A merger between Bank of Ireland and the UK former building society Alliance & Leicester signals a major shake-up in the Irish financial services sector. If the deal which is currently on the table is successfully concluded the Republic's second biggest bank will be headed by A&L's chief executive, Mr Peter White, and will become part of a group which is firmly targeting Britain for growth and expansion.
Such a phenomenal shift in the power-base of one of Ireland's major banks was unthinkable five years ago but almost certainly sets the scene for further consolidation and international mergers for Irish banks. The creation of the euro zone this year opened the way for cross-border mergers across all sectors. Merger mania has already taken a grip in continental Europe, particularly in the banking sector. New alliances are rapidly being forged - particularly between major players within major markets. But most analysts had predicted that it would take some time for this to filter through to these shores.
Against this background Bank of Ireland has certainly taken the market by surprise. And while the bank's group chief executive, Mr Maurice Keane, has made no secret of its ambitions to expand in the UK, the scale of its latest foray was unexpected.
Some analysts had been suggesting Bank of Ireland's next move would have to be big. It certainly has plenty of surplus capital to spend and has been searching around for the right acquisition for many months now.
Mr Oliver O'Shea, financial analyst at Goodbody Stockbrokers, says it has been obvious for some time that the bank was no longer happy to be a niche or a regional player. It has been anxious to achieve a substantial presence in the UK market and given the pace of consolidation across Europe there was no point in considering adding on small acquisitions. In part, the merger is a defensive move by Bank of Ireland. It offers some degree of control over its future, rather than counting the days before a major player launches a takeover bid.
It is also very familiar and comfortable operating in the UK market. Its Bristol & West subsidiary has contributed handsome profits since it was brought into the bank's stable and the outlook for the UK economy is strong for the medium term.
Together Bank of Ireland and A&L will become one of the biggest financial institutions in that market. It will be a formidable force with huge cash resources and is expected to aggressively expand its market share there in the years ahead.
The addition of the A&L network will give Bank of Ireland a much wider network through which to push its range of products. Substantial savings will also be available through rationalising the areas where A&L and Bristol & West both operate, mainly in southern England.
Initially, the merged institution is likely to target Britain for further expansion. A further cross-border move could also be on the cards in the longer term, with potential for the combined entity to link up with a continental European player within the next five years.
Within the Irish financial services sector, the merger immediately turns the spotlight onto AIB. The market will now be closely watching the Republic's biggest bank to gauge its response.
AIB has signalled an interest in gaining market share in the UK but has yet to make its move. The bank currently has a presence in the small business banking market there and has from time to time been mentioned as a likely bidder for various institutions there.
Mr O'Shea says that Bank of Ireland, through Bristol & West, has had a base from which to set up something like the A&L deal, giving it the edge over AIB. "Going into that market it is hard to get something of significant scale which doesn't cost the earth. Bank of Ireland though has now shown the way."
The merger also has ramifications for the newly merged Irish Life & Permanent and may heighten international interest in the bank assurer. It also creates a very different market place for a newly-merged TSB and ACC Bank when it floats on the Stock Market next year. This deal is undoubtedly a precursor of many more alliances which will radically alter the face of Irish banking. The only question is what deal is next?
