THE COUNTRY’S two building societies, the Educational Building Society (EBS) and Irish Nationwide, have commenced formal discussions on a potential merger.
EBS chief executive Fergus Murphy met his counterpart at Irish Nationwide, Gerry McGinn, yesterday, opening discussions after Irish Nationwide chairman Danny Kitchen wrote to Phillip Williamson, acting chairman of EBS, regarding how to proceed.
Irish Nationwide is understood to have raised the likely impact of a merger on 200 people employed across the building society’s 50 retail branches, as well as the branches themselves, and the society’s retail deposits of €4 billion.
The building society has also broached the subject of how the €8.3 billion in property and associated loans to be moved into the National Asset Management Agency (Nama) will be supervised.
Irish Nationwide is believed to be keen to assess the potential economic viability of an enlarged mutual comprising the two societies, and whether any merger – supported with Government capital – would secure EU approval under competition and state aid rules.
The building society’s advisers on the proposed merger, investment bank Goldman Sachs, have been asked by senior management at Irish Nationwide to weigh up the commission’s likely responses.
The subject of how members at EBS and Irish Nationwide will be treated in any merger will also be high on the agenda in the discussions between the two institutions.
Irish Nationwide is understood to be concerned about the treatment of the building society and its staff in the possible merger, given that EBS will be the larger party following the Nama transfer.
Mr Murphy has said it is likely that Irish Nationwide’s €2 billion in residential mortgages will be transferred to EBS after €8.3 billion in loans, or 80 per cent of Irish Nationwide’s loan book, are transferred into Nama.
EBS has said it will need about €300 million in Government capital after the transfer of €927 million in development and associated loans to Nama, and up to €100 million to absorb the €2 billion in loans from Nationwide.
Mr Murphy has said the Government may end up with a stake of between 40 and 60 per cent in the merged building society.
Irish Nationwide is estimated to need Government capital of at least €1 billion, and possibly in the region of €1.5 billion, due to losses on the transfer of the loans to Nama, according to sources with knowledge of the lender’s position.
The building society believes the Government could take a much larger stake, potentially up to 80 per cent, of any merged entity due to combined capital requirements of €1.5 billion to €2 billion facing both mutuals following Nama, sources said.
Minister for Finance Brian Lenihan has said that any State ownership of a merged building society would be “substantial” given the quantity of loans moving to Nama from the two lenders.
Mr Murphy has said agreement could be reached between EBS and Irish Nationwide by Christmas, and a merger completed before the last loans are scheduled to be moved to Nama by the middle of 2010.
Mr Lenihan has said he wants to create “a viable building society continuing to provide credit in the Irish economy”.
