will herald the demise of the tainted Irish Nationwide brand, which dates back to 1975 and which was headed until recently by the controversial Michael Fingleton.
The institution itself has been in existence since 1873. INBS has about 200,000 members, while EBS has 460,000.
Mr Murphy said it is difficult at this stage to estimate the size of the additional capital requirement the merged institution will require from the taxpayer, but that the new institution will have "better liquidity" and "better collateral" and hoped members would see the merger in a "positive light".
Welcome
He added that PTSB could also be welcome to form a "third force" in Irish banking.
Sources speculated last night that PTSB could eventually own 40pc of the combined entity, the Government 40pc, with the remainder split between EBS and INBS members.
As a standalone entity, EBS was likely to have required a capital injection of about €300m.
Mr Murphy estimated the merged EBS-INBS business could require somewhere between €50m and €100m in additional funding.
He added that could leave the State owning between 40pc and 60pc of the enlarged building society.
The consolidation between EBS and INBS had effectively been waiting for the green light from the Government and had been put on the back burner until the legislation for NAMA had been thrashed out.
That legislation was signed into law by President McAleese on Sunday.
Yesterday INBS chief executive Gerry McGinn confirmed in a statement to the society's staff that formal merger discussions will get under way this week.
He added that INBS chairman Danny Kitchen has written to EBS acting chairman Phillip Williamson to outline how best to proceed to formal discussions.
Speaking to journalists yesterday prior to an address to a conference in Dublin held by the Association of Compliance Officers in Ireland, Finance Minister Brian Lenihan said he had recently spoken to the board of INBS, and it had indicated its interest in discussions with EBS.
Mr Lenihan conceded that the Government will end up owning a large stake in the new business.
"It's clear from the quantity of assets which both Irish Nationwide and EBS have to transfer to the National Asset Management Agency that the State may well end up being a substantial stakeholder in any resulting building society," he said.
EBS is being advised by NCB and KPMG, while INBS is being advised by Goldman Sachs and law firm McCann Fitzgerald.
- John Mulligan
Irish Independent
