Merger of two oddballs will try to square lending circle
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THE tragedy about the proposed "merger" between EBS and Irish Nationwide is that it is no great tragedy for consumers although it remains a bitter pill for Irish Nationwide's 100,000 customers who had hoped to make a killing from demutualisation.
A decade ago, such a move would have meant the end to two useful, well-run organisations that offered real choice to consumers.
Things have gone so badly wrong in the past few years that nobody is likely to shed a tear when the ancient Irish Nationwide is effectively swallowed by an EBS that will soon be under government control and compete with other Irish and UK government-controlled lenders.
The two organisations are so different that melding Irish Nationwide's culture to that of the EBS would be like saddling a cow.
The 136-year-old Irish Nationwide is one of the leanest, meanest and best-run financial institutions in the country -- virtues overshadowed by absolutely disastrous lending policies.
The 74-year-old EBS, which has around four times as many customers, has traditionally been as straight-laced as the teachers it was set up to serve back in 1935, but unfortunately junked its demure demeanour about two years ago to start acting like a sailor on shore leave.
Perhaps the most telling cultural difference is that the EBS' cost-to-income ratio is historically about three times higher than Irish Nationwide.
It speaks volumes about the problems for whoever is left with the unenviable job of merging the two cultures and closing down offices in towns and cities across Ireland.
EBS will get a small dowry from Irish Nationwide of around €6.8bn in deposits and €2.5bn in residential loans, but this forced marriage will be another blow to home buyers looking for mortgages as Irish Nationwide and the EBS traditionally served different markets.
Nationwide's unorthodox lending policies saw loans extended to borrowers with ropey credit histories for a price.
The EBS traditionally aimed for the other end of the market, offering cheapish mortgages to safe bets such as teachers and guards, but this changed in recent years as the society's mortgages became uncompetitive and it invested in all sorts of unsuitable borrowers such as rogue solicitor Thomas Byrne and failed Icelandic bank Kaupthing. It will be impossible to keep both of these original cultures alive within one bank.
A group who may well feel sore this morning will be a portion of the 100,000 or so account holders with Irish Nationwide who had hoped for several years to benefit financially from demutualisation.
The €12,000 to €20,000 benefit that would allegedly accrue to each member had always been much exaggerated, but there is little doubt that members would have received some cash had Irish Nationwide's board managed to deliver on its promises to demutualise Irish Nationwide and then sell it to a foreign institution.
It hurts now to remember that the board told shareholders in 2005 that it was "fully committed to demutualisation" although the process has to be managed in a "prudent, professional and orderly manner".
As ordinary taxpayers face the prospect of once again bailing out two reckless financial institutions, it is hard not to bitterly regret that both EBS and Irish Nationwide were not sold to their unsuspecting suitors at the height of the boom, rather than being handed over to the taxpayer as damaged goods in the depths of recession.
- Thomas Molloy
Irish Independent
