ANALYSIS: The recovery in its share price as its Abbey National bid floundered takes some of the immediate pressure off as it makes Bank of Ireland expensive for any suitors, writes Siobhán Creaton

Bank of Ireland has finally accepted defeat. Yesterday it formally abandoned its efforts to woo Abbey National leaving investors to hope it has a convincing Plan B.

It's been a rough 10 days for the Republic's second-biggest bank and particularly for chief executive, Mr Michael Soden.

His proposal to take over Abbey National and join the major European banks failed to impress investors from the start. It was unfortunate that the details of its approach were leaked to the British media at a tentative stage, making it very difficult for a deal to be agreed.

It was obvious that Abbey National did not want to get involved with Bank of Ireland. Its board hastily rejected the proposal. One British newspaper quoted a source close to the former building society as saying that the directors basically discussed how to say no "nicely".

It was always going to be difficult to persuade them to talk but more crucially, as far as the markets were concerned, what chance did Bank of Ireland have of extracting the maximum value for its shareholders in the midst of such hostility?

But Bank of Ireland persevered and took the unusual step of issuing details of its proposal to the stock markets in a last-ditch attempt to persuade the institutions to force Abbey to engage.

It managed to save face to a degree by showing that it had in fact offered Abbey National shareholders a premium and that it did envisage substantial cost and revenue synergies could be achieved. But it was a futile exercise. The markets had written it off many days previously. Bank of Ireland shares enjoyed a "relief rally" even though Mr Soden was still meeting investment institutions to sell the deal.

The major institutions seem to be relieved that the matter is closed. One told The Irish Times this week that Bank of Ireland would be better to buy its own shares to defend itself against a hostile bid.

Some fund managers said they were more reassured about Mr Soden's motives. The chief executive explained that the bank had seen an opportunity to become a major European bank and had seized it. "You can't blame him for trying to do this deal," one fund manager said. A Bank of Ireland source described the meetings as "challenging".

The overwhelming view in the markets is that Bank of Ireland now believes that it needs to be a much bigger bank if it is to sustain its growth momentum. As one fund manager said this week, Bank of Ireland cannot stand still. It will have to make an acquisition or risk being taken over itself.

The approach has also highlighted the weakness of its Bristol & West subsidiary in the UK which is now seen as a drag on the group's earning potential. Its share price has recovered well which takes some of the immediate pressure off as it makes Bank of Ireland expensive for any financial institution that may be eyeing it up.

Mr Soden will be expected to deliver on his promise to cut costs and deliver strong growth when the bank next reports results. And Abbey National has not exactly covered itself in glory. Its shareholders have used the past week to firmly tell the board that it should not lightly dismiss proposals that could be attractive to them.