The bid by Spain's Santander Central Hispano for Britain's Abbey National, the largest cross-border takeover in European banking, may well prompt some long-awaited consolidation in the sector, analysts said yesterday. Jane O'Sullivan, Markets Correspondent reports.

The wave of cross-border European bank mergers that was widely expected to follow the 1999 introduction of the single currency has so far failed to materialise, in large part due to the perceived lack of cost savings available.

But Santander's £8 billion sterling offer for Abbey, which rebuffed an approach from Bank of Ireland two years ago, may well force other large European banks to consider their strategic position. In time, this could lead the larger players to turn their attention to the Irish market.

"There is a general belief that at some point, the Irish banks are likely to receive an approach," said Mr Scott Rankin, banking analyst at Davy Stockbrokers. "This will further the view in people's minds that this is likely to happen."

However, Mr Rankin, in common with other banking analysts, believes that any merger and acquisition activity triggered by the Santander move is likely to focus on the larger European markets at first, leaving smaller markets on the sidelines for the time being.

Irish banking stocks are not pricing in any takeover activity just yet and showed little reaction to yesterday's announcement.

AIB and Bank of Ireland closed modestly higher while Irish Life & Permanent, seen by many as the most likely target of the leading financial institutions, added 15 cents or around 1 per cent to its value.