Merger collapse creates vacuum

It's difficult to know whether to be happy or sad about the abrupt demise of the proposed alliance between Bank of Ireland and Alliance and Leicester.

On the one hand, there is no doubting that the markets and especially market analysts were deeply sceptical about the merits of the deal. Quite apart from the regulatory nightmare, they always felt the Irish bank was underselling itself in the terms of the deal and not just in its apparent willingness as majority partner to hand over the chief executive's position.

On the other, the bank's management now has a lot to do to persuade its shareholders that it has a viable alternative strategy. Recent talk of a share buy-back to assuage shareholder unrest should not be accepted as an alternative to a real strategy for growth by the bank. If it continues to get it wrong, it might find itself in play on the takeover market in due course, although a merger still looks the most likely outcome.

The failure of the deal indicates that we have yet to arrive at that point where cross-Border deals are the norm within the EU.

More interestingly, the deal has shown the changing nature of such sensitive negotiations. There seems little doubt that Alliance & Leicester initially leaked details of the merger with a view to maximising its negotiating strength. It also beat Bank of Ireland to the punch on the collapse of talks, while Bank of Ireland management were abiding by the old rules of the "gentlemen's agreement".