Why IL&P should buy Quinn
IRISH Life & Permanent was first out of the traps to indicate that it might be interested in purchasing some of the businesses being put up for sale by Bank of Ireland. However, such a deal would run into serious competition problems. Should IL&P be looking at snapping up Quinn Insurance from the administrators instead?
On Thursday, the Quinn Group dropped its legal challenge to the Financial Regulator's decision to appoint administrators to Quinn Insurance, with a sale of Quinn Insurance now the most likely outcome to this saga.
Then, on Friday, Bank of Ireland announced that it was putting a number of businesses, including life and pensions provider New Ireland, Bank of Ireland Asset Management and ICS Building Society up for sale. After the announcement IL&P lost no time in letting it be known that it would be interest in purchasing both New Ireland and Bank of Ireland Asset Management.
It's easy to see the attractions both New Ireland and BIAM hold for IL&P.
By combining its Irish Life Assurance, the country's largest life and pensions provider, arm with New Ireland, the number two in the market, IL&P would secure an utterly dominant position.
In 2008 Irish Life had 26 per cent of the life assurance market and 36 per cent of the pensions market, while New Ireland had a near 28 per cent share of the life market and almost 13 per cent of the pensions market. Combining these two would create a monster with 54 per cent of the life market and 49 per cent of the pensions market.
A deal that gives one company over half of the market is crying out to be blocked. Which is why, no matter how superficially attractive an IL&P takeover of New Ireland might be, it ain't going to happen.
However, it would almost certainly be a very different story if IL&P were to express an interest in purchasing Quinn Insurance. Any existing general insurance company with Irish operations acquiring Quinn Insurance would almost certainly shed a large proportion of its 2,800 staff as it sought to cut costs.
While the government and Financial Regulator must be hoping to persuade a foreign insurer without existing Irish operations to purchase Quinn Insurance, that may prove easier said than done. If that proves to be the case, then IL&P would also tick many of the right boxes. Apart from its 35 per cent shareholding in Allianz Ireland, it has no general insurance interests.
Not alone would an IL&P takeover save most of the jobs, IL&P would also almost certainly boost the chances of successfully offloading its mortgage banking subsidiary, Permanent TSB, a transaction that would also require regulatory approval.
The final compelling argument is that IL&P would pay a firesale price for Quinn Insurance now. However, with Bank of Ireland not committed to disposing of New Ireland and BIAM until the end of 2014, it could end up paying a very full price for these businesses.