The union proposal that the ACC and TSB banks be merged and floated on the stock market is being reconsidered by the Minister for Finance. The latest development follows an approach to Mr McCreevy last week by the TSB trustees, indicating interest in a merger.

The merger proposal came from the three unions at ACC Bank - ATGWU, SIPTU and MSF.

In a strong statement in the Dail yesterday, Mr McCreevy rejected a media report that he had already approved the proposal to merge the banks.

"I would like emphatically to refute suggestions in the media that I have already approved this proposal. I have not ruled it in or ruled it out. In fact, I have a completely open mind on this proposal and I propose shortly to seek Government approval to enter into discussions with the boards, managements and staffs of both banks in relation to it," he said.

Mr McCreevy explained that he could not "realistically address" the merger proposal in advance of an indication of interest from TSB because TSB's unique legal status requires that the trustees initiate any change in the bank's ownership or structure.

Now that this interest has been expressed he can assess the proposal.

TSB chief executive, Mr Harry Lorton, said yesterday: "If the Minister is interested, the next step would be for the respective boards and management of the banks to sit down and see if there is a credible business plan for a merged operation."

He emphasised that TSB had not had any discussions with ACC. "Clearly we are interested. We think it presents a reasonable opportunity for both banks."

Mr McCreevy informed the ACC chairman and chief executive this week of TSB's interest and indicated to them that he was now reconsidering the union proposal.

The Minister may decide to seek advice from corporate finance experts specialising in the banking market.

In its proposals to the Minister, the ACC board and management recommended the sale of the bank or a significant stake to an international bank.

ACC chief executive, Mr John McCloskey declined to comment yesterday on the meeting with the Minister. A Department spokeswoman said that no merger proposal had been submitted by TSB.

So far, TSB had only reacted to the union proposal, she added.

The union merger proposal envisaged that 5 per cent of the shares would be given to employees with a further 9.9 per cent made available for purchase by staff, giving them a 14.9 per cent stake. But the union proposal ruled out any compulsory redundancies. Both banks are relatively high-cost operations and, in a merged operation, there would be some overlap of branches - some sources suggest about 30 branches out of a merged network of 130 - as well as two administrative and back-up teams.

Some reduction in costs would be required to ensure the viability of the joint operation. An employee share scheme in return for a productivity agreement together with a voluntary redundancy scheme may provide a route to cut costs in a merged operation.

In the Dail, Mr McCreevy said his decision on the future of the State-owned ACC and ICC banks, which has been considering since last year, is being made against the background that small stand-alone banks face an increasingly competitive market.

This competition would intensify with Ireland's accession to EMU, Mr McCreevy said.