First Active has suffered a 42 per cent drop in pre-tax profits from €26.6 million to €15.1 million in the first half of 2000 as intense competition and the cost of failed merger talks with Anglo Irish Bank hit profits. Announcing the results, newly appointed chief executive, Mr Cormac McCarthy, said the out-turn reflects "a very tough" period for the bank which has undergone sweeping management changes and rationalisation of its branch network. "We are in a very competitive market and we have taken steps to address issues which are facing us. There is still a lot of life in First Active," he said yesterday.

The shares closed 10 cents higher at €1.90 in Dublin following the results. First Active shareholders will enjoy a higher interim dividend than last year with the company paying four cents a share, up from 3.8 cents.

Lower interest rates and tighter profit margins in the mortgage market since the arrival of Bank of Scotland last year made a significant dent in First Active's bottom-line. It was also affected by the substantial costs incurred arising from its merger talks with Anglo Irish Bank earlier this year and severance payments to two former senior executives.

Together these payments amounted to €2.1 million and First Active has refused to disclose how this figure breaks down but says this will appear in its next annual report.

This includes a €1 million severance payment to former chief executive, Mr John Smyth. A second severance payment was also made to former deputy managing director, Mr Tony Shanahan, who left the company this year. The remainder is made up of fees to PricewaterhouseCoopers and corporate adviser JP Morgan which advised First Active on its negotiations with Anglo Irish Bank. Mr McCarthy said the results were in line with market expectations. Analysts are forecasting the bank will achieve pre-tax profits of around €40 million over the full year. Mr McCarthy said he was comfortable with that figure.

First Active estimates it maintained its 16 per cent share of the Irish mortgage market during the six-month period, with new lending up 45 per cent to €1.27 billion. It suffered some loss of business on the deposit side, with customer accounts down from €3.8 billion to €3.3 billion. Mr McCarthy attributed much of this to the loss of accounts where branches were closed.

As part of its restructuring programme the bank closed 25 branches and 90 agencies, reducing the workforce by 175. Mr McCarthy said this programme has now been completed and is on target to bring in €10 million in savings in 2000. Last week First Active announced the sale of 60 per cent of its UK business, First Active Financial, to UK insurance company Britannica for €120 million.