Davy Stockbrokers predicts at least one of the big three Irish banks - AIB, Bank of Ireland and Irish Life & Permanent - will merge or be taken over in the next few years.
Mergers between AIB and Royal Bank of Scotland, Bank of Ireland and National Australia Bank (NAB) or Bank of Scotland, or between Irish Life & Permanent and either AIB or Bank of Ireland offer the best combinations for shareholders, it says.
In a new report, Davy suggests the Irish banks are unlikely to receive unsolicited approaches from international banks until consolidation has been completed in Europe. Overseas attitudes to the Irish economy could also have a bearing on the timing of such a move.
The one thing that might accelerate the timetable would be discussions between two medium-sized players such as Bank of Ireland and Bank of Scotland or NAB's UK operations but Davy believes this would still need to contain strong merit to persuade shareholders to forgo a bid premium.
There is also the possibility of Irish Life & Permanent linking up with AIB or Bank of Ireland although this would raise some competition issues.
"The success or failure of an acquisition or merger flows from the confluence of a whole host of factors. Such a deal provides only the opportunity to create value for shareholders; the right partners and successful execution are necessary to deliver it. If we are to judge from recent experience, the record of international banks is not great in this regard," according to Davy analysts, Mr Scott Rankin and Ms Emer Lang.
They state that AIB is probably least likely to be amenable to a takeover or merger having developed a substantial presence in the British, US and Polish economies. It is more likely to complete another acquisition in the US rather than a deal that would involve its management ceding independence, according to the report.
Bank of Ireland's options in Britain have narrowed now that Bank of Scotland and the Halifax are negotiating a merger. That puts its management team under pressure to pursue more radical measures, it states.
