The deal with Royal Bank of Scotland came as a surprise to many and staff at the Irish institution are feeling a bit uneasy, writes Siobhán Creaton, Finance Correspondent

A few short weeks ago First Active's chief executive, Mr Cormac McCarthy, negotiated a new deal with SIPTU, the union which represents 400 of its employees.

Around the same time, he was doing media interviews saying that the former building society could remain independent and was not immediately vulnerable to a takeover bid.

We can only speculate that he must have had his fingers crossed on both occasions for Royal Bank of Scotland was certainly lurking with intent by then.

There was nothing hostile about its approach. Both sides insist that the Scotsmen's overtures were made through a "social contact", leaving us to wonder did it take out its €887 million cash wad on the golf course, at a race meeting or over dinner?

Whatever the circumstances, First Active's board of directors quickly decided to shake hands on it. The offer was worth €6.20 per share to its investors, some 33 per cent more than their shares were trading at last week.

It was a good price and so it was agreed that First Active would be sold to Royal Bank.

The deal, when announced on Monday morning, was a shock for its 673 staff. SIPTU official Mr John Swift said there hadn't even been a "decent rumour" about the place.

SIPTU represents First Active's clerical staff and, while they stand to gain handsomely on their First Active shares, the news is being initially greeted with much trepidation.

Since Monday, Mr Swift said there has been a rush of people, particularly at First Active's head office, inquiring about joining the trade union. And with good reason.

Royal Bank's chief executive, Mr Fred Goodwin, came to Dublin to announce the acquisition. The man, known as "Fred the Shred" for his cost-cutting ways, didn't attempt to conceal the fact that jobs would be lost when it merged First Active's business with its Irish subsidiary, Ulster Bank. The number of redundancies was likely to be in the "hundreds" he added, saying this was relatively small in the context of the 5,600 it now employed in Ireland.

"We don't view this as a good development. Royal Bank is seen as being hostile to unions. The Irish Bank Officials Association had a very difficult time at Ulster Bank," Mr Swift said.

SIPTU will meet with First Active's management today and is seeking an undertaking that the conditions of its employees will be protected, together with a written assurance that there will be no compulsory redundancies and no deterioration in the terms of employment or remuneration when they move to Ulster Bank.

"If we don't get those assurances soon, we will ballot for industrial action," he warned.

Mr McCarthy, who spearheaded a radical restructuring of First Active's business over the past couple of years that has involved hundreds of job losses, has a good relationship with SIPTU and is sympathetic to his staff's concerns.

"Some of our staff are concerned, and rightly so, but we are working with them through this. If you listen to what Fred Goodwin said, he has been very strong to point out that they are buying this for growth in the long term.

"Not withstanding any overlap in the back end of both businesses, there would be an expectation that growth would potentially lead to more opportunities and more jobs in the front end of the business."

Mr McCarthy said it had been strongly impressed upon him by his new colleagues that there were more people working in National Westminster Bank now than when Royal Bank purchased it three years ago, with most working in sales jobs.

"There is no riding instruction that every job saved will come from First Active. That is not the way they are approaching it and that's not the way we believe it will happen. This is sensitive and difficult for people but we hope to get that dealt with as quickly as possible," Mr McCarthy said.

The takeover must still be approved by shareholders and the regulatory authorities but it is expected to go through.

Shareholders are likely to vote for it and those who got free First Active shares when it floated on the Dublin and London stock exchanges five years ago this week stand to gain between €3,000 and €6,000 from the transaction. Those who qualified for 495 free shares will have received a gross return of €3,853 over five years while those who got 990 free shares will see their returns swell to €7,706. It will be a nice windfall.

If things go according to plan, First Active will become part of Ulster Bank in January 2004 although the two brands will continue to trade separately for the time being.

The two banks have a total of 262 branches, and many of these are in the same towns or located close to each other. In time, it is not inconceivable that First Active and Ulster Bank will share branches, using the First Active brand to sell mortgages and Ulster Bank to sell its services to the small and medium-sized business sector.

Royal Bank has achieved much of its low-cost base by centralising processing and administrative businesses. The bank has considered moving parts of its Irish operations to London and is said to be close to completing systems in Scotland that would handle mortgage processing in the Republic and Northern Ireland.

Mr McCarthy said it would be business as usual for First Active for the next few months but, in the long run, it would benefit from a wider range of products and better technology.

"There is a huge potential and we want to keep moving forward, focusing on mortgages, savings and investment at the high end.

"If I look even further down the line, I can't say for sure but I know that we can definitely grow this business significantly."

Mr McCarthy believes the last thing that the Royal Bank will want to do is cramp First Active's style.

"They have been saying that they like what we do and want to preserve the brand, the branch structure, the distribution engine," he said.

"I am genuinely excited about the deal. It will be good for the people in the company. It is already good for shareholders and will be good for customers," Mr McCarthy added.